FINANCIAL MATHEMATICS

PERPETUITY
PERPETUITY

A financial term that

refers to an annuity or
stream of cash flows that
continue indefinitely with
no set end date.

All perpetuity are annuity,

but all annuity are not
perpetuity
For Example

no maturity
date

Bond

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6

P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000

PERPETUITY

PURPOSE
To estimate the present
value of long-term cash
flows and value
businesses or financial
assets that are expected
to generate cash flows
indefinitely.

e.g. stocks, businesses,

real estate,
PERPETUITY

PURPOSE
REAL ESTATE
Perpetuities can be used
to value real estate assets
that generate a constant
rental income stream.
Present Value of Zero-Growth Perpetuity

C
PV =
where, PV = Present Value
C = Cash Flow
r r = interest rate
Present Value of Zero-Growth Perpetuity

C Cash Flow = P 10,000

PV = rate = 10% = 0.1
r *assuming that the investment
has 10% annual interest rate
10,000
PV =
0.1
PV = P 100,000
Present Value of Zero-Growth Perpetuity

Suppose you own a rental property generating P 50,000 in monthly

rental income with a 8% discount rate and expect this income to
continue indefinitely. You want to know how much this rental property
is worth today based on the stream of rental income it generates
Present Value of Zero-Growth Perpetuity

C Cash Flow = P 50,000

PV = rate = 8% = 0.08
r
50,000
PV =
0.08
PV = P 625,000
Perpetuity with Growth

C where, PV = Present Value

PV = C = Cash Flow

(r-g)
r = interest rate
g = growth rate
Present Value of Growing Perpetuity

Company “Rich” pays dividends P 100 per share annually

and estimates that they will pay the dividends indefinitely
and is expected to grow annually by 2%. How much are
investors willing to pay for the dividend with a required
rate of return of 5% ?
Present Value of Growing Perpetuity
Company “Rich” pays P 100 in dividends per share annually and estimates that
they will pay the dividends indefinitely and is expected to grow annually by
2%. How much are investors willing to pay for the dividend with a required
rate of return of 5% ?
100
C PV = (0.05 -0.02)
PV =
(r -g) 100
PV = 0.03
Cash Flow = 100
rate = 5%
PV = 3,333.33 pesos per share
growth rate = 2%
 CHALLENGES
IN THE PHILIPPINE
REAL ESTATE
INDUSTRY
 COMPETITION IN THE
MARKET
The Philippine real estate industry is highly
competitive, with many established players and
new entrants vying for market share. This
competition can make it difficult for new or
smaller developers to gain a foothold in the
market.
 LACK OF AFFORDABLE FINANCING
OPTIONS

Real estate development requires significant

capital investment, but the lack of affordable
financing options can make it challenging for
developers to secure the funds they need. This
is especially true for smaller developers who
may not have access to the same financing
options as larger, more established players.
 DIFFICULTY IN ACQUIRING
PROPERTY TITLES
The process of acquiring property titles in the
Philippines can be complex and time-
consuming, making it difficult for developers
to move forward with their projects. This can
result in delays and increased costs, which
can impact the viability of the project.
ISSUES WITH INFRASTRUCTURE
DEVELOPMENT:
The development of infrastructure, such as
roads, bridges, and public transportation, is
critical to the growth of the real estate industry.
However, infrastructure development in the
Philippines has been slow and uneven, with
many areas lacking the necessary infrastructure
to support real estate development.
 OPPORTUNITIES
IN THE PHILIPPINE
REAL ESTATE
INDUSTRY
 STRONG DEMAND FOR
AFFORDABLE HOUSING
The Philippines is facing a significant shortage of
affordable housing, especially in urban areas.
This has created a strong demand for affordable
housing projects, including low-cost and
socialized housing. Real estate developers who
can address this need are likely to find success in
the Philippine market.
GROWTH IN THE BUSINESS PROCESS
OUTSOURCING (BPO) SECTOR

The BPO sector has been a major driver of demand for

office space in the Philippines. With a highly skilled
and educated workforce, a favorable business
environment, and competitive costs, the country has
become a hub for BPO companies. This growth in the
BPO sector has led to increased demand for office
space, creating opportunities for real estate
developers.
 EXPANSION OF THE TOURISM
INDUSTRY:
The Philippines is known for its natural beauty,
rich culture, and friendly people, making it a
popular destination for tourists. The expansion of
the tourism industry has created opportunities
for real estate developers to invest in hotel and
resort properties, as well as other tourism-
related infrastructure.
INCREASE IN THE NUMBER OF
OVERSEAS FILIPINO WORKERS (OFWS)

The Philippines has a large population of OFWs, many

of whom are interested in investing in real estate.
This has created a strong demand for properties that
can serve as investment vehicles, such as rental
properties and vacation homes. Developers who can
tap into this market are likely to find success in the
Philippine real estate industry.
 STRATEGIES TO
OVERCOME
CHALLENGES IN THE
PHILIPPINE REAL
ESTATE INDUSTRY
 COLLABORATION WITH
THE GOVERNMENT
Real estate developers can collaborate with the
government to streamline processes, improve
transparency, and promote the growth of the
industry. By working with the government,
developers can address issues such as property
title acquisition and infrastructure development,
which are critical to the success of their projects.
 CREATION OF AFFORDABLE
FINANCING OPTION

Developers can explore alternative financing

options, such as crowdfunding, real estate
investment trusts (REITs), and peer-to-peer
lending, to help address the lack of affordable
financing options. This can make it easier for
smaller developers to secure the capital they
need to move forward with their projects.
 IMPROVEMENT OF THE TITLE
REGISTRATION PROCESS

Developers can work with the government to

improve the title registration process, making
it more efficient and less time-consuming. This
can help to reduce delays and increase the
speed at which developers can move forward
with their projects.
 PRIVATE SECTOR PARTICIPATION IN
INFRASTRUCTURE DEVELOPMENT

Developers can work with the government and

other stakeholders to promote private sector
participation in infrastructure development. By
investing in infrastructure, developers can help to
create the necessary conditions for the growth of
the real estate industry. This can also lead to
increased property values and demand for real
estate in the areas where the infrastructure is
developed.
reference:
https://www.bedandgoinc.com/amp/opportunities-and-challenges-in-the-
philippine-real-estate-industry?
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