New Trend or Symptom? PH Property Boom Stokes fears of bust
Inquirer.net by Daxim L. Lucas, 12-28-2014
First of a series
Sept. 22, 2014, was a date the officials of the Government
Service Insurance System would not soon forget.
A few weeks earlier, the state pension fund had solicited bids
from would-be buyers from the private sector for its two prime lots
in Bonifacio Global City in Taguig as part of its efforts to
monetize its investments.
Its officials were hoping for a good showing from bidders. After
all, just a year before, its state-run cousin, the Social Security
System, sold a similar prime lot nearby at a "good price," which
was P277,000 per square meter.
When the bids for the two GSIS lots were opened, however,
everyone at the fund-and soon, everyone who read the news about
it-were stunned in amazement.
Two separate groups had submitted bids of P800 million and
P732.8 million for each of the 1,600-square-meter properties. This
meant the GSIS properties were sold at the equivalent of P500,000
and P458,000 per square meter-a new record that was almost double
the previous level set by the SSS transaction.
"This got us wondering: Are the prices too much?" said Antton
Nordberg of real estate consulting KMC MAG Group.
"Sure, the prices can be justified by virtue of the fact that
the lots are in a prime location," he said in a research note.
"They are located right in the heart of BGC, a few meters away from
major retail developments, as well as high-rise offices and
"However, this might not be enough to justify how the price
skyrocketed by 80 percent in a year," Nordberg warned.
The GSIS property deal made observers verbalize a question that
had been quietly nagging them for several months: Was the
Philippine property market in a bubble that was set to pop?
The question is especially relevant since the local real estate
market has been one of the biggest beneficiaries of the
"quantitative easing" program of the US Federal Reserve coupled
with the investor confidence-boosting policies of the Aquino
Path to disaster?
And developers of both office and residential properties have
benefited immensely from the twin stimulus effects.
Market watchers who were around two decades ago noted that
similar conditions were present in the months leading up to the
1997 East Asian financial crisis-a wave of liquidity sweeping
across so-called "tiger economies" coupled with the pro-business
stance of the Ramos administration.
Is the Philippines walking the same path to disaster it once did
almost 20 years ago, or has it learned from its mistake?
As with trying to divine the direction of bullish markets,
however, there were more questions than answers.
He asked, "What is the motivation of the buyers for this
property?" "How did they value the property and decide how much to
offer? What are the implications of this transaction? Is this the
start of new trend or a symptom of the looming asset bubble?"
Justifying the P500,000-per-sqm price on the GSIS deal would
mean that demand for office property and rental rates is expected
to go up further.
And, as in any bull market, investors must exercise caution and
examine carefully whether prices remain rational and backed up by
Nordberg said his best estimate for the current fair market
value of similar properties in BGC should be around P290,000 per
sqm, which is just slightly higher than the SSS transaction price
made a year earlier.
"If the underlying demand for properties (such as favorable
demographics or the business process outsourcing industry) is
expected to exceed supply, then the faster growth can be
justified," the KMC MAG Group manager said. "However, the
million-dollar question here is that, is the underlying demand that
strong that it would justify an 80-percent price increase of land
The property consultant concluded: "If you forecast the market
conditions a few years ahead, well, no."
(To be continued)