Philippine real estate uptrends getting stronger
“We are now in a real-estate boom. I’m very bullish that this time, it will be stronger and longer-lasting than the one we enjoyed in the nineties.”This is the bold assessment of real estate magnate and Senate President, Manny Villar regarding the state of the Philippine real estate industry at the moment.
Current trends bears this out as real estate and property development has become the single fastest-growing industry within the services sector and has dislodged communications as the growth leader in the services sector.
Statistics show that in the fourth quarter of last year, the real property sector posted a hefty 22.7 percent growth in real terms — now the highest-growing sub-sector within services. In the quarter previous to that, the growth rate was 26.2 percent. Against an average real growth rate of 16 percent in 2004 and 2005, real estate growth has really been picking up lately.
There is such a significant growth in real estate that there are renewed worries that a real property bubble similar to what led to the 1997 Asian financial crisis may be looming. Industry commentators however, note that there are very significant and fundamental differences between the good old property days in the mid-’90s and the current boom.
Firstly, developers have learned from the weaknesses of the nineties’ boom, and it is unlikely that the abuses at that time will happen again.
Prior to the 1997 crash when condominiums were traded like stocks with people doubling their money buying and selling a piece of paper that only gave the holder the right to purchase a new condominium, developers had the perception that this can continue forever.
Of course, it did not, and developers have realized that real estate follows a boom-and-bust cycle. In this regard, Senator Villar said: “It’s not bad having a cycle, provided it’s a soft landing, not a crash. For me it’s just a corrective mechanism that happens when there is oversupply, a continuing adjustment on the law of supply and demand.”
Secondly, the speculative nature of buying in the 1990s has been replaced by end-users wanting to purchase units for their own use, either to live in or to rent out as an investment. No longer is the mid- to high-end condominium market dominated by the “rich” who are simply trying to make a quick profit owning a unit.
Currently, the vast majority of buyers are those wanting to live in these condos or to use the property as an additional source of income which now includes a substantial number of Filipino overseas residents and workers who in fact, now constitute the main target market of Philippine developers. In this regard, the enactment of the dual citizenship law served as an encouragement as it has provided an opportunity for overseas Filipinos to acquire properties in their country of birth.
This is an extremely positive trend because this type of end-user tends to stabilize the property market from large speculative price swings. They are a more solid source of continuing sales for property developers.
Thirdly, owners now do not have to purchase units with cash but can finance purchases through long-term fixed rate mortgages. This is a major and fundamental change in the Philippine market because it has opened up the possibility of owning real estate to buyers that were previously shut out of the market.
Even the government, through the Pag-Ibig Fund, has recognized the need for financing on multimillion pesos middle-class housing and not just providing loans to the lower economic groups. Further, Pag-Ibig is also venturing into project financing which helps developers build the units.
Fourthly, there is currently a tourism boom, which is also benefiting the property sector. In 2006, Philippine tourism finished the year with close to three million visitors, an all-time high which was unthinkable three years ago. Hence there’s now a lot of people really talking about tourism. Old tourist sites are being reopened and new ones are being built. Existing hotels are enjoying higher occupancy rates. Resorts are getting hot—existing resorts are being improved and expanded, and new ones are being built on our beaches.
Because of these factors, there is good reason to share Senator Villar’s bullish optimism that the real estate boom will be stronger and longer-lasting this time particularly because the Philippines is still very low in the boom cycle and there’s a lot of room for growth. /Cesar Bigornia
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*** Cesar Bigornia is Managing Editor of emanilarealty.net
