GIVEN the prolonged boom of the Philippine property market, developers should brace now for the possibility of a bubble to emerge, a real estate expert warned.
According to Enrique Soriano 3rd, Ateneo program director for real estate and senior adviser for Wong+Bernstein Business Advisory Group, there is a very real possibility of a bubble forming in the real estate industry.
“There will always be a bubble, everywhere where markets are great and there’s so much exuberance on purchasing, particularly in real estate, a bubble will always develop,” said Soriano.
“If you’d ask me if there’s a bubble in the Philippines, there’s none yet, but it’s manifesting and it’s moving there—there are little frosts coming out,” he said.
Soriano clarified that a real estate “bubble” per se is not bad. He said it may occur in any economic cycle, but it is when that bubble bursts that will be more challenging for real estate developers.
During a real estate talk entitled “Anticipating the bubble? Manage your growth during uncertainties” held last Friday at the Asian Institute of Management Conference Hall in Makati City, Soriano encouraged developers to educate themselves more in their field of business. In doing so, they would be able to manage their businesses well and make the best decisions for their firms before any such bubble arises and bursts.
The industry expert said there is no definite way to predict when a bubble in real estate will pop but there are small signs that may indicate that a bubble has formed.
Soriano identified the country’s low inflation rate as one of those signs.
He said there are three key issues that should be managed o prevent a bubble from forming: lending, spending and employment.
Soriano said that lending, especially for property acquisitions, should be managed. He stressed the importance of verifying that those who are borrowing money to buy properties are qualified borrowers, because if they are not and they go into default, it would cause a major problem to the industry especially if it becomes widespread.
Spending should also be managed to ensure that the money keeps circulating in the economy.
“If markets are no longer robust and all of a sudden spending is cut, there’ll be no money circulating. Then inflation will happen,” said Soriano.
He said employment is also an issue that must be managed because more jobs would mean more spending which would generate more economic activity.
“If people don’t have jobs they won’t spend money and if they don’t spend money, then the economy contracts,” he said.
Soriano emphasized that it is also important for developers to avoid being greedy and noted that bubbles in markets are “born out of greed.”
“When you are a developer, and you don’t think this will stop [the real estate boom]you will become quite greedy,” said Soriano.
“Land prices are becoming quite expensive, so you buy and buy and you price high. So there is greed,” he said.