Is Iloilo City headed toward a property bubble?

It’s not that I don’t want Iloilo City’s economic development to screech to a halt. But looking at the frenetic infrastructure projects now undergoing construction (private sector development), I am worried that this would lead to a property bubble. At the pace new condominiums and malls are being built, there is a real danger supply would overtake demand, and many developers will be left holding an empty bag.

The retail market, for instance, is not big enough to warrant the operation of more stores in Iloilo City. The present retail floor space that are available for rent is already more than what the market could accommodate. Just recently, SM City opened its new wing, and many store spaces are still empty. That’s not to mention a number of restaurant closures in the giant mall.

Robinson’s Mall is opening another complex in Jaro at what used to be the campus of the De Paul College. Atria has gone full blast in its operations, mostly with restaurants in Barangay San Rafael. The Florete Group of Companies is rushing the completion of its Plazuela II along the Benign Aquino Jr. Avenue. Meanwhile, Megaworld is also going full swing in its construction of its strip malls in the Iloilo Business Park.

Filinvest and Ayala Land are also racing with each other to build condominiums within a 2-kilometer radius in Mandurriao. Not too far away are condominiums of Megaworld. Also about to commence construction is the mixed-use complex of Gaisano in Bolilao, Mandurriao.

Smaller malls have also been put up in other parts of the city. Double Dragon Properties Corp. has opened its City Mall in Barangay Tagbac, Jaro. Another City Mall is slated to break ground in Barangay Ungka, Pavia before the middle of 2016. A third City Mall is going to loom large over the scenic Guimaras Strait as part of the Parola Ferry Terminal. The group of Alfonso Tan is now operating GT Mall near the Molo Plaza.

There is no mistaking that development is taking place at breakneck speed in Iloilo City. A quick glance at all these activities couldn’t fail to impress the observer. But we need to learn lessons from history — business history. Property bubbles are always a danger when development takes place at such high speed. The demand might not be able to sustain the market supply’s growth.

Among the developers, I find the Double Dragon strategy of locating its new malls in the periphery of the city more prudent. It avoids the potential congestion that might only worsen the already bad traffic situation on the Iloilo Diversion Road (aggravated by poor traffic management practices of the LGU). And as the City Malls are situated in the outskirts, they will be able to snare much of the people who want to avoid the traffic.

Of course, these developers didn’t just jump into pouring hundreds of millions of pesos in investments for malls and condominiums without extensive feasibility studies. That the developments are concentrated in the Mandurriao district seem to follow the model of Metro Manila, where malls and condominiums are built in concentric circles. The residences are  always a stone’s throw away from restaurants and shops. This is the model in Alabang, Eastwood, Greenfield in Mandaluyong and many more.

What I fear is that the buying power of Ilonggos might not be enough to fuel this growth. Even in the number of restaurants that have opened for business, one can easily see that customers flock to the newer ones, leaving the older restaurants with fewer diners. The dining market base hasn’t grown that much to make the opening of more restaurants viable. It’s the same way with shoppers.

I would want to see this growth sustained. The LGU should be laying the foundation for increasing the buying power of its people. Unfortunately, that is not happening. There are no industries that could provide good paying jobs for the people. If there are jobs being created, these can be found in the services sector — restaurants, retail outlets, call centers. This will fall short of what is needed to sustain this growth.

Our leaders should take steps to avoid a meltdown. They should not be lulled into a false sense of achievement. The public investments are being poured into the wrong areas. We are not building the necessary infrastructure for sustained development. The crash can happen sooner than anybody might expect.

 

Increase in Iloilo City’s real property taxes unjustified

City Mayor Jed Patrick E. Mabilog spent an afternoon trying to persuade real property owners in Iloilo city, particularly those belonging to the business sector, that a general revision of the local schedule of market values for real properties is necessary.

Mabilog said Iloilo City needs more revenues to meet its obligations. The IRA share of the city has been reduced, he claimed, with the addition of several new cities. He tried to downplay the fact that Iloilo City is wallowing in debt, and its present financial condition is choking its ability to pay for them.

There’s no argument a general revision is necessary. There have been a number of infrastructure projects that has changed the landscape of the city. New business parks have started to emerge. Under ordinary circumstances, these are solid ground upon which to anchor increasing the market values of real estate properties in Iloilo City.

But there is one important point that drowns this argument in its favor. And that is wasteful manner by which the Mabilog administration has managed the city’s finances. At no other time in the city’s history have we seen as many as 5,000 job hires in its payroll. That is a best estimate, because the city government is keeping the figures under wraps. But if there is one thing I can be sure about, it’s the fact that hundreds of millions of pesos were expended to pay for their wages.

The job hires are just one example of fiscal mis-management of the city. The city government loves to throw away money on senseless activities. The Mabilog administration spends millions to buy lechon and flowers. It is now in the process of buying the Ker and Company property at a dizzying price of P46 million. That property will be turned into a parking lot.

The Mabilog administration hasn’t come clean on issues of overpricing for the Iloilo City Hall building. It hasn’t explained to the people why more than a hundred million in taxes were paid for the city’s loan for the Pavia housing project. So much money wasted, and it can’t even pay its utility bills with PECO and PLDT.

Real Property taxes are the city’s biggest local source of revenues. Its share in the Internal Revenue Allotment contributes the heftiest sum for its annual budget. It has a right to collect this real property tax. But that is based on the assumption that its revenues are allocated for activities that contribute to the well-being of the people in the community.

On this point, we should oppose any move to increase real property taxes. Not until the Mabilog administration can convince us that it is handling our money with prudence should we agree to shelling out bigger sums of money for the city. We should not be hoodwinked into supporting the wastefulness of this city mayor with our hard-earned money.

Choking the Ilonggos with higher taxes

The move of the Mabilog administration to fully implement the 2006 schedule of real property tax values to absorb expected financial shortfalls for the city government is a sledgehammer blow to its residents and business community. It will definitely raise property tax payments by 2012 and put a heavy burden on everybody who owns a house and lot, building or even vacant lots. It’s a punishment on the people just so City Mayor Jed Patrick E. Mabilog can continue to splurge on his wild spending sprees.

This move will bring the property values from its present 60% level to 100%. Hence, without necessarily undertaking a general revision of the schedule of property values, the city government will be able to raise its property tax base. Our city leaders justify this move as an alternative to a general revision which is required by Republic Act No. 7160, or the Local Government Code, to be conducted every three years to constantly keep the tax base current, and factor changes in property values.

It’s not that the city government under Mabilog will face sanctions for not sticking to the schedule for the general revision. No LGU has really been reprimanded for not revising property values every three years. That provision is really a grant of broad taxing powers to LGUs. It is a mechanism to give LGUs enough elbow room to improve their revenue-generation capabilities.

Moreover, a general revision doesn’t have to mean an upward movement in real property values. We have to keep in mind that the law contemplates values of properties depending on the economic situation. In boom times, property values go up. In bad times, the market could dampen, and property values could go down.

With this in mind, it’s easy to see the timing for the move is bad — very bad. The world is reeling from what is feared to be the worst recession in modern history. Businesses are badly shaken up, with hundreds of thousands of jobs lost, or about to be lost. Even governments are facing bankruptcy.

The consequences of this global recession will hit the local economy hard. We depend heavily on dollar remittances from overseas Filipino workers, and we’ve seen as early as a year ago thousands of them coming home, their contracts terminated or not renewed. The ranks of the unemployed has swelled, and will continue to swell in the months ahead.

No doubt the city’s leadership has neglected to factor this reality in making this decision to fully implement the 2006 schedule of values for real properties in Iloilo City. The only consideration that impelled it to take such action is the prospect that its share in the Internal Revenue Allocation (IRA) from the national government will be drastically reduced because of the recent Supreme Court decision upholding the cityhood of 16 municipalities. With its share of the IRA pie smaller, the city wants to squeeze real property owners in the city to make up for the shortfall.

This is unfortunate. This is tragic. Instead of helping businesses and property owners cope with the recession, the Mabilog administration will even take to hanging them from the gallows. In situations like this, LGUs would usually seek to tighten their belts, meaning they will try to bring down their expenses. A good mayor or governor knows that it can make do with less in difficult periods like this. The last thing a good leader will do is place more burden on constituents.

Unfortunately, this is the path that Mabilog has taken. It is tragic because everybody will have to carry the financial burden while he continues to squander public funds, and not lift a finger to recover wasted resources as a result of massive corruption. The city has lost more than P130 million from the Pavia housing scam, but Mabilog is letting the crooks go scot-free. Now he is splurging another P260 million for the City Hall project even though his own project construction consultant admitted it could be finished with P45 million.

It would be interesting to see how this unfolds. Will the business community just swallow the bitter pill and let Mabilog get away with murder? Will ordinary property owners just wince in silence and grudgingly pay the higher taxes next year? Will a city allow itself to be strangled while a city mayor wastes their money?

I definitely will not keep quiet.