VISTA LAND & LIFESCAPES, INC.

I. Background of the Company

Vista Land is the Philippine's largest homebuilder. It was incorporated on 28

February 2007 and was listed on the Philippine Stock Exchange on 25 June 2007. It is the

market leader by far in terms of total number of houses built, having constructed more than

200,000 homes in 34 provinces, and 67 cities and municipalities in Luzon, Visayas and

Mindanao.

The Company currently ranks among the top listed property firms in the country in

terms of total assets, earnings and market capitalization. With well-known and distinct

brands - Brittany, Crown Asia, Camella, Lessandra and Vista Residences, and through its

provincial marketing subsidiary Communities Philippines - Vista Land caters to all income

segments in the different provinces of the country.

The range of product offering starts at Php 750,000 (approximately USD 17,800) up

to Php 48,000,000 (approximately USD 1,100,000).Vista Land has demonstrated its

continued confidence in the Filipino market through its plans for further expansion into new

areas in the country. With the widest geographic reach among all property developers in the

Philippines, the Company continues to solidify the status of "Camella" as a truly national

brand.

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II. Objectives

This paper aims to gain a deeper understanding of the real estate industry through

the determination of the Michael Porter’s Five Forces: substitute goods, bargaining power

of suppliers, industry competitors, purchasing power of buyers and the threat of new

entrants. The researchers also aim to provide a Priority Matrix, PESTLE (Political,

Economical, Socio-cultural, Technological, Legal and Environmental) and SWOT Analysis

to be used as evidence for formulating strategies to improve Vista Land & Lifescape, Inc.’s

position in this industry.

III. Rationale behind Environmental Scanning and Industry Analysis

Real Estate industry provides an opportunity for people to have a better life by

construction of houses, giving out employment and through entertainment as well. It is an

integral part of the nation’s development to create commercial and residential homes for

business and society. It is the industry that makes these things possible.

In the real estate industry, there are commercial and residential or mixed-use

developments. A commercial area consists largely of business entities like financial

institutions, Business Process Outsourcing, malls, corporate buildings and the likes.

Residential development, on the other hand, creates places conducive for people to reside in

and suitable to raise a family. There are some real estate developers that combine

commercial and residential concept in one project hence calling it a mix-use development.

The real estate industry is a competitive industry to invest in. People, who are

planning to have their own real estate company, will have a difficult time building their

reputation because they will start from scratch. Having an excellent track record in this

industry is something that cannot be done overnight. You also have to need a large amount

of capital for you to start this kind of business. You will have to inject a lot of money in a

real estate company. If you are the type of person whose bank account is like the Ayala’s

then you might have a chance to compete with other real estate developers in the country.

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IV. PESTLE ANALYSIS

A. Political Factor

Unpredictable and unstable political structure in the Philippines. The government

policies such as expansionary and contractionary policies are factors affecting the

decision making of consumers. Expansionary policies are those subsidies given by the

government to increase the money supply, while contractionary policies are those that

decrease money supply. Money supply could influence Vista Land through Central Bank

of the Philippines. According to the Quantity Theory of Money, there is a direct relation

with money supply growth and the long term inflation or what we call hyperinflation. The

government policies, acts, regulation, bills, and laws, affect the businesses as well. In

terms of taxation, staturory reports to the different agencies within the government.

B. Economical Factor

Macro and Micro economic factors that affect the demand and supply of the goods

and services provided. Examples of these are inflation, interest rates, foreign exchange

rates and personal savings of the consumer. Inflation is the overall increase in the prices

of goods; hence it is a factor affecting the price, as well as the interest rates. The prices of

goods affect the demand of the commodity, depending on its elasticity. In this case, these

factors influence the consumer to buy properties being sold by Vista Land. Interest Rates

and Foreign exchange rates have an effect on the fair market value, thus when interest and

foreign exchange rate are high, and so are the prices and vice versa. In addition, income

of consumer is also one economic factor that can affect their decision making in buying

or leasing a property.

C. Socio-cultural Factor

The Philippines is now composed of 97,704,000 people according to the World

Population Statistics. Generally this dictates a bigger market for the real estate industry.

Even so, Vista Land also has to understand that not all of the approximately 98 million

people are going to buy, or have the capability to. There is what we call classification in

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terms of demographics that pertains to the classification of population (age, gender, and

the likes)

Modernization changes the lifestyle and preferences of consumers: the needs and

wants, which differ from a family to another relating to their status in the society. We do

have the upper class, middle class and the lower class. Upper class is basically those

people who are capable of buying all kinds products from housing to condominium units

not just a home but also an investment. Middle class is the group of people who can get

what they want if they would save up for it. And finally the lower class, which take up

most of the population. Only the government and foundation can cater to their housing

needs. Why? Vista Land is a business and businesses are for profit not for giving out to

the poor. On the other hand, Vista Land is part of the former senator, Manuel Villar who

is actively giving through sponsoring game shows which is a good thing and that is what

we call Coporate Social Responsibility. The business would not only have to focus on

own benefits. It is proper that they give to the society as well.

D. Technological Factors

Tracking down history, establishing houses and infrastructures was very hard and

took hundreds of years, just like the Pyramids in Egypt, hundreds of people died building

and carrying tons weighing blocks. Now through industrialization, we have technical

innovation is an integral part of putting up a business. In terms of real estate, technology

is useful to be able to finish projects on time or as early as possible it is because time is

equivalent to cost. The more time it takes, the more labor and raw materials are being

utilized. We are not talking about a few numbers of employees and supplies here. It is

mass production. And it would really be helpful to Vista Land to acquire technological

advancements to cut cost, even when the acquisition of these technologies is for a huge

amount. In the long run, they could still make use of them for all the projects Vista Land

would venture into.

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E. Legal Factor

Vista Land as a corporation in the business of one of the most hazardous and risky

occupations, and so it is being governed by the Department of Public Works and Highways

(DPWG), the Department of Interior and Local Government (DILG), the Department of

Trade and Industry (DTI), the Department of Labor and Employment (DOLE), and the

Professional Regulation Commission (PRC) signed a Memorandum of Agreement last May

4, 2011 to strengthen the campaign to minimize accidents in construction activities. This

MOA aims to “promote the welfare of construction workers and prevent the recurrence of

construction-related incidents, notably the ones that recently killed or severely injured

workers early 2012. Also, this MOA is an off-shoot of DOLE Department Order No. 13

(which provides the Guidelines Governing Occupational Safety and Health in the

Construction Industry) and aims to intensify the holistic and extensive execution of the

policies and programs set forth in D.O. No. 13 in construction sites”.

The Chamber of Real Estate and Builders‘Association or CREBA has key housing

agencies through which they are able to tie up with various government sectors and then, aids CREBA to

establish and implement the said rules and regulations towards the real estate companies. These key housing

agencies would include Housing and Urban Development Coordinating Council, Home Development

Mutual Fund, National Home Mortgage Finance Corporation, Home Guaranty Corporation, and National

Housing Authority, Housing and Land Use Regulatory board and Social Housing Finance Corporation.

All these agencies help protect the welfare of the company and the labor workers and of course the

consumers from different class in the society.

F. Environmental Factor

The real estate industry in the Philippines is currently leaning toward ecological

friendly materials due to the global campaign to save the environment. The materials that

are available range from pre fabricated walls and blocks to bricks that is considered to be

the oldest building material used. The pre-fabricated walls and blocks use polystyrene as

an aggregate that is added to the concrete mixture to produce a lighter and insulating

product. Reinforced fire bricks are also one of the common construction materials that are

used in construction of homes. Reinforced bricks are made of industrial wastes such as

rice hull, coal ash, silt, mud and clay.

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In general, there is the ambidexterity between the sustainability the environment and

building infrastructures. And Vista Land has to address to that specially now that we are

losing our trees due to expansions and developments of the cities, and it is obvious that

the world is reacting to the change.

V. Priority Matrix

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Strategies to Address the Following Issues:

Aggressiveness of substitute producers

Among the dominant real estate companies, all of them are seen to be aggressive

producers. They are considered as aggressive because one, all of them has readily available

resources such as funding and people. Two, all of them are highly advertised making

themselves and their products known to the market. Lastly, the real estate companies‘ worth,

based on their stock prices do not differ from each other. Also, among these dominant real

estate companies, their product lines are within range from each other. This could provide an

assumption that they don‘t want to be outdone by other players in the industry; which then

makes it unfavorable for all of them since there is a rigorous competition in their business and

in the industry. However, if we are to qualify whether the government, the firm producing the

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HIGH MEDIUM LOW

HIGH

Supplier

contribution to

buyer’s quality

Importance of our products

quality to buyers Brand loyalty

MEDIUMDegree of Product

Differentiation

Aggressiveness of substitute

producers

Number of firms

producing

substitutes

LOW Natural Disaster Number of substitutes Switching Cost

substitute of the good, is an aggressive producer or not, then they would fall as a non-

aggressive producer. This is again due to the fact that they, the government, have limited

resources, funding and capacity to be at range with the established real estate companies.

Number of Suppliers

Given that the proponents would be given a chance to enter the industry, granted that

there would be a multitude of suppliers who will provide for us, the producers. However,

there are only a few suppliers who could provide the adequate amount of supplies needed by

any real estate company since real estate businesses would require a huge amount of volume

of supplies for a project to be completed. Having said that, supplies would then be considered

as a critical success factor of a real estate business. It is a critical success factor because as

mentioned, any real estate project would need a huge amount of volume of supply and would

require numerous individuals to control and manage these supplies. If ever a real estate

company would choose to outsource their supplies from different suppliers as compared to

what is accustomed – getting their supplies from one supplier, then it would be more

expensive and would require more time to finish each project. With that, the number of

suppliers would then be in a state of scarcity and is critical to the business.

Supplier contribution to buyer’s quality

It is incontrovertible that supplies being acquired by producers play a big role in the

edifices that real estate companies build. This is because the raw materials that real estate

companies acquire will be used for production, which will later on probably be a determinant

of their standing in terms of sales and credibility. For a new entrant, it is essential that they

consider the quality of their supplies due to the established real estate companies‘ proven

success and quality of production. Once quality is assured, the new entrants could then gain

competence as to compete in the industry. However, a firm must not be too dependent on the

materials that their supplier provides them with; they too shall conduct quality control

management so to assure quality and practice the company‘s efficiency and effectiveness.

Switching cost

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As discussed, there are only a number of suppliers who could provide the adequate

amount of supplies that one real estate company needs. Given that, it would be difficult for a

real estate company, most especially a new entrant, to switch suppliers. In connection to this,

it would also then be difficult for a real estate company to manage costs since it is the

supplier who controls the price of the raw materials being provided. In this case, the real

estate companies has a neutral stand regarding this matter because then again, it is the

suppliers who control prices and thus, makes it favorable and/or unfavorable to the real estate

companies.

Degree of differentiation

It is in the location and the amount of property that makes each of the developers

unique. There are properties for people who have big bank accounts and others are for

middle-class people. But all the developers have one goal and that is to provide everyone a

better life by building them houses.

Brand loyalty

There is no customer loyalty in this industry because it all depends on how much the

person is willing to spend and the place where they want their house to be located.

Importance of our products quality to buyers

The satisfaction of buyers is the number one priority in this business. Developers

worked hard to reach a reputation that is not questionable by anyone. They do not want their

reputation to be ruined because in this line of business, reputation is everything.

Number of firms producing substitutes

As a whole, there are innumerable amount of players in the industry. However, if

considering the prominent established real estate companies only 30% of the total players are

dominant players and thus, 70% of the total players are indirect competitors and is still

considered as substitute. These dominant players are the producers who could provide the

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abundant amount of products, which other low-end real estate companies couldn‘t. Also,

these dominant players provide products that cater to both high-end consumers and low-end

consumers. This offering is then, their competitive advantage and thus, favorable to the

established real estate companies making it possible to gain a notable share of the market. On

the other hand, the only dominant firm that is producing a substitute of the good of the real

estate companies would be the government. With that, it is favorable for the part of the real

estate companies since the government only has limited resources and capacity.

Natural Disasters

Natural disasters are very rare in occurrence but have high impact to the business like Vista

Land. The Philippines is located in the Pacific Ring of Fire and the trend is that we normally

experience earthquake from time to time. We also experience fire and some other disasters

that are uncontrollable by the company in nature, maybe acts of God or acts of man.

Whenever such things happen, Vista Land has to have Business Continuity Plan. These

questions maybe address in order to make arrangements in case fire, earthquake, flood and

etc. occurs: Where will all the people go? What are they going to do in each scenario? Should

they leave the premise? Are there marshals assigned to lead people so to avoid panic? This

Business Continuity Plan is the best useful tool to prevent bigger problems once natural

disasters occur.

Number of substitute

Strictly speaking, it would be difficult for real estate companies to find a substitute

not only for their suppliers but the very supplies as well. It would be difficult for real estate

companies to replace their current suppliers. One, there had been stable ties and terms that are

already established. If ever any real estate company would decide to change their current

supplier, then it would require added money, time and effort to conduct outsourcing,

qualifying and training as opposed to keeping the established ties and using the money, time

and effort for further investments. It is also difficult to find a substitute for the supplies due

to the fact that the current supplies are the trusted and proven supplies for this certain

business which is why these raw materials are considered to be the essentials for the real

estate business. The possible substitutes for the current supplies are yet to be researched and

proven as safe and trusted supplies to construct the project. Another factor why it would be

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difficult for any established real estate company to replace its current supplies would be the

fact that if they replace their supplies, then it would imply that they are risking their expected

sales and/or income for again, the quality of the materials to be used would reflect the quality

of the work being produced

VI. SWOT Analysis

Illustration 1.

Strengths

People - The single most important strength of the Vista Land is its people. Since it is

in a real estate industry the services that their people render will have a proportionate

income in their sales.

Quality of Life - While the economic indicators show high poverty rates, these

numbers do not tell the story about quality of life as measured by time with family;

safety; not much pollution, crime, and traffic; easy access to the outdoors and

solitude; and close-knit communities. These are things many people seek in retirement

while most in the Vista Land have them right out their back door.

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Environment - The scenic beauty and natural surroundings of the Vista Land are truly

remarkable, and are obvious economic and community assets. Others include clean air

and water; vast expanses of public lands and open spaces. These are qualities that

certainly bring in tourists but the locals enjoy as well.

Local Planning Initiatives - Working on locally-targeted economic and community

development projects, these groups are helping to improve the outlook of the region

as a whole.

Weaknesses

Transportation clogging– most of the vista land projects are for high end and middle

class which shows that most of their projects are not easy to reach via public utility

vehicles. For security purposes their project location regulates public vehicles to

enter.

Opportunities

Recreational Facilities - Expanding or building various recreational facilities in each

community was seen as a needed amenity for vista land residents.

Niche Markets – it is an opportunity for the company to differentiate their projects. A

concrete example is entering the market of selling house and lots to condominium

units.

Tourism – the environment that each project of vista land has can attract tourists to

invest more.

Labor-Based Potentials – vista land could bring some new jobs to the region, but

would require studies of both industry demand and existing skill levels.

Threats

Uncontrolled Growth - A lack of planning for growth is perceived as a threat to

managing it. As growth increases it lessens the focus of the company to improve their

services because of increasing channels.

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Illustration 2. Five Forces

VII. Michael Porter’s Five Forces

I. Substitutes

A broad industry such as real estate would have close substitute in terms of residential

section – condominiums, town houses, apartments, subdivisions and villages. Substitutes

would come from the government sectors such as Pagibig Housing programs and the Caritas

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Foundation. For commercial section – Resorts, Malls, Offices, Growth Centers and Hotels,

the closest substitutes are those recreational parks and lands owned by the government such

as Museums, Zoos, theaters and other places.

II. Suppliers

In real estate business, the raw materials could be produced by the company itself or

they can just outsource it from manufacturers to cut cost of expenses that could be incurred

from production of such. In addition, there are many suppliers who can suffice construction.

However, there are only a few suppliers who could really meet the required number of

supplies needed by a real estate company since real estate would need quite a volume of

materials for a project to be completed. The industry does not tie up with the suppliers

themselves but through a so-called contractor. The contractor is the middle man that would

ensure whether the materials are sufficient enough or whether the materials are of quality.

Quality of raw materials is important because it would reflect the quality of work done.

III. Threat of New Entrants

Entrants in the real estate industry will have to have capital requirements of at least

thousands and that is only for the small-scale real estate developers. For medium to big-scale

real estate developers, the capital requirements will be millions and even billions. There will

be concerns such as land, land titles, contractors, sub-contractors, suppliers, and the like.

IV. Competitors

According to Theresa Padillo of the HousingInteractive Inc., The top 12 in the real

estate industry in 2013 are as follows: Ayala Land, Inc., SM Land, Inc., MegaWorld

Corporation, Robinsons Land Corporation, Rockwell Land Inc., Federal Land Inc., Eton

Properties Philippines, Inc., Century Properties Group, Inc., Shang Properties, Vista Land &

Lifescapes, Inc., DMCI Homes, and Filinvest Land, Inc. In 2007, Vista was actually in the

top 5, but it was not able to keep its place in the market share due to emergence of these other

competitors.

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V. Buyers

Buyers in the real estate housing were classified by John Burns Real Estate Consulting

CEO, John Burns in his interview last January 8, 2013 through Bloomberg TV the following

kinds of buyers: Investors, Move-Down Buyers, Boomerang, Move-Up Buyers, and the

Entry-level buyers. Investors would want to buy properties for long-term profit. Move-Down

Buyers are those buyers who would want to have a smaller home because family members

moved out already. Boomerang buyers are those buyers of properties foreclosed. The Move-

up buyers are basically the opposite of Move-down buyers; they buy a bigger house, unit or

property. Last are the entry-level who are first time buyers.

VIII. Financial Ratio Analysis

Financial Ratios 12/31/2012 12/31/2011

Current ratio 1.85 : 1 2.53: 1

Debt-to-equity ratio 0.70: 1 0.66: 1

Income before interest

expense

21.8% 27%

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Return on assets 5.9% 5.2%

Return on equity 10% 8.7%

III. Financial Statement Analysis

A. Current Ratio: This ratio is obtained by dividing the Current Assets of the Company by its

Current liabilities. This ratio is used as a test of the Company’s liquidity.

2012: 35,040,448,312.00/ 18,913,927, 121= 1.85

2011: 32, 213,227,654/ 12,746,776,584= 2.53

Current ratio as of December 31, 2012 decreased from that of December 31, 2011 due to

the increase in the current notes payable during the period.

B. Debt-to-equity ratio: This ratio is obtained by dividing the Company’s Total Liabilities by

its Total Equity. The ratio reveals the proportion of debt and equity a company is using to

finance its business. It also measures a company’s borrowing capacity

2012: 30,696,913,600/ 43,634,516,008 = 0.70

2011: 26,884,056,937/ 40,688,511,806 = 0.66

Debt-to-equity ratio increased due to the increase in the total liabilities brought by the

issuance of 4.8 billion domestic corporate note in April 2012 offset by the repurchase of

$22.0 million U.S. dollar note in June 2012

C. Interest expense/Income before interest expense: This ratio is obtained by dividing interest

expense for the period by its income before interest expense. This ratio shows whether a

company is earning enough profits before interest to pay its interest cost comfortably

Interest expense as a percentage of income before interest expense decreased in the year

ended December 31, 2012 compared to the ratio for the year ended December 31, 2011 due

to a decrease in interest and financing charges for the year.

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D. Return on assets: This ratio is obtained by dividing the Company’s net income by its total

assets. This measures the Company’s earnings in relation to all of the resources it had at its

disposal.

2012: 4,375,602,658/ 74,331,429,608= 5.9

2011: 3,527,984,027/ 67,572,568,743= 5.2

Return on asset improved for December 31, 2012 compared to that on December 31, 2011

due primarily to the higher net income reported.

E. Return on equity: This ratio is obtained by dividing the Company’s net income by its total

equity. This measures the rate of return on the ownership interest of the Company’s

stockholders.

2012: 4,375,602,658/ 43,634,516,008 = 10%

2011: 3,527,984,027/ 40,688,511,806 = 8.7%

Return on equity increased due to a higher net income reported for the year ended December

31, 2012.

Based on the environmental scanning we have conducted, we have come up with strategies

that will fill the companies’ gap between their vision and objectives in terms of marketing,

operations and financial aspects.

STRATEGIES TO ADDRESS FINANCIAL, OPERATIONS AND MARKETING

ISSUES OF THE COMPANY

Based on Vista Land and Lifescapes Financial Statement Analysis there is an increase in

the current notes payable from the previous year to the current year. Being said that, the

company must establish a Debt Management Plan afterwards if the entire decision–makers

of the company approve it then it will be the time to implement it.

A debt management plan is a formal agreement between a debtor and creditor. Debt

Management Plans help reduce outstanding, unsecured debts at a reduced level over a

fixed period of time to help regain control of finances.

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Debt Management Plans are individually tailored based on what can be realistically

afforded on a monthly basis. To achieve an accurate figure, an income and expenditure test

will establish what monies are coming into the household and what is being paid out.

Income and expenditure includes everything, such as rent/mortgage, secured loans and

utility bills. Once the income and expenditure is completed, the leftover amount is your

disposable income which is divided amongst creditors through a Debt Management

company.

The Cash flow of the company specifically the operating activities of Vista Land must be

monitored to assure that the company is capable of paying their obligations and make this

debt management plan a success. As indicated in the statement of cash flow the total cash

and cash equivalents of the year 2012 is PHP 1,958,729,622. An assessment on how much

must be paid each month in a year to be able to pay fully the face value in each note

payable.

In a real estate business, they always use large debt contracts to finance new

developments. That is why it is not lifelike to just pay everything on a cash basis.

Based on the financial statement analysis the net income is doing good a matter of

strategizing on how to maintain the good performance. The maximum Return of

Investment , you need to employ the best real estate marketing means in order to generate

greater and better real estate leads. You need to be sure on how to go about real estate It

means that you need to check out ways such as Pay Per Click (PPC) and RSS (Really

Simple Syndication) and Cost per Lead as well as blog marketing as your chosen

technique to generate increased numbers of real estate leads.

Search engine optimization for real estate helps you generate greater numbers of leads

because your real estate online business gets more visibility whenever the search engine

results come in, which will grow your real estate business considerably.

However, there are other methods too that you can use in order to increase your real estate

leads and among them is using teaching seminars, and in fact, once you get it right, you

can even earn some extra money just for generating leads.

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Thus, by choosing teaching seminars that deals with topics such as real estate investing,

and also financial planning as too estate planning you can generate more real estate leads

and do so in a very natural manner as well.

Other useful options that will help you increase your real estate leads are to build lists and

so, by capturing email addresses and names of one and all, you can develop many possible

leads for your real estate business.

You can also use a simple and effective method by using content marketing as a means to

generate more leads and you should realize that the most successful lead generating online

businesses are those that provide a whole lot of information that is diverse and also

abundant.

Finally, the company should also ensure that they don’t put all your leads in a single

basket and instead, diversify your strategies pertaining to lead generation to be on the safe

side.

APPPENDICES

Real estate investing involves the purchase, ownership, management, rental and/or

sale of real estate for profit.Real Estate has traditionally outperformed Wall Street equity

market. A street by street knowledge of the market make it perfect for small savvy

investors. Large institutions lag behind trends.Improvement of realty property as part of a

real estate investment strategy is generally considered to be a sub-specialty of real estate

investing called real estate development. Real estate is an asset form with limited liquidity

relative to other investments, it is also capital intensive (although capital may be gained

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through mortgage leverage) and is highly cash flow dependent. If these factors are not well

understood and managed by the investor, real estate becomes a risky investment. The

primary cause of investment failure for real estate is that the investor goes into negative

cash flow for a period of time that is not sustainable, often forcing them to resell the

property at a loss or go into insolvency. A similar practice known as flipping is another

reason for failure as the nature of the investment is often associated with short term profit

with less effort.

Real estate markets in most countries are not as organized or efficient as markets for

other, more liquid investment instruments. Individual properties are unique to themselves

and not directly interchangeable, which presents a major challenge to an investor seeking

to evaluate prices and investment opportunities. For this reason, locating properties in

which to invest can involve substantial work and competition among investors to purchase

individual properties may be highly variable depending on knowledge of availability.

Information asymmetries are commonplace in real estate markets. This increases

transactional risk, but also provides many opportunities for investors to obtain properties at

bargain prices. Real estate entrepreneurs typically use a variety of appraisal techniques to

determine the value of properties prior to purchase.

Typical sources of investment properties include:

Market listings (through a Multiple Listing Service or Commercial Information

Exchange)

Real estate agents and Real estate brokers

Banks (such as bank real estate owned departments for REO's and short sales)

Government entities (such as Fannie Mae, Freddie Mac and other government

agencies)

Public auction (foreclosure sales, estate sales, etc.)

Private sales (off-market transactions for sale by owner For sale by owner)

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Real estate wholesalers and investors (flipping)

Once an investment property has been located, and preliminary due diligence

(investigation and verification of the condition and status of the property) completed, the

investor will have to negotiate a sale price and sale terms with the seller, then execute a

contract for sale. Most investors employ real estate agents and real estate attorneys to

assist with the acquisition process, as it can be quite complex and improperly executed

transactions can be very costly. During the acquisition of a property, an investor will

typically make a formal offer to buy including payment of "earnest money" to the seller at

the start of negotiation to reserve the investor's rights to complete the transaction if price

and terms can be satisfactorily negotiated. This earnest money may or may not be

refundable, and is considered to be a signal of the seriousness of the investor's intent to

purchase. The terms of the offer will also usually include a number of contingencies which

allow the investor time to complete due diligence, inspect the property and obtain

financing among other requirements prior to final purchase. Within the contingency

period, the investor usually has the right to rescind the offer with no penalty and obtain a

refund of earnest money deposits. Once contingencies have expired, rescinding the offer

will usually require forfeiture of the earnest money deposits and may involve other

penalties as well.

Sources of investment capital and leverage

Real estate assets are typically very expensive in comparison to other widely available

investment instruments (such as stocks or bonds). Only rarely will real estate investors pay

the entire amount of the purchase price of a property in cash. Usually, a large portion of

the purchase price will be financed using some sort of financial instrument or debt, such as

a mortgage loan collateralized by the property itself. The amount of the purchase price

financed by debt is referred to as leverage. The amount financed by the investor's own

capital, through cash or other asset transfers, is referred to as equity. The ratio of leverage

to total appraised value (often referred to as "LTV", or loan to value for a conventional

mortgage) is one mathematical measure of the risk an investor is taking by using leverage

to finance the purchase of a property. Investors usually seek to decrease their equity

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requirements and increase their leverage, so that their return on investment (ROI) is

maximized. Lenders and other financial institutions usually have minimum equity

requirements for real estate investments they are being asked to finance, typically on the

order of 20% of appraised value. Investors seeking low equity requirements may explore

alternate financing arrangements as part of the purchase of a property (for instance, seller

financing, seller subordination, private equity sources, etc.)

If the property requires substantial repair, traditional lenders like banks will often not

lend on a property and the investor may be required to borrow from a private lender

utilizing a short term bridge loan like a Hard money loan from a Hard money lender. Hard

money loans are usually short term loans where the lender charges a much higher interest

rate because of the higher risk nature of the loan. Hard money loans are typically at a

much lower Loan-to-value ratio than conventional mortgages.

Some real estate investment organizations, such as real estate investment trusts

(REITs) and some pension funds and Hedge funds, have large enough capital reserves and

investment strategies to allow 100% equity in the properties that they purchase. This

minimizes the risk which comes from leverage, but also limits potential ROI.

By leveraging the purchase of an investment property, the required periodic payments

to service the debt create an ongoing (and sometimes large) negative cash flow beginning

from the time of purchase. This is sometimes referred to as the carry cost or "carry" of the

investment. To be successful, real estate investors must manage their cash flows to create

enough positive income from the property to at least offset the carry costs.

Net operating income, or NOI, is the sum of all positive cash flows from rents and

other sources of ordinary income generated by a property, minus the sum of ongoing

expenses, such as maintenance, utilities, fees, taxes, and other items of that nature (debt

service is not factored into the NOI). The ratio of NOI to the asset purchase price,

expressed as a percentage, is called the capitalization rate, or CAP rate, and is a common

measure of the performance of an investment property.

Tax shelter offsets occur in one of three ways: depreciation (which may sometimes be

accelerated), tax credits, and carryover losses which reduce tax liability charged against

income from other sources. Some tax shelter benefits can be transferable, depending on the

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laws governing tax liability in the jurisdiction where the property is located. These can be

sold to others for a cash return or other benefit.

Equity build-up is the increase in the investor's equity ratio as the portion of debt

service payments devoted to principal accrue over time. Equity build-up counts as a

positive cash flow from the asset where the debt service payment is made out of income

from the property, rather than from independent income sources.

Capital appreciation is the increase in market value of the asset over time, realized as

a cash flow when the property is sold. Capital appreciation can be very unpredictable

unless it is part of a development and improvement strategy. Purchase of a property for

which the majority of the projected cash flows are expected from capital appreciation

(prices going up) rather than other sources is considered speculation rather than

investment.

References

http://www.bloomberg.com/video/five-types-of-buyers-rushing-into-housing-market-

qqyoKW3LTxuOSI~x24un~A.html

http://www.housinginteractive.com/global-realtor-blog/12-top-real-estate-developers-

philippines-part-1/

http://www.ukessays.com/essays/economics/the-pestel-analysis-of-construction-industry-

economics-essay.php

http://en.wikipedia.org/wiki/Mixed-use_development#Mixed_Use_Development_in_Asia

http://en.wikipedia.org/wiki/Fort_Bonifacio

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http://www.robinsonsland.com/

http://www.ayalaland.com.ph/about/history-heritage

http://business.inquirer.net/tag/belle-corp-leisure-and-resorts-world-corp

http://en.wikipedia.org/wiki/Manny_Villar

http://www.alveoland.com.ph/Venare.php

http://www.bworldonline.com/content.php?section=Economy&title=The-Philippines:-

Property-surge-takes-shape&id=51931

https://mail-attachment.googleusercontent.com/attachment/?

ui=2&ik=022d537469&view=att&th=1374fb2860aeb405&attid=0.4&disp=inline&safe=1&z

w&saduie=AG9B_P_PN7IYGXyLT_N_077MX4pl&sadet=1337502366702&

amp;sads=ahCP_yLTQ9ohDp2AWpa-JVyuXw0

https://mail-attachment.googleusercontent.com/attachment/?

ui=2&ik=022d537469&view=att&th=1374fb2860aeb405&attid=0.5&disp=inline&safe=1&z

w&saduie=AG9B_P_PN7IYGXyLT_N_077MX4pl&sadet=1337503009018&sads=7odSUL

DpHSyOGcwFwqXDp8Nzd2E

https://mail-attachment.googleusercontent.com/attachment/?

ui=2&ik=022d537469&view=att&th=1374fb2860aeb405&attid=0.1&disp=inline&safe=1&z

w&saduie=AG9B_P_PN7IYGXyLT_N_077MX4pl&sadet=1337499892604&sads=tWbqH4

Yu0cxyygzpJvOzgBsfMaw&sadssc=1

http://www.robinsonsland.com/downloads/download-annual-report/2010-Annual-Report.pdf

http://bellecorp.com/company-history/

http://www.philippine-real-estate.info

http://mb.com.ph/node/349298/property-market-

http://www.philstar.com/Article.aspx?articleId=535856&publicationSubCategoryId=66

http://ww w.bworldonline.com/Research/populareconomics.php?id=0204

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