Earthquake Study Won’t Affect Demand For Condos

tokyo-major-earthquake-studyDays after the 7.2-magnitude temblor shook Central Visayas, the Metropolitan Manila Development Authority made public the sobering findings of the Australian Agency for International Development (AusAid) which predicted the dire consequences on life and property should an earthquake of similar power hit the nation’s capital region.

The study puts numbers and figures on what any Metro Manila dweller should have known all along—that this country sits on active fault lines that form part of the volatile Pacific Ring of Fire. For the real estate industry, which has been enjoying boom times as of late, would these grim reminders (the Central Visayas earthquake and the AusAid study) dampen the demand for condominiums, in particular?

Filipino analysts say they wouldn’t. But at the very least, they would increase the call for quality developments.

Enrique M. Soriano III, Ateneo program director for real estate and senior adviser for Wong+Bernstein Business Advisory, says: “The aftermath’s down cycle will only be temporary. The earthquake can be classified as a regional event, thus it will be business as usual for Metro Manila and the property sector in general.”

Soriano adds, however, that the demand on building specifications for residential and office sectors will also be a strong bargaining leverage for tenants and buyers.

Claro dG Cordero Jr., Jones Lang LaSalle’s head for research, consulting and valuation, explains that the demand could be affected due to the following:

  • Location (in residential condominium/real estate sense/terms) will have different meaning; and
  • Increased demand for quality developments.

According to Julius Guevara, Colliers International’s associate director and head of research and consultancy, valuation and advisory services, practicality would still win out and the demand for condominium units in Metro Manila would continue.

The risk analysis project—a 3-year collaboration of the Australia and Philippine governments—revealed that a 7.2-magnitude earthquake from the West Marikina Valley Fault would result in P2.4 trillion in damages to buildings and kill 37,000 persons.

Felino A. Palafox Jr., urban planner and architect, says that condominium buyers must know the team behind the project they are buying. This includes the developer; architect; structural, mechanical, electrical, plumbing, sanitary and fire protection engineers; contractor, and project manager. Buyers must also need to know where the geologic, hydrologic earthquake wind tunnel analyses had been conducted.

Quake-resistant buildings

“With increasing awareness due to the risk of earthquake, the demand for office and residential use could further shift to newer and more earthquake-resistant buildings, as residents or tenants will move out of old and obsolete structures,” Soriano says.

“Buyers will be aware and will likely choose the residential condominium developments that are located out of the danger zones (strictly following the required fault line setbacks), and outside those areas that are subject to liquefaction or other potential hazards under an extreme disaster scenario,” Cordero points out.

“Since condominium living is proving to be an inevitable phenomenon for urban centers such as Metro Manila (due to shortage of and resulting increase in values for available developable land), buyers will look for developments that are designed to be earthquake-resistant,” he adds.
Pressure on developers

Cordero surmises that there would be added pressure for developers to comply with building regulations and employ advanced technologies.

“The (AusAid) study will hopefully entice developers and the relevant regulators and government agencies to conduct appropriate studies to ensure that the developments are located in less hazardous areas and employ new and advanced technologies and strictly follow the design standards and building regulations to ensure that the developments will be able to withstand the worst-case scenario,” he says.

Guevara says: “While some are concerned that a strong earthquake will hit the metropolis in the future, I think the economics of living on landed property, especially those near the central business districts, would be prohibitive for most people. Practicality would win out, and demand for condos would stay firm. Still, a condo buyer should always check the developer’s and their contractor’s track records.”

According to Soriano, the study would have little effect now. He adds that aside from a “very small percentage” in the high-end segment likely to rethink their purchases, sales of condominium units will continue.

He says: “Overall, sales of condos that are mostly in the predevelopment stages will continue to be brisk, given the fact that November to February is considered a peak month for real estate sales. Traditionally, overseas Filipinos spend their holidays in the country.”

Soriano adds: “One important element to consider is that the bulk of the annual condo sales come from the economic low- and mid-end market. The latter’s buying behavior is premised on real need or utility.”

And what earthquakes can’t seem to shake off are what Soriano points out as the “very attractive terms” offered by aggressive developers: From 10-percent to zero down payments and amortization stretched to as long as 60 months. Overseas Filipinos, he adds, would not have to worry about shelling out equity in their condo purchase.

“On a macro-economic level, the optimism and confidence in the economy will continue to spur investors to bet on the equities and property markets. Returns in these sectors are still one of the best in the Asia-Pacific region,” Soriano observes.

(excerpts taken from: by Tessa R. Salazar)