Wednesday, October 17, 2007 Osmeña: Over-supply of housing lots By Antonio V. Osmeña Estatements
REAL estate development has experienced cyclical swings which have recurred with rhythmic political stability or instability.
The worse real estate depression was during the martial regime, followed by a boom during its lifting. The boom has continued to stabilize until present.
The real estate cycle study indicates a definite relationship between real estate and general business activity, the principal difference being the greater peak intensity of real estate booms and depressions and the longer years, i.e., the span of the cycle.
As a rule, the downward swing of the real estate cycle precedes that of the general business recession and lags beyond the period of recovery.
The great intensity of real estate booms and depressions, as well as the long cycle span, are a direct effect of the inflexible and peculiar economic characteristics of real estate that influence its supply and demand.
Once an over-supply of housing lots saturates the real estate market, the economy’s inability to adjust the supply to active demands will create abnormal vacancy ratios and competitive pricing conditions, upon which real estate depressions have fed in the past.
The real estate cycle is, in fact, a composite of the general business and housing or construction cycles. The former operates on the demand side, positively or negatively, through increased or decreased over-all employment wage levels, supply of mortgage funds, interest rates, and personal savings.
The latter, on the supply side, reacts to population changes, family formation (excess of marriages over annulments and family dissolution through deaths) vacancy ratios and cost of land and housing supplies, in relation to prevailing and anticipated rental levels.
What is unfortunate is that the roads leading to these high-end residential subdivisions are narrow and substandard.
The mushrooming of socialized, middle- and high-end residential subdivision in Barangay Ta-lamban, Cebu City is ongoing but the road network leading to these projects is absolutely miserable. Meanwhile, buyers of subdivision lots in Consolacion and Liloan are better off when the North Coastal Road is completed.
The South Coastal Road, on the other hand, would encourage more development south of Cebu City.
BUDGET. Who can afford a home? A rule for buying, which has gained widespread acceptance, is that the price of a home should not exceed two to two-and-a-half times the buyer’s annual income. A price in excess of that can be a strain on a family’s operating budget.
A problem of deep concern to prospective home buyers is how best to finance a home and how to derive a mode of payment which will cause the least strain on the family budget and which will not terminate in financial grief. A secondary problem generally arises out of the purchaser’s desire to safeguard the investment into which he, like most homeowners, has poured the bulk of his life savings.
The question is often raised as to the advisability of “all cash” payments where the purchaser is financially able to do so. There was a time when debts, and particularly mortgage debts, on a home were considered ill-advised. Times, however, have changed and with it our modes of living.
The “pay as you go” home purchase plan, for over three decades now, has proven to be sound in principle and a strong incentive towards the promotion of thrift and general “good housekeeping” among those who have adopted it.
Metro Cebu is now encountering an over-supply of residential subdivision lots. Obviously, most of these land developers are aware of the limited market now in Cebu.
Land speculators, overseas Filipino workers and foreign nationals with Filipino partners dominate the real estate market. Land developers are, in fact, the top speculators who reserve choice lots and announce that such properties are already sold out.
