How Zonal Values Helped Push Prices Up

In 1987, researchers asked a group of experienced real estate agents to value a house.

They all toured the same house and got the same information. The only thing that changed was the listing price.

Agents told it was listed at $119,900 valued it at about $114,000. Agents told $149,900 valued it at about $129,000. Most insisted it hadn’t influenced them.

If a seller’s asking price can move an expert that much, imagine what a number from the government can do.

I think this is one reason NCR prices got so high, and why sellers are so slow to bring them down. The number everyone anchors on is the BIR zonal value.

We saw this in a Makati building. In 2Q2017, we were about to close a condo sale at around P160,000/sqm. Then on June 11, 2017, the zonal value revision took effect and set the building’s residential zonal value at P200,000/sqm.

The seller pulled out and repriced. In the months that followed, every listed unit in the building moved above P200,000/sqm.

A revision like that moves two floors at once.

The tax floor: sell at P160,000 with a P200,000 zonal value, and you’re taxed as if you sold at P200,000.

The mental floor: “If the government values it at P200,000, why should I take P160,000?”

How zonal values are set makes it worse. The BIR, a private appraiser and the local assessor each recommend a value, and the zonal value is the average of the two highest. If two interior-designed or rare units sell high, their average can become the zonal value for the whole building.

This doesn’t explain the whole NCR market, and many revisions just catch up with prices that already rose. But it helps explain why prices stayed up even as demand cooled.

The catch is that a floor in a seller’s mind doesn’t raise what buyers can afford. At some point, buyers stop following.

So when people ask why NCR prices climbed so high, the usual answers are demand, low interest rates and developer pricing. I’d add one more. Every zonal revision handed sellers a new, higher number to hold onto, and the market moved up with it.

The government never set out to raise property prices, but a method that leans on the highest values helped do exactly that.