Price falls and expensive condos

We were warning about it for about a year now... Philippine property prices will fall, at least at the luxury segment where data is available.

The dangers of falling property prices are catastrophic. Developers will stop construction, those who bought through pre-selling will lose their money... and these might lead to job losses, unfinished buildings, more bad loans for banks and possible economic stagnation.

It is ironic, however, that every time a get a flier or a pamphlet of a new condominium project I shook my head in disbelief. They are so expensive... a small studio/bachelor pad in Makati is well over one million pesos. Prices of one bedroom units range from PhP1.2 to PhP2 million depending on location. If prices are expected to fall, it should be good news for first-time home buyers... right?

According to international standards for affordable housing, the median price of housing units should be about three times the median annual income. In other words, the price of your house or condo should not exceed your annual income times three, or else it is too expensive. There are a lot of technical details to be discussed (is the median income before or after taxes? does it include bonuses?), but we shall leave them out for the meantime.

If the average price of a 1 bedroom condo in Metro manila is PhP1.5 million, then the median income should be around PhP500,000 per year or PhP41,666.67 per month. I searched for  data on wages in Metro Manila and there are people who earn that amount, Senior Software Engineers, HR Managers and IT Consultants.

The Minimum Daily Wage for Non-Agricultural Workers in Metro Manila is PhP382. Their annual income is around PhP100,848 if they work 22 days a month. Using the house price to income ratio: it will take them around 10 years to buy a house worth PhP1 million if they spend all their income on a house. 

The bottom line is HOUSE PRICES ARE TOO EXPENSIVE!!!

There are several reasons why Filipinos in the Philippines will find it difficult to buy a house here:
1. Developers focus mainly on Overseas Filipinos, their annual income is well-above PhP500,000 (US$10,000 using PhP50 = US$1).
2. Housing loan facilities in the Philippines are almost in-existent (Banks also tend to loan more on families of Overseas Filipinos).
3. Housing programs are uncoordinated, unsustainable and ineffective. 

There are more reasons... each one can be a topic for a separate blog. How to address these problems will take more space.... For the meantime... Happy Weekend!