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OK then, why does it take so long to sell a piece of real estate?


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hchoate

I'm told one should count on it taking a year or two at least to find a buyer for a particular piece of real estate - which implies high supply or low demand.

 

But, prices seem very high- which implies low supply or high demand.

 

Logically both of these cannot be true- unless the law of supply and demand is somehow being ignored.

 

Well, it is the Philippines.

 

Why do I get the feeling that many may be paying way too much?

 

Anybody have insight to share regarding negotiating a realistic price, in real estate specifically?

 

I know 'do not be a foreigner' is the golder rule.

 

 

 

 

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Much of the raw land here is owned by pinoy who set the price high and are willing to wait years and years for a buyer hoping that someday a foreigner will come along with deep pockets and maybe not s

It does not take long to sell the right house at the right price.  I know 2 individuals (foriegners) in Cebu (and then there is a rumor of one in Davao) who make a living here by building and selling

The only land deals in the Philippines are those purchased from desperate sellers. 

SkyMan

Much of the raw land here is owned by pinoy who set the price high and are willing to wait years and years for a buyer hoping that someday a foreigner will come along with deep pockets and maybe not so much smarts.  It's not so much supply and demand as it is PT Barnum's principal of a sucker being born every minute. 

 

 

Anybody have insight to share regarding negotiating a realistic price, in real estate specifically?

Well, one thing that helped me negotiate was a little psychology.  Land prices here are given in the per sqm price to make the price sound low.  For in stance a 3,000sqm lot selling for p1K per sqm.  p1K sounds like nothing right?  Hey, I've got that in my pocket right now, no problem.  But that's p3M for the whole lot.  If you counter offer p900 per sqm they might take it or might not, but if you counter with p2.7M they would be much more likely to take it.  In other words, they are giving the per sqm price to sound like it's a small amount so you counter with the total price so it sounds like a large amount they can't refuse.  P2.7M, wow, that's a lot, but p900 per sqm, ahhhh, no thanks.
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smokey

I'm told one should count on it taking a year or two at least to find a buyer for a particular piece of real estate - which implies high supply or low demand.

 

But, prices seem very high- which implies low supply or high demand.

 

Logically both of these cannot be true- unless the law of supply and demand is somehow being ignored.

 

Well, it is the Philippines.

 

Why do I get the feeling that many may be paying way too much?

 

Anybody have insight to share regarding negotiating a realistic price, in real estate specifically?

 

I know 'do not be a foreigner' is the golder rule.

your misguided most of the real estate is so far out of the people CASH accts its not funny who would be interested in buying a house with 50% down and the rest a loan at 30% interest anyone?? most of the houses owned by foreigner were build for cash so that is how they are sold... not many have a few hundred thousand us in their checking accts..
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thebob

The very low turnover rate for real estate is because the market is only available to locals. Investment isn't part of the equation, buyers are more than willing to wait for "rush sales" to buy at pennies on the dollar, sellers who aren't in need of the cash will hold out for their given price, however unrealistic it may be.

 

There are many pitfalls to setting up a corporation to buy land, and you are at the mercy of the courts who hand down very random rulings, with no consistency whatsoever.

 

Rent or lease and wait for the piece of land that you will keep until you die. Or just stay in a rented or leased place, that is where the cost /performance ratio is best.

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SirMadrigal

From my current research in the real estate markets in Cebu (Especially in the IT park) the prices are so grossly over inflated they are laughable, I smell a major Real Estate bubble brewing in Cebu, there are so many condos for sale right now in the Lahug area and they have a plethora of new constructions still slated to be built.

 

My guess is that in about 2 years from now there are going to be a lot of empty buildings as well as many a firesale condo in Lahug.


 

Research
Alert | Philippines | BSP on hold for now
Emerging Markets | EM Alert | Asia
25 Jul 2013

EM_Alert_Asia_25Jul13.pdf



 

With risks of overheating and a likely build-up of price pressures the
BSP has left the policy rate and the Special Deposit Account (SDA) rate
on hold. This was in line with our expectations and the Bloomberg
consensus. We believe the BSP will embark on a hiking
cycle starting Q4 this year.

 

The BSP has left the policy (reverse repo) rate at 3.50% and the Special
Deposit Account (SDA) rate at 2.00%. It cited significant risks from
the uncertainly surrounding the tapering of QE by the Fed and the
inflation outlook for this decision. The BSP has
raised its 2014 inflation forecast to 4.0% (from 3.6%) and the 2013
forecast to 3.3% (from 3.1%) as a result of utility (railway fare and
water) price hikes expected over the next few months. We believe other
domestic factors also played a role in today's
decision.

As we noted in our
report, the Philippines is showing signs of overheating. The economy
has grown above trend for a year on the back of a booming construction
sector. The credit and output gap have widened in tandem for the first
time (Figure 1) and loans to the real estate
sector have increased 25% yoy on average for four years (Figure 2).
Valuations, specifically in the real estate (Figure 3) and equity
markets (Figure 4), are starting to look stretched despite the
correction induced by the reversal of portfolio inflows over
the last two months. At the same time significant additional liquidity,
generated by withdrawals from the SDA, is likely to inflate asset
prices further.

Nearly 11% of the funds parked in the SDA – equivalent to 2% of GDP –
have been withdrawn since the account hit a peak in early April (Figure
5). This is a result of measures taken by the BSP in a bid to bring down
the costs of its sterilisation programme.
Specifically these measures are:
 

  • The SDA rate has been lowered 150bp starting January this year.
  • Investment
    management funds (except unit trust funds) were banned from placing
    money in the SDA in May. These funds had been allowed to use the SDA
    facility in 2008 by the BSP. However, considering that a majority of the
    close to PHP2.1trn (18.2% of GDP)
    of their assets were placed in the SDA, the size of the account had
    increased rapidly. The central bank has mandated a 30% withdrawal by
    July 2013 and 100% by November. No new funds will be allowed to enter in
    the interim.


Therefore, considering the threat of overheating, the conditions of
expanding liquidity and the inflation outlook, we continue to believe
the policy and the SDA rates will be hiked starting Q4 2013.

Edited by SirMadrigal
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smokey

Much of the raw land here is owned by pinoy who set the price high and are willing to wait years and years for a buyer hoping that someday a foreigner will come along with deep pockets and maybe not so much smarts.  It's not so much supply and demand as it is PT Barnum's principal of a sucker being born every minute. 

 

 

Well, one thing that helped me negotiate was a little psychology.  Land prices here are given in the per sqm price to make the price sound low.  For in stance a 3,000sqm lot selling for p1K per sqm.  p1K sounds like nothing right?  Hey, I've got that in my pocket right now, no problem.  But that's p3M for the whole lot.  If you counter offer p900 per sqm they might take it or might not, but if you counter with p2.7M they would be much more likely to take it.  In other words, they are giving the per sqm price to sound like it's a small amount so you counter with the total price so it sounds like a large amount they can't refuse.  P2.7M, wow, that's a lot, but p900 per sqm, ahhhh, no thanks.

now what are you going to build on your 2.7 million peso lot to make it worth the cost of the land
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hchoate

 

buyers are more than willing to wait for "rush sales"

 

OK, so this means there is low demand- at a realistic price.

 

 

sellers who aren't in need of the cash will hold out for their given price, however unrealistic

 

And this means there is low supply- at a realistic price.

 

The common factor being that everyone is willing to just wait- until their imaginings come true. I guess the law of supply and demand does assume rational actors.

 

I imagine the psychology goes something like- if you come right out and say you are in the market to buy or sell you are already seen to be at a disadvantage; that is, if you want to sell you must be willing to eventually come down on your price so why buy now and if you want to buy you must be willing to pay more than you say- whatever that is.

 

 

prices are so grossly over inflated they are laughable

 

I had that feeling as well which prompted the OP- but I am not sure that cannot continue for longer than I will be alive.

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SkyMan

 

From my current research in the real estate markets in Cebu (Especially in the IT park) the prices are so grossly over inflated they are laughable, I smell a major Real Estate bubble brewing in Cebu, there are so many condos for sale right now in the Lahug area and they have a plethora of new constructions still slated to be built. My guess is that in about 2 years from now there are going to be a lot of empty buildings as well as many a firesale condo in Lahug.

 

I don't know about that.  It seems like quite a bit of development goes on from the very, very rich who can weather long drought periods.  My last trip to Manila we flew in over land and the landscape was covered with subdivisions.  All roads laid out with a gate/entrance area and then fanning out to provide access to all the lots.  Most had no more than 3 houses and no other construction going on.  Some only 1 house.  Property tax is next to nothing so they sit there and wait for someone willing to buy. 

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SirMadrigal

I have good friends who are Analysts at RBS and another good friend at HSBC, both worked in the Asian market divisions and they keep cautioning me against buying real estate in the PH right now, they cautioned me away from China as well a couple years ago and they saved my arse as the deals we looked at have plunged in value.

 

The only thing I can say is that they are way smarter than I when it comes to Finance in Emerging markets, the one thing they did say was boutique small hotel / holiday rentals on islands like Boracay (if you can get in) is still a very good play because you are catering to Foreign tourists and wealthy vacationing Filipinos and it is not as reliant on sales of property per say.

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JasonEcos

Mostly its pure greed that is dictating the prices.

 

In some cases a piece of property is owned by so many family members its not worth it for them to sell it. Hazels family owns several pieces of land on Mactan, one of which is worth like 160million peso based on p4k/meter (common price on Mactan). Which is a small fortune.  However it is still in the grandfathers name so it is equally divided among the grandparents siblings (6), then the 1/6th portion is divided among the grandarents siblings children (7), then the grandchildren divide it amongst siblings (5). So in her case she gets only 760k out of p160mil. Then theres the headcahes of getting the titles taken care of, the property potentially divided, etc. Most of them just aren't in that big of a hurry to go through the headaches for that small of an amount.

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hyaku

I struck lucky with neighbors land as they wanted to pay off debts. But the most she could do was sign her name. Took my wife two years to proccess. Then if you title it's not transferable for ten years. We were and still get offered more adjoining land. Thing is if you don't build or farm there's no point. There are better ways of making a quick profit.

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mikewright

From my very limited experience, it seems to me that different factors are involved in the sale of real estate in the Philippines than in say Australia.  In Australia, a developer is often geared to the max. They borrow money to buy the land, put in the infrastructure, build the properties and then look for quick sales to make money.  If demand or property prices fall, they have no choice but to sell at a lower price, or the interest and ongoing costs or loss of value on the land will cripple their business,

 

In the Philippines, in the limited examples I've seen, it's a different business model. Developers do business with the land owners. A land owner provides the land, on which the developer builds his development. The owner and developer make their own business arrangements as to how the profits are to be divided. Provided a few of the properties are sold there seems to be enough capital available to keep things running smoothly for the owner and the developer.

 

As an example, there is in one particular gated community development in Cebu, consisting of villas, townhouses and "cuadrillas" (one building with 4 apartments built around a small courtyard), started about 8 years ago. Although some of the original villas and apartments have not been sold, prices within the development have risen considerably over the 8 years since the project started, in fact almost doubling in price.  And the developers are currently developing the adjacent block of land with further townhouses.  Can only assume that the business model works for them, and that they are happy to wait for the potential capital gain rather than sell cheaply.

 

I guess that any current owner wanting to sell quickly could do so by undercutting the developer's price, but for some reason there have been very few people selling. But as no foreigners can purchase here, and the properties are expensive, I guess there would be a very limited market and there would have to be a substantial discount for a quick sale.

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smokey

maybe there will be a bubble in condo that are financed but you can forget a real estate bubble in housing condo are usually 100,000 peso plus a sq meter houses are 25, to 35,000 a sq meter so there is your bubble and houses are cash and property tax is 600 us a year for a large house sorry but as long as houses are paid for there will be no bubble to pop

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hyaku

I actually got gazumped once on some prime Copra land. Most of the family turned up at the house to say, as I made the first offer they would go with me. Very honorable of them.

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mikewright

maybe there will be a bubble in condo that are financed but you can forget a real estate bubble in housing condo are usually 100,000 peso plus a sq meter houses are 25, to 35,000 a sq meter so there is your bubble and houses are cash and property tax is 600 us a year for a large house sorry but as long as houses are paid for there will be no bubble to pop

Good point.  If most people are using cash to buy, or are paying 50% down and 30% interest rates, you're unlikely to get a bubble, or at least a bubble caused by property speculators. 

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