Approved construction projects dip in March

The number and value of construction projects with approved building permits declined in March, according to the Philippine Statistics Authority (PSA).

Approved construction projects totaled 13,320 during the said month, which indicates a 15.5-percent dip from 15,764 projects in the same month last year. In a monthly comparison, it was also lower by 1.7 percent from the 13,551 building permits recorded in February 2024.

The amount of approved projects, meanwhile, totaled P34.07 billion, indicating a 24.3-percent decline from last year's P45 billion and from the previous month's P44.99 billion.

Among the total projects, residential buildings comprised most of the approved constructions at 8,964 or 67.3 percent of the total projects.

"It recorded an annual decrease of 18.1 percent from the same month of the previous year's level of 10,949 constructions," the PSA said.

Majority of the total residential construction work was on single-type houses, with 7,743 valued at P11.18 billion.

Non-residential type of construction, meanwhile, totaled 3,105 during the month and recorded the highest value at P16.37 billion.

The latest number of non-residential constructions during the month fell by 6.1 percent in comparison to last year's 3,307.

In terms of types of structures, the PSA said that residential buildings had the highest average cost of P11,812.95 per square meter (sqm) in March.

This was followed by non-residential constructions with P10,602.23 per sqm, and an addition to existing constructions with P10,364.91 per sqm.

On the other hand, the floor area of approved construction projects declined by 14 percent and was recorded at 2.8 million sqm in comparison to last year's 3.3 million sqm.

Floor area of non-residential constructions reached 1.53 million sqm during the said month, or 54.0 percent of the total area of constructions, while residential constructions recorded 1.27 million sqm, or 44.9 percent of the total floor area of constructions in March 2024.

The PSA said that the Calabarzon Region recorded the highest construction projects and value during the month, with 3,245 approved building permits amounting to P9.04 billion.

Source: Philippine Statistics Authority

Buying a residential condominium unit on installment

According to statistics found online, the Philippines has 154,700 condominium units as of 2023. This number is expected to reach 200,000 units by the end of 2025.

Based on this estimate, we can expect 45,000 more condominium units to be built in the next two years.

The rise in the number of condominium units has a direct correlation with condo prices. From 2017 to 2023, prices of residential condominium units have increased yearly by an average of about 8.55 percent a year.  The exception was in 2021 when prices decreased by 1 percent.

The thousands of condominium units being built and yet to be built by property developers will mostly be funded by loans from the banking sector.

Last year, the Bangko Sentral ng Pilipinas released data indicating that in the first three months of 2023, the banking industry extended P3 trillion worth of investments and loans to the real estate sector, which was 5.3 percent higher than the P2.85 trillion in the same period for 2022.

While some in the real estate sector have intimated that developers are scaling back residential developments in favor of commercial and office projects, the size of the residential condominium property sector will remain significant.

Considering that almost all property developers will finance their projects through loans and financing, it is but natural for a buyer, after having entered into a contract with the property developer for the purchase of a condominium unit, to worry that the developer may not comply with the promised specifications, or worse, might not even complete the project.

For those who can remember the financial crisis of 1997 and 2009, there were many unfinished structures that were promised to be beautiful high-rise residential condominium buildings.

Accordingly, it would be wise for potential buyers of condominium units, and those already paying for their units through regular installment payments, to be familiar with Presidential Decree No. 957 (“PD 957”).

Also known as the Subdivision and Condominium Buyers’ Protective Decree, its declared objective is “to provide a protective mantle over helpless citizens who may fall prey to the razzmatazz of what P.D. 957 termed ‘unscrupulous subdivision and condominium sellers…” (Francel Realty Corporation v. Sycip, G.R. No. 154684, 8 September 2005).

The practice of mortgaging the condominium project, defined by PD 957 as “the entire parcel of real property divided or to be divided primarily for residential purposes into condominium units, including all structures thereon”, to a bank, financial institution, or other creditors (“mortgage creditor”) is common practice.

While the availability of credit has helped the property sector to grow, there have been cases where fully paid buyers have had difficulty in consolidating the title to their condominium units or obtaining clean titles thereto.

Some mortgage creditors have refused to release the mortgage they hold over the condominium units on the ground that the mortgage debt has not been paid by the property developer.

In that regard, Section 18 of PD 957 specifically regulates the right of a developer to mortgage and encumber the condominium project. The law provides that the Housing and Land Use Regulatory Board (“HLURB”), now the Department of Human Settlements and Urban Development and Human Settlements Adjudication Commission pursuant to Republic Act No. 11201, must approve in writing any such mortgage or encumbrance for the same to be valid.

Mortgage of condominium units

In addition, PD 957 provides that: (a) proceeds of the loan should be used for the development of the condominium project, (b) effective measures have been provided to ensure such utilization, (c) buyers of condominium units must be notified before release of the loan, (c) buyers must be given the opportunity to pay their purchase price directly to the mortgage creditor who, in turn, shall apply such payments to the corresponding mortgage indebtedness and, (d) when fully paid, buyers have the right to the title and insist on the release of the mortgage as to their unit.

Mortgages of condominium projects that have not been approved by the HLURB are void (Home Bankers Savings and Trust Co. v. Court of Appeals, et al., G.R. No. 128354, 26 April 2005).

In one case, the Supreme Court declared void the mortgage of a condominium unit by the developer to a bank for non-compliance with PD 957.

The bank failed to check whether the developer secured the HLURB’s prior written approval, which approval is required by PD 957, before it accepted the properties as collateral and whether any of the properties offered as collateral already had corresponding buyers at the time the Mortgage Agreement was executed.

Even if the mortgage agreement between the bank and property developer was executed before the contract to sell and deed of absolute sale with the buyer, since the buyer paid its reservation fee four months before the execution of the mortgage agreement the court found that the bank should have verified with the developer if the unit already had a buyer. (Prudential Bank (now Bank of the Philippine Islands) v. Rapanot, et al., GR 191636, January 16, 2017))

Moreover, buyers must also verify whether the developer has mortgaged the condominium project, not only the specific unit, as it is also not a defense that the subject of the mortgage loan was for the entire land or building and not the individual subdivided units of the condominium project.

In a case, the court declared that the unit was also mortgaged when the entire parcel of land or building, of which it was a part, was mortgaged (Far East Bank & Trust Co. v. Marquez, G.R. No. 155344, 20 January 2004).

If the project or unit was mortgaged by the developer, the buyer may demand that they be allowed to pay the purchase price directly to the mortgage creditor, who shall apply the payments to the corresponding mortgage indebtedness, so that when fully paid, they would have the right to insist on the release of the mortgage of their unit and transfer title to their names.

On the other hand, in the event the property developer has not developed the condominium project according to the approved plans, or has not completed the construction within the agreed time limit, the buyer may stop paying their installments by giving notice to the owner or developer, and demand reimbursement on amounts already paid (Section 23, PD 957).

The right to stop payment is immediately effective upon giving due notice to the owner or developer, or upon filing a complaint before the HLRUB against the erring developer (Francel Realty Corporation v. Sycip, G.R. No. 154684, 8 September 2005).

When all is said and done, buyers must make sure that they know their rights under PD 957, and choose financially stable, socially-responsible and trustworthy developers, with whom to invest their hard-earned cash.

Source: Inquirer

Philippine property to benefit from REIT expansion, diversification

Colliers Philippines has been seeing exciting and innovative developments in the Philippine real estate investment trust (REIT) sector.

Property firms are maximizing REIT benefits and we see more property firms utilizing REITs to fuel their expansion within and outside Metro Manila as well as extend their exposure into other property segments.

The Philippine REIT market is primed for further diversification and developers should be on the lookout for other assets that can be divested into their REIT companies.

Colliers believes that the further diversification of the Philippine REIT market bodes well for property firms, investors, and the Philippine property market in general.

Moving forward, Colliers sees an aggressive expansion of REIT companies in the Philippines. We even see some firms exploring the feasibility of divesting other asset classes including business parks, data centers, as well as co-working and co-living facilities. We even recommend that firms explore the viability of infrastructure and renewable energy projects.

In our view, further expansion and diversification of the Philippine REIT landscape is likely to benefit the country’s infrastructure development plan. We even see it supporting the Marcos administration’s push to ‘Build, Better, More.’

REIT firms and stakeholders should be mindful of the regulatory environment that they are operating in and should be updated of the proposed amendments to the REIT Law and how new measures and provisions are likely to stall or advance the sector.

Colliers encourages property firms to further test the market to capture opportunities from a constantly evolving and developing Philippine REIT sector. Diversification will be the name of the game.

Colliers encourages the government to be more supportive of developers’ REIT undertaking. The challenge for lawmakers and members of Executive department is to foster an accommodating and inclusive regulatory framework to ensure that  Philippine REITs become among the most competitive in the region. The advancement of Philippine REIT should not be stalled by any regulatory gridlock.

MONITOR REIT LAW AMENDMENTS

The House of Representatives has approved on third and final reading a bill seeking to amend the REIT Law of 2009. The bill’s features include requiring REITs to reinvest their proceeds “within one year from receipt of proceeds realized by the sponsor or promoter.” REITs are also required to submit a reinvestment plan to the Securities and Exchange Commission and Philippine Stock Exchange and secure a certification annually to prove that it is compliant with its reinvestment plan.

Colliers encourages REIT developers to constantly monitor the progress of these proposed amendments. A counterpart bill has yet to be filed in the Senate.

DIVERSIFY PORTFOLIO

Developers with REIT firms have been divesting other asset classes into their REIT vehicles to take advantage of the property market’s rebound. At the height of the pandemic, developers only divested office assets. As the government relaxed COVID-related restrictions and more economic segments reopened, other property sectors such as retail, hotel, and industrial also saw gradual recovery, making them viable asset classes to be utilized for REIT listing.

Non-traditional asset classes such as infrastructure projects (including toll roads), cold and self-storage facilities, data centers, and hospitals can also be infused into the property firms’ REIT vehicles to further attract more investors.

Developers should also explore the viability of other asset classes that generate recurring income such as co-working spaces and co-living facilities. Firms in other Asian countries even infuse business parks into their REITs and the feasibility of this asset class should also be explored moving forward.   

ASSESS OPTIMAL REIT PORTFOLIO MIX

Colliers believes that developers should assess the ideal portfolio mix that will provide the optimal yield for investors. Property firms should consider divesting asset classes that will provide highest dividend to investors based on these asset classes’ performance in the market.

Office and industrial are usually part of developers’ portfolio mixes but property firms should also look at other viable assets in the future, including retail and hotel.

LAUNCH OF RETAIL REITs

Colliers believes that property developers with retail footprint should consider divesting malls into their REIT portfolio especially now that the retail segment is recovering.

Malls generate recurring income and are now a viable REIT asset class as vacancies are declining and lease rates are starting to increase.

In our view, developers should carefully assess which retail outlets to add to their REIT portfolio and should consider projected mall space absorption as well as profiles of retailers willing to take up brick-and-mortar spaces.

Developers should take advantage of renewed interest from foreign retailers as well as continued growth of Philippine economy, mainly driven by personal consumption.

Source: Business World