Real Estate ( Economic ) Property Clock

ACCORDING to the ( Real Estate / Economic ) property clock, the best time to buy is at the bottom, 6 o’clock, just after the oversupply has hit and properties are at a discount to their underlying value.

So why is important to understand the property clock ?  One can more readily assess the direction of the economy based on the events leading to an upside or downside of the market.

The economic clock is a composite of the individual economic indicators such as interest of the Philippine Bank interest, real estate and the share market. The economic clock depicts the sequence of events in an economic cycle that influence the value of the asset classes. Each event in the cycle tends to be the result of the preceding economic condition.

An awareness of the dominant individual components of the clock is useful for both the investor and the individual.

To understand from a layman’s point of view, the clock can be divided into four segment.s  The quadrant from 12:00 noon to 3:00 represents basically a bear market.  At this point, the market is falling, rents fall from a cyclical peak at an increasing rate.   Demand wanes and is outstripped by new supply thus creating a flat and cautious  market .  Tighter finance now becomes visible.  Sales start becoming flat.  A slump in the market is now very noticeable.  Construction cools down and yields slowly decrease.

From 3:00 to 6:00, the market continues it’s decrease in lower demand, sales volume, price, yields,and construction activities are at a minimum if not put to a halt.  At this point, the market is hitting bottom.  Rents decline to cyclical low as supply is ahead of stagnant demand.   Vacancy rises  and yields continue to fall.  The slowdown in activities in now turning into gloom !   Now we see motivated / desperate sellers, bargain prices and even foreclosures ! The market id bottoming out.   These factors now lead to  Buyer’s market.   This is the time to BUY for those that realize the opportunity !

From 6:00 to 9:00, a recovery is now starting to take effect. Demand now increases and becomes strong and vacancy decreases.  Rental rates now increase from cyclical low.  Sales volume now picking up, prices start going up, yields are slowly appreciating and construction activities now recovering.   An upswing and general recovery in market in now evident.

From 9:00 to 12:00, a strong recovery leading to a boom has taken over.  The market is now peaking !  Real estate values are now increasing, bank financing is easier, strong demand spurs new supply, rental rates now improving and rising, and new construction is now underway or in the pipeline to address the the current situation.   This now is  a Seller’s Market.

Just a word of advise I’ve learned from my friends, clients and my personal experience with the stock market in particular : WHEN EVERYBODY IS INTO IT AND IT SOUNDS SO GOOD, TRY YOUR BEST TO GO AGAINST YOUR INSTINCT AS THAT’S A SIGN THAT THE GOOD TIMES IS ALMOST REACHING A PEAK  !!!  REMEMBER THAT THE MARKET IS MOSTLY DICTATED BY GREED AND FEAR.  Just look at our own Henry Sy, he built his malls during the crisis.  How many developers / investors do this ???  They obviously know something most don’t.  Even Warren Buffet buys and invests in stocks during the downside of the market.  The curve for opportunity varies and catching it at the peak ( sell high, buy low ) is one tough act to do !

The Philippines is undergoing an unusual real estate cycle as we historically go through a 12 year cycle.  However, due to the financial woes of both Europe and United States, we have continued to weather out the expected financial downturn and in fact remained resilient too the world’s economy !  Recent financial upgrades by notable Credit Institutions such as Moody’s, Fitch Ratings, and Standard and Poor’s have proven this.

I will discuss this further in my mid-year Real Estate Market Update which should be out shortly.

Thank you for your visit and hope this gives light to your knowledge in real estate as the property clock applies not only in the Philippines but to the whole world as well !

robert

Robert G. Sarmiento Properties
Professional Affiliation :
Real Estate Broker’s Association of the Philippines
President, Greenhills Chapter 2008-2009
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