On the other hand, it is also a type of economic bubble which usually starts when the demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble burst. It occurs periodically in local or global real estate markets. It can be identified through rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline.
Why should a real estate property owners and soon-to-be homeowners be concerned about real estate bubble? The rule of thumb is you should not spend more than 25% of your gross monthly income in your total housing expenses, including principal, interest, property taxes, and homeowners' insurance. When one spends too much on housing expenses, he is forced to use credit card to pay for other expenses, such as food, electricity, and gas. Your home may be appreciating in value but you are not aware that you are paying for unacceptable interest rates on credit card. Because you are spending so much for your home, you can only pay for the minimum amount on your credit card to stretch the payment over many years.
Of course, you will be more affected if your home has adjustable rate mortgage. As interest rates increase, your monthly amortization also increases. As a result, you may not be able to afford the payments as it continues to get higher. Later on, you may be forced to sell your home, which will result to your loss as you are forced to call it a default and walk out of your own home.
Why property bubble is not yet happening in the Philippines? For the answer to this question and more information about property bubble in the Philippines, you can refer to the infographic below.
Indicator of a Property Sector to be in Bubble!
- Supply exceeds demand
- Property prices must be artificially high whereby people are buying for speculation, not for
- No uptake of projects being constructed
- Rapid increases in valuations of real property until they reach unsustainable level and then decline.
Indicator of Good Property Market
- 7.2% Gross Domestic Product (GDP) growing and strong economy.
- Demand property continues to be strong.
- High standard borrowing/banking system.
- Low interest rate
Present Condition of the Philippine Real Estate Market
- 4th real estate investment market in South East Asia.
- Increasing rental rates, capital values, and land values due to the sustainable growth of the property market.
- Philippine properties are expected to grow in the succeeding quarters.
- Top choice destination for the expansion of Multinational and BPO companies.
Why Property Bubble is not yet Happening in the Philippines
- There is actually a backlog for offices driven by the growth of the BPO industry and growth of business in general, with the growing economy.
- Demand for the property continues to be high and strong.
- Rental prospects continue to grow, which is also a good indication of Sustainable growth.
- Purchase a home that you can only afford. Look for Makati Condo For Sale. The primary location and its proximity to everything you need.
- Go for the traditional mortgage where the principal and interest payments are at a fixed rate.
- Limit your housing expenses, including but not limited to principal cost, interest, property tax, and homeowners' insurance, from 25% to 32% of your gross monthly income.
- Do not buy a house because you think it is a good investment but cannot really afford it. As the cost of real estate continues to rise, the less likely it will continue to increase. Sooner or later, the bubble will burst and you do not want to get caught in the “bubble trouble”.
- Choose a simple and humble home located in a good neighborhood that will perfectly fit your needs.