Review of Related Studies (Foreign)

Real estate property is a composite goods. This is because the value attached to a
property is dependent on many unique bundles of attributes (Rosen, 1974; Sirmans et al., 2005).
The uniqueness of the stakeholders that interact in the real estate market, as well as the
heterogeneous nature of real estate properties, could be attributed to the differences in the value
ascribed to real estate property interest by different stakeholders (Chin and Chau, 2002; Sirmans
et al., 2005). This has led to the development of a model that generates the contributory power of
each of these variables to the value formation and hence, the emergence of the hedonic pricing
model (HPM).

The HPM technique has been largely adopted for property appraisal in different real
estate markets around the world to measure the contribution of property attributes, as well as
other external factors that could affect the value of a property (Jim and Chen, 2006; Selim,
2008). The nature of real estate property warrants the quantification of the value of each property
variable to property value formation. The multiple regression analysis (MRA) which is also
referred to as HPM (Lentz and Wang, 1998), can be employed to analyse the property
transaction data of a submarket. By this, the utility of each of these variables is being priced by
the property buyer (Malpezzi et al., 1980). The general form of HPM gives the regression
estimate of each independent variable, in other words, property value is a function of the sum of
both the internal and external property attributes as presented in Eq. (1) (Chin and Chau, 2002;
Sirmans et al., 2005

Real estate has historically been viewed as a local phenomenon. Builders and investors
for decades prided themselves in their ability to find the best "location, location, location" based
on their local knowledge. It is among the least "tradable" of products, in the sense of being
physically unmovable, even though it can be bought and sold both domestically and
internationally.
 This combination of local knowledge and predominantly local tradability was the primary
reason why discussions of globalization in the 1990s and earlier, overlooked the real estate
industry as a possible participant in the ongoing phenomenon of increasing global economic
integration. Although an occasional headline would be grabbed by a foreign purchase of a local
landmark (New York's Rockefeller Center, Arco Plaza in Los Angeles, and even the Pebble
Beach resort), the business itself remained largely local, with US firms dominating in US
markets, and foreign firms in foreign markets.

In the last decade, however, globalization has increasingly involved the

internationalization of services sectors as much as of manufacturing, and the various sub-sectors
of the real estate industry have been enthusiastic participants in this global surge. Builders,
brokerage firms, consulting and services firms, real estate finance firms and investors have
extended their area of operations beyond local markets to a world-wide base. (Bardhan and
Kroll, 2007)

The decision making process consists of different stages. It could be linear or circular,
depending on the sequence and could have a different logic behind choice of alternatives.
Different decision theories present various number of stages, some older models suggest three
(personal opinion, choice narrowing, and presentation of solution) according to Condorcet
(1847), while more recent theorists inferred that this process is more complex and have about six
stages including routines (sub-stages). Modern decision theory also suggest that decision making
is non sequential and that certain stages occur simultaneously (Mintzberg, Raisinghani, and
Thort, 1976). Beside this decision theory also defines matrices that contribute to better
understanding and prediction of possible outcomes (Hansson, 2005).

There are diverse categorizations of investors such as by the ownership rights, volume of
transactions, or type of properties that they invest to. The following classification distinguishes
them by the risk acceptance and expected rate of return. Core investors choose low risk
properties located in the primary markets and tenants that are signed to long term leases. Value-
added investors are picking properties suitable for renovations, but less predictable cash-flow.
 The third category is opportunistic investors that decide to invest in developments and
achieve high return in long term (Haskel, 2009). In the context of foreign investment,
understanding of decision making has to include investment theories that demonstrate motives
and aspects that influence it. Prior researches in the field (Axelsson, Victorin, 1999) suggest that
excess of return had the greater impact on foreign investors decision which was in line with
maximizing returns- minimizing risks Markowitzs theory. However, some more recent study
(Falk, Olsn, 2009) inferred that foreign investors have as a major motive the diversification of
portfolios. However despite the fact that Sweden has one of the lowest risk rates in Europe
(UNCAD, 2012), statistics are showing lower rate of foreign investment in this country. Further,
despite the general opinion that foreign investors became more cautious about cross-border
investments, Montenegro market show predictions to grow mainly owing to inflow of foreign
capital in real estate development (MIPA, 2011).

References:

http://web.mit.edu/sis07/www/kroll.pdf
https://www.kth.se/polopoly_fs/1.405304!/Menu/general/column-
content/attachment/Marija%20Balsic_Master%20of%20Science%20Thesis-2.pdf
http://www.sciencedirect.com/science/article/pii/S2212609016300383
 Review of Related Studies (Local)

Though the Philippines is touted as one of Asias fastest-growing economies, global

economic shifts and conditions have put pressure to a lot of emerging markets. With the pending
recovery of economic powerhouses, emerging markets have to deal with plummeting currency
values, rising interest rates, volatile capital flow, and stricter monetary policies. Even if the
country wasnt hit badly by these economic concerns and hurdles, it should be able to provide
investors here and abroad with some valid figures and statistics, consolidated data from the
industry, as well as market updates and studies that they can use to gain perspective on short- and
long-term investments. This will give them valuable ground insight when searching for
investment opportunities in the core markets, managing the assets, identifying investment
alternatives, and minimizing risks. Solid research data will allow them to put in place some
strategies and contingencies given the current market conditions, trends, and forecasts. This will
not only give them options for investments but can also quell whatever fears they may have
about the real market situation and factors that affect the industry such as credit, inflation,
external accounts, and other economic fundamentals. After all, market speculations can bring
about inflated prices and unprecedented shifts in the property sector.

We have seen how the housing crash has snowballed and has somehow led to the Great
Recession, with other factors coming together to create such a devastating economic
phenomenon. The recession, they say, started with the US subprime mortgage crisis. For quite
some time, the housing crash has gravely affected retail spending in the US. The worldwide real
estate bubble burst is also somewhat related to the 2007 to 2012 financial crisis. Home valuations
arent the only ones that suffered in the collapse of the housing bubble in the US. One way or
another, it also affected the mortgage markets, real estate, hedge funds by institutional investors,
foreign banks, and other sectors.
 Fears of recession can dampen market activity, with buyers and investors becoming more
reluctant to buy any property. Overblown inventory can also affect growth in the sector, along
with massive mortgage bubbles, macroeconomic concerns, and global credit issues. With all
these, government agencies should be able to monitor various economic fundamentals, such as
inflation and debt rates, external accounts, foreign direct investments, credit standards, banking
system, interest rates, and price movements, among others. They should release timely and up-
to-date market reports, statistics, studies, and other relevant industry facts and figures. Access to
this information can lead to building trust among investors, trading partners, and the rest of the
global economic community. This will also keep key government agencies and market partners
on their toes when facing market problems and issues that may require reforms or immediate
action. (Luethi, 2014)

The Philippines real estate market in 2014 is best described as buoyant. According to
Colliers International, better economic conditions and ramped up government spending drove
real estate growth, if not for the residential sector but for other segments, such as industrial,
hotel, retail, and office. The Philippines was also named one of Southeast Asias best performing
markets in JLLs Real Estate Transparency Index in 2014.

Metro Manila

New players have entered Metro Manilas office sector due to bullish demand, according
to the Q4 2014 report from Colliers. More than 195,000 sq m of office space was completed in
the last quarter of 2014, the highest in a single quarter since Q1 2013. Despite this new supply,
vacancy rates remain stable in the Makati CBD at two percent, resulting in an acceleration of
rents. Prime residential real estate, on the other hand, saw stable growth of rental rate and capital
value in the same period, although preselling condo sales declined by seven percent year-on-
year. According to Colliers, smaller-sized condo units are set to dominate Metro Manilas condo
market over the next four years. Close to 75 percent of new supply to be turned over between
2015 and 2018 will comprise studio and one-bedroom units (ranging in size from 18 to 90 sq m).
The influx of these smaller units is expected to create pressure on rental rates and resale prices.

CALABARZONAs the Philippines second most economically important region after Metro
Manila, CALABARZON (comprising the provinces of Cavite, Laguna, Batangas, Rizal, and
Quezon) boasts the Philippines second largest gross regional product (GRP) at Php1.644 trillion
($37.14 billion) and a buoyant real estate market.

The provinces of Laguna, Cavite, and Rizal are close to Metro Manila and for this reason,
they are popular areas to buy a home for the capitals millions of workers. For instance, the cities
of Bacoor and Dasmarias in Cavite, San Pedro and Santa Rosa in Laguna, and Taytay, Cainta,
and Antipolo in Rizal are home to numerous residential subdivisions that offer houses from as
low as Php1 million in Cainta ($22,160) to as high as Php35 million ($775,700) in Ayala
Southvale in Bacoor.

However, the region also boasts a buoyant leisure real estate market, especially Tagaytay
City in Cavite and the towns of Nasugbu and Calatagan in Batangas. Vacation homes, condos,
and beachfront houses within master-planned communities are quite common in these areas,
such as Playa Calatagan, Pico de Loro, Twin Lakes, and Tagaytay Highlands.

Metro Cebu

Metro Cebu - comprising the cities of Cebu, Mandaue, Lapu-Lapu, Talisay, Carcar,
Danao, and Naga, and the municipalities of Compostela, Consolacion, Cordova, Liloan,
Minglanilla, and San Fernando - ticks all the boxes of an attractive real estate market.

The metro is Central Visayas economic powerhouse, home to 80 percent of the

Philippines domestic shipping companies, and a thriving tourist destination in its own right.
Homebuyers here can enjoy easy access to both the metros central business districts and to
white-sand beaches and world-class diving sites.
 Major property developers have been active in Metro Cebu for years, pouring money into
mixed-use projects, such as Megaworlds Mactan Newtown and Ayalas Cebu Park District.

Davao City

Davao City is emerging as Mindanaos real estate hotspot, thanks to its relative stability
and a local economy that is ripe for further expansion and development. Colliers has also
identified the city as Mindanaos condo hotspot: from a mere 1,203 condo units launched in
2009, new launches grew 54 percent annually to 6,768 units by the end of 2014.

National developers have also made their presence felt in Davao City. The SM Group
have two malls in the city (SM City Davao and SM Lanang Premier), while Ayala subsidiary
Alveo Land is expected to turn over Abreeza Residences this year. Megaworld Corp., on the
other hand, has earmarked Php15 billion ($331 million) to develop its first mixed-use township
in Mindanao, the 11-hectare Davao Park District on the former Lanang Golf and Country Club
site.

Central Luzon

The region, especially the provinces of Zambales and Pampanga, has been a real estate
hotspot since the closure of the U.S. bases in the early 1990s. Pampangas Clark Air Base, for
instance, has reemerged as Clark Special Economic Zone, which is now a hub for business,
industry, aviation, and leisure and tourism. The same has happened to neighboring Subic in
Zambales.

Property developers have been pouring investments into Central Luzon over the last few
years. Ayala Land in 2014 launched two mixed-use projects in the region: the 1,125-hectare
Alviera in Porac, Pampanga, and the 98-hectare Altaraza in San Jose Del Monte, Bulacan.
 Recently the governments Bases Conversion and Development Authority (BCDA) has
bid out development rights for 254 hectares of land within the 9,450 hectare Clark Green City
between Tarlac and Pampanga. (Tranghanda, 2015)

The Philippine government is committed to undertake a continuing program of

encouraging the development of affordable housing for the lower income brackets and other
beneficiaries. In line with this, it is also the governments policy to protect housing tenants in the
lower income brackets and other beneficiaries from unreasonable rent increases. This is
supported by several laws which established reforms in the regulation of rent of certain
residential units, the latest of which is Republic Act No. 9653. The Republic Act No. 9653
entitled Act establishing reforms in the regulation of rent of certain residential units, providing
the mechanisms therefore and for other purposes also known as the Rent Control Act of 2009
took effect in July 2009.

Before the extension of the Rent Control Act of 2009, HUDCC asked the assistance of
PSRTI to conduct the Rent Control Study. Section 6a of the Rent Control Act of 2009, cited the
things that need to be considered in determining the period of regulation, the residential units to
be covered and the adjusted allowable limit on rental increases per annum. Being guided by this,
the PSRTI conducted the Rent Control Study and submitted its recommendation to HUDCC.
(Philippine Statistical Research and Training Institute, 2015)

References:

https://www.linkedin.com/pulse/20140519092253-88542762-challenges-of-real-estate-
research-in-the-philippines-part-2-of-2
http://www.hudcc.gov.ph/sites/default/files/styles/large/public/document/FINAL%20RE
PORT%20ON%20THE%20RENTAL%20STUDY.pdf
http://www.lamudi.com.ph/research/whitepaper-2015/