Of real estate bubbles and turning points
A bubble happens when you have the prices going up without the demand going up. Parts of the USA are experiencing just that. I’m saying parts, because I’m not from there and that is something I recently learned when I’m doing my usual market observation.
Well, I'm saying a real estate crash is coming. When is it coming? I don't know. We're seeing signs. We're seeing red flags. You're seeing reports. It's starting to be talked about, that there are signs of a slowdown, that the market is slowing down, maybe turning in some areas, there are different things happening like number of expired listings is tripling.
But under normal circumstances, a correction in housing, like in any market, is normal and foreseeable.
For the handful of economists calling the present moment a cycle top, it simply means that from here on, sales will stop growing, and possibly even decline, as will home prices. But as to whether it will fall fast or slow, no one can tell so far.
China’s real-estate bubble
Closer to the Philippines, enter China. There is no doubt that China is already in the midst of a real estate bubble. As in the United States during the subprime-mortgage bubble that culminated in the global financial crisis of 2007-2009, the real-estate market boom in China has led to speculation and frenzy that has seen real estate prices climb sharply.
Chinese real estate prices soared in so-called Tier 1 cities like Beijing and Shanghai from 2015 to 2017, pushing worried authorities there to take measures to pop the bubble. Major cities, including Beijing, imposed various measures: They increased down payment requirements, tightened mortgage restrictions, banned the resale of property for several years, and limited the number of homes that people can buy. This has led to some ghost buildings and developments as well.
Another factor is the lending market which is also intertwined with real estate. With the demand for credit from other sectors unmet by the official banking sector, the void has been rapidly filled by so-called shadow banks.
Turning Point in the Philippines
As of now, there is no need to panic because the real-estate sector here is enjoying a boom as new property developments and foreign investors floods the market which is usually stifled by low prices and developers notorious for completing projects years behind schedule.
The real estate sector has been growing since the early 2000s due primarily to rising household incomes and an unmet demand for housing. This is mainly driven by remittances from overseas Filipino workers (OFWs). The housing sector has been on an upswing, dipping only momentarily during the global financial crisis of 2009.
Unlike the previous real estate booms which were then fueled by speculative buying, the current demand for housing comes from the end user, who now has the means to purchase housing.
Over the years, we’ve seen greater acceptance of condominium living in Metro Manila and also Cebu, more condos are rising as well. Aside from condos, buildings for office spaces for local and IT-BPM firms are increasing as well with new economic centers or IT parks such as the Mactan Newtown.
With the improvement of infrastructure and by extension tourism destinations, new hotel and resort brands are also entering the market.
With the downtrend of the big countries, there is a possibility that investment money will move to emerging economies such as the Philippines.
It is a good time to invest!
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