Construction of new residential buildings is going on everywhere in Metro Manila

Construction of new residential buildings is going on everywhere in Metro Manila

Brisk demand braces PH real estate industry for Asean integration

THE Philippine real estate industry is strong on all fronts – residential, commercial, and industrial – and leaders are betting it will take some time before price bubbles develop and burst. In tip-top shape, the sector stands to benefit from the upcoming economic integration of the Association of Southeast Asian Nations (Asean).

Growing by 7 percent year-on-year in the first six months of 2015, the real estate sector is one of the main drivers of the country’s gross domestic product (GDP), according to KMC Mag Group, a full-service real estate consultancy which counts developers and investors among its clients. The group is the Philippine arm of Savills of London.

The residential sector is driven mainly by demand for socialized and low-cost housing in urban areas nationwide, says Noel “Toti” Cariño, president of the Chamber of Real Estate and Builders Associations Inc. (CREBA), the largest umbrella group of developers and brokers.

Overseas Filipino workers (OFW) continue to create demand for the housing sector, with their remittances a key component of economic growth, besides providing a boost to the country’s foreign reserves.

“The OFW market is largely responsible for this growth, and financial institutions, both public and private, are offering loan packages that are now making it easier for the working class to buy homes,” says Cariño.

Personal remittances in the first four months of 2015 totaled $8.6 billion, up 5.1 percent year-on-year, according to the Bangko Sentral ng Pilipinas.

Then there is also the jobs-generating Business Process Outsourcing (BPO) sector which also pumps up demand for decent housing.

KMC Mag puts the housing backlog at 5.5 million units as of end-June 2015, with 60 percent of the demand coming from the low-cost sector. Thus, the company advises developers to shift their focus toward this sector from the mid-range and high-end markets. The company estimates a stock of close to half a million residential condominium units in Metro Manila by the end of 2015. Most of these vacant units are in the posh Bonifacio Global City.

But the good news is, the consumption-driven economy is also boosting demand for commercial and industrial real estate, specifically office, retail and tourism-related space. Again, thanks to the remittances by OFWs and BPO companies.

Development has spilled beyond Metro Manila, especially with major businesses like BPOs branching out into other urban centers in the country, KMC Mag says.

According to the company’s latest Asia Pacific Quarterly Report, most real estate activities in the second quarter of 2015 happened in Cebu—the second largest metropolis in the country.

The local government auctioned off two properties on reclaimed land called the South Road Properties. The consortium of Ayala Land Inc. and SM Prime Holdings Inc. won the bidding for the development of a 26.3-hectare property within South Road.

The P10-billion deal remains the single biggest real estate transaction in the country since late 2013, says KMC Mag.

In the same auction, Filinvest Land Inc. won a 19.2-hectare parcel of South Road for P6.7 billion.

“These deals will certainly influence the dynamics of Cebu’s real estate market,” says KMC Mag Managing Director Michael McCullough.

“As the country undergoes a rapid growth period, these deals illustrate that developers and investors are also interested in other cities aside from Metro Manila, which traditionally has been the center of property markets in the country,” McCullough says.

“Supported by the sound macroeconomic environment and the booming outsourcing industry,” McCullough adds, “the pressure on real estate has grown substantially, forcing greater development activity to take place outside the capital. These deals also demonstrate the current market trend very well: local developers are consolidating big parcels of land to build self-sustaining, master planned townships.”

But such rosy picture is not without misgivings. The poor level of infrastructure and connectivity – crucial aspects in developing central business districts – are major obstacles to the sustainability of this goal, he says.

Asean integration
Online property portal Lamudi enumerates the changes in the real estate market with the Asean Economic Community (AEC):

One – stronger demand for commercial, industrial, retail and residential space

“Since the AEC envisions unimpeded movement of goods, services, and skilled labor, as well as a freer flow of capital among the Asean member-states, businesses from abroad are expected to expand their operations in the country,” according to a Lamudi blog.

“There would be more need for office, industrial, and residential space for these foreign investors. The elimination of tariffs on goods and services is also foreseen to result in a wealthier Southeast Asia. With a higher disposable income, people would have more money to spend, thus the need for more malls, retail complexes, and other shopping developments,” it adds.

Two – new growth areas
“Places other than Metro Manila and Cebu may need to be tapped to meet demand for business and residential space, leading to the emergence of new economic hot spots,” Lamudi forecasts. “Among the possible growth areas are Iloilo, Cagayan de Oro, Angeles and San Fernando in Pampanga, and General Santos City.”

Three – more and better construction projects
“High demand, plus a strong inflow of capital, will make construction companies race to build the infrastructure, offices, retail complexes, and residential developments that a booming economy needs. The increased mobility of skilled labor would also allow the exchange of best practices in the Asean region, leading to better urban design and development.”

Fourth – changes to the prohibition on foreigners from owning land
“With the influx of foreign investment that the AEC will bring about, the Philippines is almost certain to face pressure to amend the Constitution’s prohibition on non-Filipinos from owning land. With the lifting of the prohibition, many expect that the country’s foreign direct investment will soar to a new high.”

But is the Philippine real estate sector ready for an integrated economy of more than 600 million people?

KMC Mag Head of Research Antton Nordberg says the industry is ready to take it in as there are enough industrial parks and office space to absorb the increase in demand.

“The issue of greatest concern,” Nordberg says, “is the level of infrastructure development that could hinder this growth, mainly in key industries such as the manufacturing sector, which will negatively affect the economic expansion if not addressed.

“It will definitely not be an attractive prospect for a company to put their manufacturing operations in a country where you may have issues in moving materials and goods within the country as well as getting it out for export (Customs issues, poor level of ports, etc.).”

This calls to mind a recent news report that Manila was tagged as having the worst traffic in the world by Waze, the world’s largest community-based traffic and navigation app.

“Without addressing these issues first, it will be very difficult to fully take advantage of what the integration has to offer the real estate sector,” says Nordberg.



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