Office Rent Exposure In Asia Pacific

Covid 19’s impact on the Asia Pacific office market has been that buoyant demand leading into the pandemic was quickly stymied as corporate occupiers sought to limit cost exposures and assess their real estate needs.

In line with this, vacancy has increased and rents have softened across most markets, pushing them towards greater tenant-friendly status. However, corporate occupiers must be aware that these changes may not bring the cost savings they might expect and that in some markets, tenants may have to pay more on a new lease than they were paying on the last year of an expiring lease.

The year ahead

Looking ahead, landlords are expected to continue experiencing headwinds in many markets across Asia Pacific. While the regional economy recovered to pre-pandemic levels in the fourth quarter of 2020, with forecast growth of 6.5% in 2021, recovery in commercial office markets has lagged behind.

The regional one-year rental outlook is for an average decline of around 1.7%, but with great variability around this average. Rents in Hong Kong are forecast to fall a further 13% over 2021, continuing the trend that started in early 2019. Rents in Hanoi and Tokyo are also under comparatively significant downward pressure due to forthcoming supply.

In contrast, rents are forecast to increase the most in Seoul, at around 5% for the year. Seoul’s office market has been especially resilient during the pandemic so far, even posting growth of 3% in 2020, thanks to strong tenant demand and limited supply.

Overall, this is broadly positive news for any corporate newly entering any of these flat or declining markets. In short, they should be paying less than a new market entrant 12 months ago. However, what about existing occupiers looking to re-sign a lease? Although rents have been easing, past rental growth over the duration of an average lease term needs to be considered.

Rental exposure across the region

Looking at past rental growth together with the 2021 outlook provides an estimate of rental exposure – the difference in rent paid on a lease and market rent. To analyze more accurately, market conventions for annual rental escalations have been included.

The situation is delicately poised. A little over half of the markets analyzed are over-rented by an average of 1%. In other words, rents currently being paid by occupiers are on average 1% above market rent, mainly due to the recent global softening. However, this also means that the opposite is true for the remaining markets – market rents are above current lease rents.

Hong Kong sits at one extreme, with current lease rents being almost 40% above market rents, reflecting the steep market rent declines experienced over the past two years. After this, differences of over 10% also exist for Beijing, Jakarta and Shenzhen.

Of greater concern are the markets where tenants are under-rented – paying below expected market rent as at Q4 2021. Indian cities feature prominently here, reflecting their meteoric growth over the past few years. Bengaluru is the most under-rented, at 39% below market rent, closely followed by Hyderabad at 35% under-rented.

The underlying message here is that market conditions are perhaps more challenging for occupiers than they first appeared. While occupiers in some markets are likely to be able to make considerable cost reductions on lease negotiations this year, others could be looking at varying degrees of higher real estate costs at a time when corporates are more acutely seeking to minimize cost exposure.

Beyond a closer observation of market dynamics, corporates should explore additional strategies, including:

• Be proactive in managing corporate space needs in the most volatile markets to capitalize on expected rental declines or minimize rental increases.

• Ensure that real estate strategy is aligned to corporate enterprise goals, especially when considering alternative locations.

• Calculate space requirements accurately through workplace analysis.

• Apply thoughtful design and fit-out standard to help ensure maximum productivity.

C_W_APAC_OfficeRentalVariabilityIndex2021

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Source: Property Chronicle and Cushman & Wakefield

Can You Get Your Down Payment Back On A House?

A lot of Filipinos are buying real estate properties in the Philippines, like condos, townhouses or residential homes, as vacation houses or for investment purposes.

Most of these purchases are financed either by a bank or the seller, and the buyer pays on an installment basis for a period of 10 to 30 years, depending on the value of the property and the terms of the loan.

Sometimes, however, there are unavoidable situations where the buyer is unable to continue making the monthly payments on the loan. In such case, the seller or lender can cancel the sale contract or foreclose the mortgage on the property.

Luckily for the buyer, there is a Philippine law that protects him or her in case of default in making installment payments. Under the Realty Installment Buyer Act (Republic Act No. 6552) or the Maceda Law, a buyer of real estate property on an installment basis has the following rights:

1. Right to a grace period to pay the installments due. If the buyer has paid at least two years of installment, the buyer has a grace period of 30 days for every year of installment payments made; if only less than two years installment payments have been made, the buyer has 60 days from the date the installment became due.

2. Right to a 30-day notice of cancellation. If the buyer is unable to pay the installment due within the grace period, the sale contract will only be canceled after 30 days from receipt by the buyer of a written notice of cancellation or a notarized demand for rescission of the contract.

3. Right to refund of payments made. Under Section 3(b) of the law, if the contract is canceled or rescinded, the buyer is entitled to a fifty per cent refund of payments made, if buyer has already paid at least two years of installment. The refund percentage is increased to five percent for every year after five years of installment payments made, up to a maximum of ninety per cent. The down payment, deposit or option payment on the contract are included in the computation of the total installment payments made.

It is common practice among sellers to impose penalties, charges or other fees if the contract is canceled or rescinded and to deduct these from the refund amount, thereby leaving the buyer with a smaller refund.

This practice is of doubtful legality because the law expressly states that any stipulation in a contract that is contrary to the foregoing rights shall be void. Since the deductions would reduce the refund amount to less than fifty or more per cent (depending on the length of payments) of the installment payments made, this would contravene Section 3(b).

The realty installment buyer can also sell or assign his or her right under the contract before it is cancelled. And if he or she pays the whole balance in advance, no interest shall accrue on such unpaid balance.

Registration of Untitled Land

What Are the Differences Between Registered and Unregistered Land?

Registered land refers to a piece of property that has a corresponding title attached to it, in accordance with the legal processes. It must be registered in the Registry of Deeds.

In contrast, unregistered land has no owner in the eyes of the law, and does not have a registration in the Registry of Deeds.

There are a few things you must take note of in this matter of registration of lands:

• Not all lands are capable of registration. Forest reserves, mineral lands, and previously titled lands are examples of these.

• The Certificate of Title is proof of registration. They are not the title themselves. They have the following features: (1) free from liens and encumbrances, (2) incontrovertible and indefeasible, (3) presumed valid and devoid of flaws.

What Are the Risks Associated with Letting the Land Be Unregistered?

Suppose you have all the right to secure the title, but you choose not to have the land registered, you may encounter these risks along the way:

1. Another person may claim the land and register it themselves in the Registry of Deeds.

2. The government may take the land through expropriation without just compensation due to you.

What Security Do You Have When Your Land is Unregistered?

None, since you don’t have any right to the land recognized by the law. Sure, you may have pieces of evidence, including tax declarations, showing that you own the land. But the ultimate security lies in the registration of the land, with the title assigning ownership to you.

What are the Costs Associated with Registering Land?

These are the costs involved when having your land registered:

1. Application fees

2. Technical description of the land

3. Survey of the land

4. Legal fees

5. Court fees

6. Other administrative fees

What Should We Do When Someone Else is Claiming Unregistered Land?

If they haven’t filed yet with the court, register the land immediately. If they filed a registration already, file for an opposition. This move is supported by Section 25 of Presidential Decree 1529 or the Property Registration Decree. Whether you’re filing for registration or opposition, you must take note of the following:

• Make sure that the land is capable of registration and ownership.

• Prove that you’ve been in possession of land (e.g., tax declarations, statements from other land owners beside the land).

• Show the identity of the land (look at the survey plan or blueprints for the technical aspects of the property in question).

Does the Land Registration Process Differ According to the Intended Land Use?

No. The process is similar regardless of the kind of unregistered land. There are exemptions though to this rule:

• Government housing projects. Since it’s the government that initiates the titling of the land, you don’t have to file anything. You just have to submit requirements for eligibility with the government agency involved in the project. They will be responsible for the transfer of title.

• Patents or grants. A patent is not a title. What it does, however, is give you rights to the land. You must satisfy requirements for patents to “ripen” into full ownership and for the transfer to title to happen. There are also restrictions you must honor, like for example, not selling the land within the first 10 years.

Who Pays Tax for Unregistered Land?

The person who’s in possession of the land pays for it.

Do You Have to Pay Taxes When You Register Your Plot of Land?

The process of registration has no major taxes, though there might be minor levies along the way. Some of the taxes associated with land are:

• Real property tax (2% of the assessed value)

• Capital gains tax (6% of the sale price)

• Documentary stamp tax

How Do You Determine the Value of Unregistered Land?

This question often arises when a person has the intention of selling. But do note that you cannot sell what you do not own. In the eyes of the law, an unregistered land has no owner. Nonetheless, in determining the value of unregistered land, you must ask yourself these questions:

• Are you the owner of the land? Land is more valuable when you are the owner, not just a tenant or a caretaker.

• Does the land have the capability to be registered? If it does, then its value would increase because it would attract people who vie for the ownership of it.

• Can the land be utilized for real estate, farming, development, and the like?

• Do you have direct access to the highway? A property that’s easily accessible has a greater value than a land that is far from road networks.

• Where is your land located? Ideally, it must be in a fast-growing environment.

• Is your title clean? If there are no other claimants to your land, then the property has better value because it offers security to potential buyers.

How Can You Make a Deed of Sale for a Land?

You can only have this document when you have the land registration and title. A deed of sale must be in writing and in tangible form. It must contain the following:

• date of transaction

• name and information of buyer

• description of the identity of land

• agreement between the buying and selling parties

• purchase and mode of payment

• signature of both parties

• notarization

The most important takeaway from all these is to turn your unregistered land to a registered piece of property. Maximize its potential.