PRESIDENT Duterte’s pronouncement on the lowering of personal- and corporate- income taxes in his first State of the Nation Address on Monday was welcomed by the real-estate industry, saying that a tax cut will boost consumers’ purchasing power that will eventually boost property demand.
“I think, this will be a positive development for the property sector, in general, especially in the residential sector, because then the middle-income families, for example, will have more disposable income to invest in residential projects. So, it will be good for the sector if that happens, and that may even fuel further growth in the sector,” Jones Lang LaSalle Philippines Inc. Research Head Claro Cordero Jr. told the BusinessMirror.
Recent broadcast media reports, however, said simplifying income-tax brackets is expected to take place before the immediate passage of a measure lowering income taxes.
House Deputy Speaker Rep. Romero S. Quimbo of Marikina City, who filed House Bill 20 in the 16th Congress, will propose anew to lower income taxes by adjusting the individual income-tax brackets to inflation and lessen the burden of over 6 million workers in the country.
In his proposal, the current 32-percent tax imposed to those who earn more than P500,000 a year will be downgraded to the 25-percent tax bracket, and those subjected to a 25-percent tax will be under the 15-percent tax category. Only those who have an annual income of over P1.28 million will be taxed 32 percent.
The President’s plan to lower personal and corporate taxes to 25 percent, on the other hand, is included in the Comprehensive Tax Reform Bill.
Per the Department of Budget and Management (DBM), the government plans to expand the coverage of the existing value-added tax, increase taxes on oil and impose tax for soft drinks and sweetened beverages to offset the individual and corporate-tax cut.
The agency is optimistic that the tax- reform package will be ready in September prior to its enactment next year.
The tax-cut plan of the new administration is timely as developers hold off the unveiling of their projects to address supply overhang, Cordero also said.
The JLL executive said the residential market in the first half of 2016 exhibited more or less the same trend in terms of new supply, completions and launches, as well as the growth in selling prices and rental rates.
“We have observed that the licenses-to-sell [LTS] issuances and residential development launches in Metro Manila have been declining for the past few years, as supply pressures have been most severe in the last three years,” the executive noted.
The LTS issued by the Housing and Land Use Regulatory Board have already dropped by as much as 52 percent from its peak levels in 2012.
Moreover, the number of new project launches in 2015 is also down 69 percent from its peak levels in 2013, indicating that the decision of the developers to build has been affected.
This year is no exception, Cordero pointed out, as the first half of 2016 figure had only reached 38 percent of that of 2015.
“We’re already [in the middle of] the year and, yet, we don’t see the level of new supply launches from the developers to top the 2015 level,” he said. “But in the next few years, we’re expecting these figures to actually go up [with Duterte’s tax-cut plan],” he said.
Concentration of supply in CBDs
IN Metro Manila existing supply, which now stands at about 246,400 units, is still concentrated within established central business districts (CBDs), such as Makati, Ortigas and Bonifacio Global City in Taguig.
“So the story will not actually differ a lot in 2021, or five years from now, as early as today, we are estimating a marginal growth from the share of the CBDs in first half of 2016 to about 51 percent of total future supply by 2021,” he said.
As of the first six months of this year, future inventory stands at 373,700 units.
Following the performance of various industry players, JLL reported that Megaworld was at the top spot in 2013 and 2014, but not until SM Development Corp. (SMDC) was able to snatch the No. 1 position last year.
“By the end of 2016, we expect SMDC to remain as the top producer of high-end and mid-end residential condo developments,” Cordero said.
Premium residential typically refers to units with total tag price of above P10 million. Midlevel housing, on the other hand, is priced from P1.5 million to P10 million. The latter segment accounts for about 90 percent of the housing projects to date.
The top 3 developers—SMDC, Megaworld and DMCI—in 2016 partake for almost 44 percent of the entire market.
“But Ayala Land Inc. in 2021 will displace DMCI [at] the third spot, and together with SMDC and Megaworld, we expect them to corner around 45 percent of the market,” he said.
Property cost, value on the rise
SELLING prices and rental rates of residential projects in Metro Manila are, likewise, expected to trend upward by market type, according to JLL.
Capital values of high-end residential developments grew the fastest at 10 percent each year from 2010 to 2015.
Lease fees in midrange projects increased by 8 percent annually from the same six-year period.
Future supply levels, however, is projected to exert some downward pressures from the growth rate of prices moving forward.
Despite the downtrend, Cordero cited the launch of the Residential Real Estate Price Index (RREPI) of the Bangko Sentral ng Pilipinas (BSP) as the “exciting news that happened in the second quarter of 2016.”
Based on the BSP’s findings, the RREPI rose by 9.25 percent year-on-year (YOY) from January to March.
Commencing in the third quarter of 2015—the time when the BSP actually tracked the index—YOY growth of real- property prices in areas outside of Metro Manila, or National Capital Region, grew at a quicker pace due to the higher growth rate in prices of townhouses and condominium units.
“The reason they grew faster than the residential condo prices in Metro Manila is because they started from a low base,” Cordero said.
While capital values and rents expand in the short term, JLL expects yields in the residential sector to take a similar compression standard or further net tightening in property yields.
Mainly, this could be attributed to the constant downward trend in the inflation and cost of fund in the market.
This is further supported by the move of the BSP to shift to an interest-rates corridor system using the reversed repurchase rate downward.
The research head of JLL stressed that the adjustment in policy rate is neutral and does not represent a change in the BSP’s stance on monetary policy.
“But then, analysts are forecasting a rising policy rate, but the BSP is trying to project a similar or steady trend in its policy rate. So we don’t expect some disturbance in the cost of funds, and then we expect the inflation to remain low,” he said. The regulatory controls implemented by the BSP in the past have had some effects on the part of the lending institutions.
In the latest Senior Bank Loan Officers’ Survey released in the second quarter of this year, more banks have actually tightened their credit standards during the period because lower tolerance to risk and perceived tightened credit standards.
Amid the net tightening in loans by the lending institutions or banks, strong demand for residential developments has continued, as shown in the consistent growth of demand for housing loans.
Residential growth drivers
IN general, the demand for housing is still being fueled and supported by the growth in remittances coming from overseas Filipinos workers (OFWs), and the projection of growth in the business-process outsourcing (BPO) industry.
For this year, the number of full-time employees in the BPO sector is projected to reach 1.3 million, and the OFWs’ remittances will grow to $27.5 billion.
“So in the next two years, these two drivers of growth will be the sectors to watch out for in terms of growth of residential demand,” Cordero said.
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Make people’s buying power great and the nation will be great.