The inevitability of price increases

by Steve Van Derodar

| Photo from Seedly.sg

It is often said that the only thing permanent in this world is change. In real estate, price increases speak of the same. Where properties earn value constantly, price increases are directly affected by time, use, and development. It is a continuous process as capital appreciation is inherently a character of a good property.

Particularly in new inventories, where condominium projects abound, expect that from initial price offering, price per square meter will be different when bought from the time of availability to the time it sits on the market.

Not to be confused with pre-selling, a pre-selling condo is a condo being sold before its completion, during its construction, or while still in the planning stages. These mean that the property still does not exist and the developer is yet to break ground for the project, prices can go up many times over throughout its development. Even then, after its full completion, it still accrues price increases as property values continue to appreciate.

Though not all developments are created equal, certain properties command price increases as market demands and how its performance plays in the market with few distinct considerations such as property market drivers and fiscal inflation.

For Housing.com, the term ‘market drivers’ refers to all and any developments in an area that positively impact the desirability and convenience of living there. These can include: the development of new office complexes in the area, the arrival of a shopping mall or hypermarket, the proximity of educational institutes and hospitals which reduce traveling time to such important establishments, zoning regulations in an area that prevent excessive development from happening to cause further densification; thereby, preserving the available open spaces, greenery and overall ambience of the location, public transport facilities which ensure that the location is accessible by road, rail or even air, any new infrastructure projects which boost the overall quality of living in the location, such as flyovers to reduce traffic congestion, water reservoirs, etc.

“Price increases are not to be feared as it reflects value. It is market dictated. It can mean higher cost of acquisition and may impact affordability but can also mean higher yield for rentals or resale.”

Inflation continues to make prices go up to meet the increasing costs of manpower, supply, and services. Across the world, property values are affected by inflation. Housing prices tend to rise with inflation.

Price increases are not to be feared as it reflects value. It is market dictated. It can mean higher cost of acquisition and may impact affordability but can also mean higher yield for rentals or resale. Different investors have varying attitudes toward investments from pre-selling preference to when the property is ready for occupancy. Most big developments however are largely sold out before the building gets completed.

Being in the business for many years, I have personally seen price increases of under construction properties performing by 30% to even 50% for very few properties from its pre-selling price by the time it’s delivered. Pre-selling prices are the best prices to buy to attain its maximum capital appreciation. On another hand, I have also seen Ready for Occupancy properties accumulated value over time. I could illustrate a few samples of condo prices from a ten-year period that the price has significantly increased if not doubled. Truth of the matter, the P2-3 million from 10+ years ago could no longer buy you a studio, and parking alone costs P2 million in Makati Central Business District these days.

“Location is a major factor for higher price increases due to zonal values which is part of the property market drivers but also include demand and supply, fiscal inflation, cost of borrowing (interest rates on home loans), etc.”

Location is a major factor for higher price increases due to zonal values which is part of the property market drivers but also include demand and supply, fiscal inflation, cost of borrowing (interest rates on home loans), etc. Price increases reflect the business marketing or selling proforma of properties on market and is an expression of property appreciation. Obviously in Manila, the higher the zonal value, where the Central Business Districts are located, the higher values of properties are.

What to expect in 2021 with the housing market? In its November article, Inquirer.net reports: “Residential take up remains robust, buoyed by OFW remittances and rise in spending power. The mid-income category (condominium and house and lot units priced from P3.2 million to P6 million) remains as the most attractive segment in the market. The growing interest from foreign investors and developers has been instrumental in raising prices in the market. Joint venture projects with foreign firms are among the more expensive in the market but take up is strong. Colliers sees these partnerships thriving as foreign companies are enticed by sustained yields Manila’s stock should expand to 152,000 units by end 2021, a 28 percent rise from about 118,900 in 2018.”

“Whether we like it or not, price increases are a natural business phenomena. Price increases signal growth in both location and type of property. It can also predict its future performance and rental yield.”

As the Philippines is considered one of the world’s largest remittance recipients, with P10.2 million Philippine Overseas Foreign Workers (OFWs) living and working in 210 countries and territories worldwide, it enjoys high remittances allowing the prospect of continued residential construction activities, 47% of them permanent migrants, 41% temporary, and the rest “irregular migrants”. Among the permanent overseas Filipinos, 65.2% live in the US, followed by Canada (13.1%), Europe (7.1%), Australia (6.8%), and Japan (3.4%).

Whether we like it or not, price increases are a natural business phenomena. Price increases signal growth in both location and type of property. It can also predict its future performance and rental yield. Plan on your investments well to meet your investment goals and achieve profitability.

(Stevenson’s experience in Philippine Real Estate spans more than 15 years. He has been involved in horizontal, vertical, vacation and commercial properties. He has worked as an International Property Specialist to markets in Asia, Europe and North America with Ayala Land, Federal Land and Century Properties. Through PhilHouseHunters, he offers real estate investment opportunities, marketing, and consultancy with a key focus to Metro Manila and Mega Cebu areas. Visit www.philhousehunters.com. Email at derodarsales@gmail.com.)

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