PROOF OF RE SLOWDOWN

Here's proof that the market is slowing down.

Ayala Land, the country's biggest developer, has released its full-year (FY) audited FS for 2023.

Although the company's sales reservations increased in 2023, they grew at a slower pace (9% in 2023 vs. 14% in 2022). Total sales reservations likewise remain significantly below pre-pandemic levels (merely 78% of the 145.9 Bn recorded in 2019).

The slower pace is likely due to fewer projects launched in 2023 (75.9 Bn worth in 2023 vs. 91.4 Bn in 2022) and the higher interest rate environment.

JPRE: They're likely limiting project launches until interest rates go down.

I'm curious to know...

If the increase in sales reservations can be attributed to...

1. Increase in the total number of properties sold (e.g., 10,000 units in 2023 vs. 9,000 in 2022); and

2. Increase in the selling prices (e.g., lots sold at P45,000/sqm in 2023 vs. 40,000 in 2022);

How much of the 9% uptick in 2023 is truly from more people buying (#1)?

Takeaways:

1. I'm not saying the RE market is going to crash. I'm merely pointing to reports that confirm what we've been seeing. Just like stocks, these periods of consolidation are healthy—fewer chances of a RE meltdown (similar to what's happening in China) from occuring.

2. Brokers: If your sales production increased in 2023, it's likely because you're getting a bigger portion of the pie (vs. the pie getting bigger).

3. If you're buying pre-selling properties, it's safer to assume that you won't be able to flip them before turnover. If developers are booking fewer sales reservations, this suggests that they'll have a more challenging time introducing price increases. Fewer developer price increases mean a lower chance of flipping at a profit.

4. We have yet to see other industry challenges to materialize. For example, the government's Comprehensive Tax Reform Program (i.e., increase in real property tax/amilyar) has not been fully implemented. Certain cities, however, have begun to increase RPT (Westgrove from 4K/year in 2022 to 16K/year in 2023).