Wednesday, December 19, 2007 Osmeña: Cebu’s realty supply and demand By Antonio V. Osmeña Estatements
THE real estate market is sensitive to changes in the balance of ecocomic, political and social forces that influence the supply and demand for property.
The large expenditure required to put real estate into productive use calls for careful analysis of the nature of real estate as an investment.
Based on experience, average residential or commercial improvements must yield a net income extending over 30 to 50 years in order that the required amortization payments necessary to write off the building investment are met.
Even if the gross income—income before the deduction of operating expenses, including taxes and maintenance, among others—is used as a market guide, an average of eight years to 10 years gross income must be aggregated for invested capital to “turn over” once.
Such slow capital turnover calls for great care in the analysis of the real estate marketm, particularly in forecasting the certainty, quantity and quality of future rights to income.
The collapse of the realty prime mortgage in the US is due to lapses in the mortgage credit policy where jobless borrowers are extended loan.
Mortgage credit policy may be called the barometer of the residential real estate market. A tightening or liberalization of mortgage lending policy has a direct and immediate influence on home construction and real estate market activity.
Most homes are bought on credit. Terms, therefore, are an important part of a purchase transaction and often influence the transaction price. It is not uncommon, therefore, to see new homes advertised for XX peso of downpayment and YY pesos of payment per month, without reference to the total transaction price.
To most buyers who enter the market with small equity down payments, price undoubtedly means size of monthly payments.
With uninsured (conventional) mortgage payments on single residential homes now extending over 10- and 25-year periods, the “home ownership” market for real estate will, in fact, revert to a rental market with government and private financial institutions acting as the benevolent landlord.
Most real estate transactions involve the transfer of space or ownership in residential realty. This is understandable since shelter or housing constitutes one of the basic human needs—next to food and clothing.
The demand for shelter varies, of course, with the changes in the number of population, in family composition, wage levels, employment opportunity and stability of income.
Rental payments and housing costs are closely geared toward the renter’s ability to pay. In fact, there are definite “rules of thumb” accepted by mortgage lenders under which total housing costs should not exceed 20 percent to 30 percent of the wage earner’s income.
The availability of land and the cost of land, labor and building materials affect the supply side of the real estate market. Though physically abundant, land, which is economically usable, is often in short supply.
The failure of government to provide infrastructure and efficient transport system within many of the residential subdivisions located in the suburbs and rural areas of Metro Cebu has become a nightmare to new homeowners, particularly in the metropolitan areas. Rental activity still forms an important part of the total real estate market.
Residential condominiums have a better demand over single residential homes because they allow foreigners to purchase the unit in their names and for overseas Filipino workers’ investment to earn by way of time-sharing income of the condo unit.
The Manila-based developers are now dominating the real estate scene in Cebu hoping to cash in on the saturated residential subdivisions and, obviously, the land speculators are quite active in the purchase of high-end residential subdivisions.
Most of the speculators are the elite inhabitants in Cebu, who are hoping that the time interval will create a market favorable to them or just for plain investment.
Realty developers elsewhere are targeting Cebu because they are aware of the stability of the social, economic and political forces within.
