Category Archives: Academe

USC Faculty Sheds Light on Interdependence of Philippine Real Estate and Stock Markets

Investing in real estate and stock markets are popular ways to grow wealth, but can combining them in a portfolio provide the benefits of diversification for investors in the Philippines? According to a recent study presented at the International Conference on Business and Economics by Assistant Professor Agosto from the University of San Carlos, the answer is no.

Agosto’s paper highlighted the positive relationship between the Philippine real estate and stock markets in both the long and short term. While this may seem like a positive development, Agosto’s research suggests that investors cannot gain the benefits of diversification by including both markets in their portfolios.

Agosto’s research also suggests that the causal relationship between the Philippine real estate and stock markets is unidirectional, with stock prices tending to outperform housing prices. This indicates the presence of a wealth effect, with stock market performance contributing positively to the rise in the real estate market. As a result, real estate is used considerably more as an investment vehicle in the Philippines, and house prices are rather high.

While real estate and stock markets are good investment options on their own, Agosto’s findings suggest that investors cannot gain the benefits of diversification by building a portfolio that includes both markets in the Philippines.

This has important implications for investors and policymakers in the country. While real estate and stock markets may seem like attractive options for investment allocation, investors must be aware that including both markets in their portfolios does not offer enough diversification benefits. Instead, they should consider other investment options to diversify their portfolio and manage risk effectively.

Agosto’s study is a valuable contribution to the body of knowledge on real estate in the Philippines, which has a dearth of research on the topic. His work sheds light on the interdependence of the real estate and stock markets in the country, providing important insights for investors and policymakers.

Investors should be aware that including both markets in their portfolio does not provide enough diversification benefits. Instead, alternative investment options should be considered to manage risk effectively.

Coping with COVID-19: Crisis and Opportunities

Screen Shot 2020-03-29 at 8.04.37 PMThe impact of the COVID-19 can be measured of its severity with number of affected person in the country. As of March 29,2020, there is a total of 1,418 confirmed cases, with 418 recovered and 71 deaths.  Majority of  confirmed cases are in Metro Manila and nearby provinces. COVID-19 is not as deadly as Ebola, which had a mortality rate of 60%, or SARS and MERS at 30%. But if the risk of death is lower, transmission is much higher.

Staying in business is the biggest challenge brought by the coronavirus. However, as Albert Einstein said, “In the midst of every crisis, lies great opportunity”.

There is a need to explore the economy, business, real estate sector and draw-up a plan to confront the crisis and explore opportunities not only to withstand but to emerge stronger. Businesses that are well-prepared will always recover more quickly.

Pandemic in History

Pandemic is not new in the country. Looking back in history, our country survived several  pandemic already. The nearest comparable pandemic to coronavirus that  impacted the country occurred in 1918-1919, with the Spanish Influenza or locally known as trancazo. It was also the pandemic that infected more than 500,000 of the global population. In the Philippines, the total number of deaths was estimated at 70,513, with the group suffered most were those between 10-29 years in age. This epidemic occurred in waves, beginning in June and the second, which is more severe one begun in October 1918.

Another outbreak , SARS, which has a worldwide impact last for five months, from March to July 2003. The country recorded 14 cases and 2 deaths, the lowest count in 30 countries affected by the disease. This can be attributed to the established guidelines or infrastructure system of the government, and also the characteristics of the virus itself.

On coronavirus, lockdown were implemented in Wuhan, China to contain the spread of the virus. However, it enables the businesses to be innovative and cope up with the situation, in its two-month lockdown. Businesses engage in providing basic essentials were allowed to continue. Digital ordering of food supplies to estate arrangements were encouraged. The implementation of QR Code system in detecting person with infection, provision of supplies and others.

The experiences we can learn from Wuhan and from our own gives us a light of hope on our quest to survive and end coronavirus.

Economic impact

The economic impact is inevitable. Luzon accounts for the 73% of the country’s gross domestic product (GDP), while Visayas and Mindanao have 13% and 15% respectively. The National Economic Development Authority projected already at 0.3 reduction of the GDP if the virus lingers until June, and will further increase to 0.7& if it will last until December.

Among the sectors in the economy that were hit the hardest were services, tourism, trade, and remittances. Real estate being in the service sector is among them.

Based on the estimate, tourism industry alone could lose P22.7 billion in revenues per month due to the corona virus outbreak. The industries such as the export processing zones will be vulnerable to the disruptions in global supply chains after the closure of airports, ports, and factories within the country and abroad. Real estate, which has a gross value added of 2.3 Billion, as of January 2020,  has greatly impacted.

Agriculture sector stand-out in this time of crisis. The role it plays in food sufficiency and  provision of employment to the people cannot be denied. In 2018, it employs 10 Million people in the countryside.

The declaration of “Enhanced Community Quarantine” from Luzon and other provinces signals a new situation in real estate.  It will pave way to a new redistribution of real estate development and type of properties that will be offered in the future.

Opportunities in time of crisis

Under the guidelines on the enhanced community quarantine, only those providing basic necessities and activities will be allowed to operate.

Basic necessities include food and medicine production:

  1. Public markets
  2. Supermarkets
  3. Groceries
  4. Convenience stores
  5. Hospitals
  6. Medical clinics
  7. Pharmacies and drug stores
  8. Food preparation
  9. Delivery services
  10. Water-refilling stations
  11. Manufacturing and processing plants of basic food products and medicines
  12. Banks
  13. Money transfer services
  14. Power
  15. Energy
  16. Water
  17. Telecommunications supplies and facilities.

Business procession outsourcing and export-oriented will continue to operate provided that they will employ social distancing. Other businesses are allowed to operate provided their employees are working at home.

These businesses are opportunities that need to be explored. This crisis require people to think out of the box and be innovative to remain in business. Analyze current business strength and weaknesses, to enable to capture opportunities in the market. Adaptability and collaboration is the key.

Key driver to resilience

In coping with the social and commercial disruption, a key driver is turning out, the digital technology and agriculture. Groceries and food supplies can be purchased online and delivered to the home. In Wuhan, local residents organize themselves for home delivery of essential supplies while in self-quarantine. The combination of consumer digital maturity and digitally supported supply chains has enabled local residents to organize home delivery of essential supplies to people in quarantine.

There are companies that provide virtual trainings and online seminars to its people and learnings about real estate salesmanship skills, market analysis, business matching, and other useful skills to personal development such as leadership and speaker’s training.

Agriculture plays a great role in the sustenance of food supplies and stable prices in the market. Farming and fishing activities were permitted during the period of quarantine. The government also ensure  the continues movement and unhampered flow of farm products to the cities.

Uncertainty still dominates the situation. Nobody knows what next week or months could bring. Preparation and planning is the key to overcome. Businesses should conduct scenario planning, the best and worst case scenarios, and the capability of the business to cope. There should be short and long term plan on the financial, organisational and operational  capability. Access to financial assistance and relief should be demanded from different government agencies.

Filipino people had been proven to be resilient amid calamities and crisis. Covid-19 is a wakeup call for us which both need to accelerate the digital transformation of our economy — ahead of the next pandemic.

 

 

 

Cebu Province acquires AA+ Appraisal services

Cebu Provincial Government has acquired the services of AA+ Appraisal & Consultancy, Inc. to appraise the properties owned by the Cebu Province.

Earlier, Gov. Gwendolyn Garcia said in an interview that she wanted Province-owned real properties reappraised to conform with the present fair market value.

Consultant Agosto said that “It was the biggest assignment that the company had for a local government. Nonetheless, it was not our first time doing appraisal of properties for the government. We already had previous appraisal of properties owned by the Power Sector Assets and Liabilities Management (PSALM) in La Union, Philippine Science High and others.”

Prior to this assignment, AA+ Appraisal & Consulting was also been tapped to help in the revision of the Schedule of Market Value of the Province. “Our company is always  ready to render service to our government as part of our obligation to the community, and also to the people of Cebu.” Consultant Gus Agosto reiterates in a message sent during the submission of the report on January 6,2020.

This is only to show that local governments and other government agencies started to grasp the importance of having a fair market value that is reflected to the present times and done by the experts in the field.#

Big turnout at Complex property valuation seminar in Cebu

Appraiser Agosto, lectures on Complex Property Valuation-Valuation Masterclass II. The seminar workshop, held in Castlepeak Hotel in Cebu City,  was organized by PAREB Cebu Real Estate Board.

The seminar participants reached to more than 80 real estate practitioners, including real estate appraiser and brokers not only from Cebu but also from Negros, Cagayan de Oro and Leyte.”I was stunned by the turnout of participants”, Gus told the organizers of the seminar. “It just showed that practitioners values the seminar”.

In the 2-day lecture, participants learned from different case studies actual application of solving appraisal problems using discounted cash flow method, opportunity cost, replacement value and market studies on township development.

“Thank you for sharing your expertise on us”, one of the participant shared in the lecture room. “Very knowledgeable in the topics discussed”, another participant shared.

The valuation masterclass is a project of PAREB Academy for its members. Its objective is to raise the level of PAREB Appraiser-members professional practice through seminars, workshop and provide linkages through appraiser’s directory.

Appraiser Gus Agosto has conducted lectures already in different areas of the country. Hosted by different local board, he traveled Iloilo City, Dipolog City, Cagayan de Oro, Pasig, Caloocan, Lucena, Puerto Princesa, Baguio, and other areas.

 

This slideshow requires JavaScript.

Why valuation standards are important

I attended a seminar on Philippine Valuation Standards (PVS) recently and spoke to the technical committee members that produce it. The seminar was attended by Assessors of different local government units, nationwide. While the speakers were both members of the Technical Committee on drafting the Philippine Valuation Standards 2017.

I outlined the most important points in the discussion, relate to my experiences in valuation and share it with you.

Enhance the reputation of the profession and be at par around the world. Currently, there are multiple valuation methods used by different government agencies, local government units, private individuals, and banks. Thus it results in as many conflicting values for the same piece of property.

An established set of consistent standards would help in appraising assets and liabilities for financial reporting, especially for companies that control assets in various countries and work across national borders. For valuations for other purposes, the reputation of the profession would be enhanced if the clients could expect consistency in valuation reporting internationally.

Simplify the appraisal process. I work an appraisal for a client in U.S. and Australian federal territories, which typically require different standards. But if an appraiser-member of RICS is performing the appraisal in U.K., it should also comply with RICS standards, which differ in subtle ways.

PVS is the accepted set of standards for valuation in the Philippine setting. Contrary to some notions, it is not only applicable to the government agencies but rather it includes and should also be applied to bank institutions and private individuals.

A single set of standards and guidance notes would enable appraisers to produce a credible valuation with a similar report structure regardless of membership or the location of the asset to be valued.

An era of unified professional standards. There are many associations in the country which offer seminars and training for appraisers. All of this would be simplified through learning and adopting valuation standards. Regardless of which association you align with, the pathway for new appraisers to be a competent appraiser need to be consistent.

 With the Philippine Valuation Standards, the international valuation standards in the broader context, we now have a uniform term of engagements, report disclosures, recognized bases of value, terminology used in reporting and guidance notes.

We have valuation standards that are accepted regardless of location or the professional organization of the appraiser. What we need to do now is to encourage consistency and professionalism, further strengthening the public’s trust in valuations. The first step to this could be asking the members of multiple organizations who are active in the various leadership councils to ensure that their members are actively using the relevant sets of standards in their practice and continually looking for ways to streamline the process in a manner that works for all.

Our generation should be happy to be in the era in which we have now a uniform sets of standards. But there is still work to be done. We should endeavor to unite appraisers in different organizations and location to study, adopt and implement the valuation standards.

In this way, we can raise the level of consistency and professionalism, further strengthening the public’s trust in valuations.

 

Gus Agosto is the Vice-President for Visayas of the Philippine Association of Real Estate Board (PAREB). He is the Managing Owner of AA RealtyPro Solutions, an appraisal and consulting business organization. He also serves as faculty of University of San Carlos, Cebu City and took up Master of Arts in Economics (Candidate) in the same university. 

EnP. Gus Agosto conferred Fellow status

Urban Planner  Gus Agosto, a faculty of the University of San Carlos, was conferred  with Fellow Status by Social Watch Philippines and People’s Public Finance Institute at the University of the Philippines, Lahug, Cebu City,

Social Watch Philippines is the network of hundred non-government organizations that initiated direct citizens’ participation in national and local budget processes through the Alternative Budget Initiative (ABI), while People’s Public Finance Institute is a center that educates the general public, civil society organizations and individuals on national and local public finance processes working under the framework of citizens’ participation.

Fellowship is an honor bestowed upon individuals that contribute in further strengthening citizen’s engagement in public finance. The new Fellows are drawn from academe, practitioners and graduate students across Central Visayas.

“I feel quite honored that Social Watch bestowed Fellow Status upon me,” Planner Gus said. “By doing so, they have acknowledged my teaching work in public finance and its contribution in important ways to students, professionals and the broad public. It is both gratifying and humbling at the same time.”

As a faculty, he is teaching public finance at the University of San Carlos, Cebu. “I’m very interested with the topic, being an urban planner and economist; I’ve been involved in various ways in public finance.“ Planner Gus also has a professional interest in the role that a Fellow can play in supporting and improving public involvement in government finance.

Prior to the conferment, a two-day discussion on the development of public finance and citizen’s engagement was held in collaboration with Social Watch Philippines, United Nations Development Program and University of the Philippines-Cebu.

 

 

 

Site Valuation

appraisallargeOne day, I was asked to observe in a meeting of real estate practitioners. They were finalizing the asking price of a property that has just listed. One of them opined that they can base it to the Bureau of Internal Revenue (BIR) Zonal Value, while the other one, succumbed to the pricing that is based on the prevailing prices of properties in the area. I almost bolted from my seat to immediately correct the practitioners.

I have appraised hundreds of properties already, and comparing prices of properties in the area is erroneous. It won’t give justice to the property of the client. Site valuation is not just as simple as comparing with other sold or offered for sale properties in the area.  For one, no two vacant lots are the same typically; no two houses are the same. Every property is unique.  There are differences in size, location, width and depth of lot, and leveling or topography of the land.  The most important to consider is the lot size. Smaller lots tend to sell for a higher price per square meter than larger lots.  However, if the end use is commercial, bigger lots command a much higher price. Once the sales price per square meter is determined for each comparable or “comps”, the reconciliation process begins. Then there are other factors that should be consider such as easement, road right of way,  encroachment, presence of informal settlers or other occupants, the neighborhood, and also, the facilities and amenities in the vicinity.

In the larger scale, one has to consider also the real estate market, from the city or municipality up to the provincial level.  All of these should be taken into account.

Meanwhile, the method of obtaining a market value from the Assessor’s Office is not reliable. We all knew that a lot owner usually declared their property at low level to minimize taxation. The zonal value also cannot be use nor relied on.  Zonal values were based on streets or zones and not on individual property. Just remember that these two were all for taxation purpose only.

In conclusion, real estate practitioners should not shillyshally in topping the services of an appraiser. An experienced appraiser can guide practitioners in arriving at a reliable price of their listings. They have the knowledge and skills in discerning the value of a property. Your client deserve the best service from you.

Tool for Brokers & Appraisers

 

In our practice of real estate appraisal and brokerage, it is basic to have knowledge on site location and lot plotting. I am sharing this presentation to real estate practitioners and the general public in general.

We should continue in educating ourselves to better serve the public and raise our professional practice to a new and higher level.

 

 

Mixed use development appraisal

11221862_1062426540442254_1175843060924474763_oReal estate valuation is the process of developing an opinion of value. It can be used in determining the value of property whether single use or mixed use development.

So far we have discussed more on the single use appraisal, now let me share and discuss the appraisal of mixed use development.

In valuing property, the first and foremost we should have to know is the intended use or the purpose of the appraisal. It will serve as a guide in appraising the mixed use property.

Mixed-use development is—in a broad sense—any single building, that blends a combination of residential, commercial, institutional, or industrial uses, where those functions are physically and functionally integrated. It may also a site or a building, complex of buildings, or district of a town or city that is developed for mixed-use by a private developer, government agency, or a combination.

In a nutshell, there are benefits in mixed use developments. For example, it reduces distances between housing and workplace, retail business and other. It is now common to have developments which align to the concept of live, work and play.

It is a great challenge to an appraiser in coming out of an opinion of value that reflects the actual use and the highest and best use of the mixed use property. An appraiser can use the different approaches in valuation such as sales comparison, cost and income approach. And since it is a mixed use, you have to use different comparable, and methods. An appraiser has to dig more data and information from the knowledgeable persons in the neighborhood, government officials and industry leaders where the property is located.

In analyzing data, we have to consider the zoning, allowable use, predominant use, conforming use, legal and illegal non-conforming use, the highest and best use, neighborhood analysis, market trends not only of the city but the region as well.

Nothing beats the importance of conducting actual inspection of the property and the neighborhood. It will give concrete data and visualization of the property. The trend of development in the locality and region, will broaden your perspective and analysis.

Valuing mixed use properties will force the appraiser to be more analytical and creative in solving problem –to determine the market value that is reliable and defensible.

ASEAN IS ONE TONIGHT

We welcome 2016, not just a new year, but a new era for our country and other members of ASEAN. ASEAN is one community tonight.

The ASEAN Economic Community endeavors to become a single market and production base. It will unify the 625 Million people of 10 countries under ASEAN as a single community. ASEAN will be connected thru effective air, sea and land links. Further development of regional connectivity will help people, goods and services flow across the region more quickly and cheaply.

ASEAN identifies professions that are allowed to practice in other ASEAN countries. Small-Medium Enterprises (SME) will become more competitive. Those who are open to ASEAN market can expand operations and acquire office space and industrial properties outside the Philippines.

ASEAN community gives us more opportunities. The free movement of goods, services, skilled labor and capital would require more commercial and residential buildings and other infrastructures.

At the same time, it brings challenges to connect. Bigger, skilled and more advanced real estate practitioners from other ASEAN countries can enter the local market. They need local partners and counterparts.

New era requires new mindset and system. It means old habits and comfort zones should be archived. It is an era where connectivity and excellence is a must.

Happy New Year!   Welcome to ASEAN Community.

ASEAN-logo-One-community