A REAL estate cycle study indicates a definite relationship between real estate and general business activity—the principal difference being the greater peak intensity of real estate booms and depressions and the longer years, i.e., the span of the cycle.

As a rule, the downward swing of the real estate cycle precedes that of the general business recession and lags beyond the period of general business recovery. 

The real estate cycle is, in fact, a composite of the general business and housing or construction cycles. The former operates on the demand side, positively or negatively, through increased or decreased overall employment wage levels, supply of mortgage funds, interest rates and personal savings.

The latter, on the supply side, reacts to population changes, family formation, vacancy ratios and cost of land and housing supplies in relation to prevailing and anticipated rental levels.

Irrespective of the validity of the cycle theory, a study of real estate economic market behavior and the causes that influence its supply and demand is deemed essential as a guide to those who serve the market in a business capacity or who seek sound real estate investment opportunities.

Cebu has become a magnet to real estate developers all over the country. For the first time, Cebu now has an over-supply of residential subdivision.

It is the land speculators and bandwagon sales promo that created a demand atmosphere.

For those who enter the real estate market, it might be interesting to note the forces influencing real estate supply and demand.

Among the more important influences that must be considered in an analysis of the real estate market are the changes in number of population and family composition, wage levels, employment opportunities, and stability of income, personal savings, supply of mortgage funds and interest rates, rent levels, vacancies, rent, taxation and land use control, supply of
land, cost of land, labor and building materials, and, finally, changes in the arts and building obsolescence.

Most real estate transactions involve the transfer of space or ownership in residential realty. This is understandable since shelter or housing constitutes one of the basic human needs, next to food and clothing.

Cebu’s increasing population and migration due to economic opportunity has contributed to a demand for housing.

But then the real estate market is sensitive to changes in wage levels, employment opportunities and stability of income.

Rental payments and housing costs are closely geared to ability to pay. In fact, there are definite “rules of thumb” accepted by mortgage lenders under which total housing costs should not exceed 20 to 30 percent of the wage earner’s income.

Although homes now can be purchased on time-payment plans, as other consumer goods, most wage earners’ income is insufficient to pay the monthly amortization.

The introduction of the amortization mortgage, which made home purchases possible “on time,” has in fact revolutionized the residential real estate market.

Major residential sale today come from the remittances of overseas Filipinos and foreigner-Filipino couples.

Mortgage credit policy may be called the barometer of the residential real estate market. A tightening or liberalization of mortgage lending policy has a direct and immediate influence on home construction and real estate market activity.

Most homes are bought on credit. Terms, therefore, are an important part of a purchase transaction and often influence the transaction price. For those who are not ready to own a home, rental activity, particularly in metropolitan areas, still forms an important part of the total real estate dwellings.

Unfortunately, speculative optimism, unchecked by community foresight and planning, may cause economic land to be produced in quantities too great to be absorbed by prevailing demand, thus creating an oversupply that may depress the market for real estate for many months or even years.

The mushrooming of residential condominium has attracted foreign buyers, especially those with Filipino partners. The condo law allows foreigners to own such realty.
 

By Antonio V. Osmeña
Estatements

http://www.sunstar.com.ph/static/ceb/2008/06/04/bus/osme.a.realty.market.analysis.html