First, let’s layout the situation

On July 30 2021, the Philippine government announced that it will put the National Capital Region on Enhanced Community Quarantine (ECQ) beginning August 6th until August 20th. It’s the lockdown all over again.

Some of the headlines of that day, in case you missed it:

Philippine News Agency: NCR shifts to ECQ Aug. 6-20

Presidential Communications Operations Office: Metro Manila escalated to ECQ starting August 6 Metro Manila under ECQ from August 6 to 20 Metro Manila placed under ECQ from August 6 to 20 Metro Manila still under week-long GCQ, to shift to ECQ starting August 6 Palace: Metro Manila to be placed under ECQ from August 6 to 20

Once the lockdown takes effect, only so-called Authorized Persons Outside their Residences or APOR shall be allowed to go in and out of the National Capital Region and the nearby provinces of Cavite, Bulacan, Laguna, and Rizal (categorized as NCR Plus).

Last August 4 2021, Executive Secretary Salvador Medialdea issued Memorandum Circular No 87:

“Establishing The On-Site Capacity To Be Observed By Government Agencies And Instrumentalities In The National Capital Region For The Period Of 06 To 20 August 2021”

The main takeaway from this memo comes from Section 2 entitled “On-site capacity in NCR during ECQ”. The gist is that government agencies and instrumentalities of the executive branch in the NCR shall only have a skeleton workforce on-site. This skeleton workforce shall not be less than 20% on-site capacity at any given time, with the remainder being under work-from-home arrangements.

The potential effects on rental/leasing

Today, August 6 2021, many of the office/commercial buildings, condominium buildings and subdivisions located within Metro Manila will stop accepting property viewings, inspections, renovations, professional cleaning and other related work or activities that would involve individuals coming from outside of their respective developments.

We even received info that the Palm Tower at One Serendra, for example, will not allow any units to accept client visits during the ECQ. We have a Two Bedroom For Rent there that has been vacant since the start of the first lockdown and it looks like its going to continue to sit vacant this August.

Unless the rental or leasing transaction is already at its last stage of the process, a landlord or tenant will once again be left hanging until this round of ECQ is over. Many landlords in the low and mid end condominiums and subdivisions may particularly feel extra pain this time around if their units have been sitting vacant since 2020 because of the following reasons:

1. Their monthly association dues will continue to be charged.

2. If they still have mortgage, their banks will continue to charge monthly payments.

3. Their quarterly or annual property tax will continue to be charged.

4. Their appliances will continue to deteriorate without providing any value in return. And if any of those appliances breakdown, they may need to purchase a replacement.

5. Finally, the longer the units stay vacant, the lower they could charge for its monthly rent. (Since there are a growing number of vacant units, landlords will need to offer lower/competitive prices to attract tenants.)

The prolonged lockdown has turned the rental and leasing market into a Tenant’s Market. This means the number of available units are higher than the number of available tenants.

During this time, tenants will have the luxury of unit shopping, while landlords fight to provide the lowest most competitive price. There are still landlords in the low-mid end segment that are holding on to their pre-pandemic rental price, but that would just prolong their agony.

Some residential landlords in the high-end segment may also feel some “inconvenience” while holding on to their vacant rental properties but it won’t be the end of the world for them. These landlords usually have businesses or work that they could tap into, while riding out the lockdown.

Individuals who own commercial properties or office spaces are also on the same boat as that of the low-mid end residential landlords; While vacant, their units will continue to pay association dues, mortgages and property tax.

The work-from-home setup will also potentially make their lives miserable as there would be fewer companies that would expand their offices or businesses.

The rate of residential vacancies are also linked to the success of their commercial properties/office spaces; a high residential vacancy rate means there’s scarcity of workers in their location, which in turn would mean businesses are doing poorly. If businesses are doing poorly, they have no incentive to rent or lease out offices or commercial spaces.

Unfortunately, there is no government body that collects data on the residential vacancy rate, but the situation on the ground tells us that residential vacancy rate is rising. We have been listing more and more rental condominiums as the weeks go by. See the list of rental properties here.

From where we stand, corporate-owned commercial properties and offices spaces are a mixed pot; some have vacancies, while others fare well. One of our corporate clients who own several low-rise buildings in the NCR enjoyed 100% occupancy rate in their commercial side (as well as their residential side). Their residential buildings have been taken up mostly by young professionals while their commercial building have been converted into an isolation facility leased by a Local Government Unit.

Commercial real estate is the territory of Colliers, Jones Lang LaSalle, Leechiu so checkout what they have to say about the commercial/office vacancy rate here:

Manila Bulletin: Real estate markets post all-time high vacancy rates Property sector seen to stay in a slump in 2021 Real estate vacancy rate seen widening as more POGOs exit

ABS-CBN News: PH property sector seen to start recovery by 2022: Colliers International Office vacancy rate highest in 12 years

Although it’s a Tenant’s Market, many residential tenants or would-be tenants may still find themselves in a difficult situation renting the right property.

This August 6 lockdown may likely put the rental/leasing market in a grinding stop, which means tenants will have to wait until August 20 or beyond to go through all the process of renting/leasing: visit a unit, start negotiations, sign contracts, have it notarized, pay the rate, submit the docs to the admin and move-in. Many condominium units have also started requiring swab test results before viewing or moving into the units, which in turn adds another layer of effort, on top of the other layers of difficulty.

The potential effects on sales

Like in the rental and leasing market, unless the transaction is already at its last stage, sale of properties may have to wait until August 20 or beyond.

Some of the effects that could hurt buyers and sellers:

1. Viewing or inspection of properties – Since only the so-called Authorized Persons Outside their Residences or APOR are allowed outside, viewings or inspections would be close to non-existent.

2. Conducting due diligence – Due diligence takes time; requesting for original certified true copies, verifying authenticity of docs with the government offices, checking if the fees and taxes are up-to-date. With Executive Secretary Salvador Medialdea’s Memorandum Circular No 87, the 20% skeleton workforce will push the amount of time of doing due diligence from days to weeks or even months!

3. Payment of earnest money or down payment – There are several things on this one:

>The APOR directive may put a stop on any face-to-face payments during this lockdown.

>Unless the earnest money or down payment is only 50,000 or below, the buyer may not be able to wire transfer the full earnest money/down payment amount to the seller (banks have a 50,000 per day limit on wire transfers).

>Then, there’s the question of security after the wire transfer: how sure is the buyer that the seller will not run away with the wired money, since buyer & seller will not meet and sign any documents face-to-face?

>Even if buyer and seller will be able to meet face-to-face for the payment, the banks will have shorter banking hours; Buyer will be pressed to get a manager’s check or withdraw large sums of cash and seller will be hassled to deposit the check or cash before the banks close.

>Finally, prolonged delay in the payment may potentially cause the buyer or the seller to back out of the transaction.

4. Signing of the Deed of Absolute Sale (DOAS) – APOR may ruin this one as well. Buyers and sellers may have to wait until the ECQ is lifted to do the signing.

5. Payment of Capital Gains Tax and other fees and taxes – For the ones that have already signed the DOAS prior to the August 6 lockdown, but have not yet paid the Capital Gains Tax and other fees and taxes, they could potentially be in a pickle. The Bureau of Internal Revenue (BIR) will penalize the buyers and sellers if they are not able to pay the appropriate taxes on time.

For example, Capital Gains Tax is required to be paid within 30-days after the signing of the DOAS. If the government extends the lockdown beyond August 20 and you signed the DOAS on August 01, by August 31 you should have already paid it or else they will charge you a late penalty fee.

The BIR did provide extensions on the deadlines but I am not 110% if it would apply this time around.

Last March 30, 2020, BIR Released REVENUE REGULATIONS (RR) NO. 7-2020. This RR, “implements Section 4 (z) of Republic Act No. 11469 (Bayanihan to Heal as One Act), particularly on the extension of statutory deadlines and timelines for the submission and/or filing of several documents and/or returns, as well as the payment of several taxes specified in the Regulations.” (See full text here.)

Then, last April 30, 2020, BIR released REVENUE REGULATIONS NO. 11-2020 which, “amends Section 2 of Revenue Regulations (RR) No. 7-2020, as amended by Section 2 of RR No. 10-2020, relative to the extension of statutory deadlines for the submission and/or filing of documents and/or returns specified in the Regulations, as well as the payment of taxes pursuant to Section 4(z) of RA No. 11469 (Bayanihan to Heal as One Act).”

You may check all Revenue Regulations here.

6. Transfer of title – The APOR directive and Executive Secretary Salvador Medialdea’s Memorandum Circular No 87 will also hit this one. Like the due diligence, the lockdown will also push the amount of time of transferring the title from 2 to 3 months to many more months.

Keep calm

This is beyond your control. There’s nothing you or I or we or anybody else could do right now but to follow whatever regulations the government puts out.

Judging by the 2020 and 2021 performance of our country, we could expect the above mentioned situations to drag on or repeat until 2022. Until then, stay alive and be safe.

Compare listings