2008 PROPERTY FORECAST : ‘Positive growth from OFWs, but be wary’
By Tessa Salazar
Philippine Daily Inquirer
December 22, 2007
MANILA, Philippines—The real estate growth the Philippines experienced in 2007 will continue in
2008.
CB Richard Ellis Philippines says the industry is expected to sustain its upward trajectory in 2008, driven
by continued demand in business process outsourcing and traditional business sectors, an increased number of real estate players
going public and higher foreign investment.
Rick M. Santos, chair of the full-service real estate services firm and managing director of CBRE Hong Kong,
said in a statement that it is expected for the Philippine real estate market to grow at 8.5 percent next year and “at
a similar rate in the medium term.” He said this is a sign to start building relationships for investing and generating
profit.
And despite the decline of the dollar and the buying power of would-be homeowners, real estate player Century
Properties Chair Jose EB Antonio said in a statement that the positive impact emanating from OFWs will continue for the real
estate sector. He said that Filipinos abroad are still finding value in Philippine-based homes vis-à-vis US domiciled houses,
given the latter’s decline. He added that real estate is “very location specific; the cool-down in US housing
has not affected real estate in Asia.”
Caution
Prince Christian R. Cruz, senior economist for Global Property Guide, however, said substantial market reform
would be needed to sustain the real estate boom.
Though the market is positive, there are warning signs and that “the government should respond to
these warning signs.”
Cruz cited the BSP Consumer Expectation Survey for Q4 2007, which indicates that only 1.3 percent of OFW
households in NCR intend to use the remittance for purchasing a house. He added that during the second quarter of 2006, as
much as 10.9 percent of OFW households said that they intend to purchase a house.
“Our local buyers here should be given enough attention also, not just from the players but especially
from the government, because right now the government is not really doing anything to address the concern that the market
is fueled primarily by overseas buyers,” he told Inquirer Property in a phone interview.
Cruz said that some agents have reported that about 60 to 90 percent of properties have been sold to an
OFW or a Filipino immigrant abroad and their families.
“The problem with this is that it is vulnerable to severe peso appreciation against the dollar, as
what we are witnessing right now. About half of OFWs work in the Middle East, while a significant amount work in Hong Kong;
they all earn in dollars. On the other hand, about 70 percent of Filipino immigrants abroad are in the United States.”
Cruz added that another warning sign is the amount of loans to the local market.
Most important message
“The most important message I want the real estate readers and the government should know is that
the market should expand more, not just to the overseas Filipinos but to the local demands. If you rely entirely on overseas
Filipinos given the weakening of the dollar, then you should start looking at the local market.”
He added that as the peso appreciates against the dollar, overseas Filipinos’ foreign earnings buy
less Philippine goods. And if the peso continues to appreciate, OFWs would find property purchases to be more expensive.
Cruz explained: “For the real estate mortgage to persist, demand from local buyers should strengthen.
In other countries, a housing market boom is accompanied by a mortgage boom, i.e. most property purchases are financed by
a loan.”
In the Philippines, even with an ongoing real estate boom, loans to real estate, renting and business activities
contracted by 7 percent from Q4 2006 to Q1 2007. Loans to the real sector fell 0.5 percent to end Q1-2007 from a year earlier.
This was in sharp contrast to the 12.9 percent increase in loans to end 2006.
The lack of mortgage options in the Philippines continues to hamper the real estate market. Despite the
drop in the base interest rates, mortgage rates remain high, typically, at double digits. Most mortgages in the Philippines
are indexed to the Treasury bill rate, depending on the length of loan maturity. The 364-day T-bill rate was at 5.6 percent
from June to December 2007, significantly lower compared to the average of 14.4 percent in 2000.
Cruz said: “The number of companies going public next year and then all these supplies, to a certain
extent, can create a negative impact on the market as a whole. If there are too many players, the market might be swamped
with too many properties … similar to pre-Asian crisis scenario (in 1997).”
Despite the boom in property developments in 2007, there have been obstacles, or what Global Property Guide
calls “alarming signs,” that would tend to weigh down the property sector:
• The boom is actually limited to new developments and condominiums.
• Several potential buyers are still wary of problems associated with fraudulent titles.
• High transaction costs and the lack of information also hamper the real estate market. Prince Christian
Cruz, senior economist of www.globalpropertyguide.com, added that condominiums and new subdivisions are generally free of these concerns; hence, they benefit more
from the boom.
Emerging markets
Richard Raymundo, director for Research & Consultancy, Colliers International, predicts what 2008 holds
for the office, high-rise residential and hotel and leisure sectors.
The office sector will still be the banner sector for 2008. Rents will continue to post strong growth as
they ride on the back of a strong demand from the BPO segment, with suppliers scurrying to keep up. In 2007, rents went up
by as much as 26 percent. Rents in the best buildings in the Makati CBD have breached the P1,000-per-square-meter-per-month
mark. This increase comes on top of a 30 percent rent hike in 2006.
Rents could increase by as much as 15 percent in 2008. Strong demand will still come from the BPO (which
include call centers) segment. Industry analysts predict that the BPO segment would need 1.85 million sq m of office space
from 2008 to 2010.
However, the announced supply has only been 1.58 million. This is broken down to 634,000 sq m under construction
and 945,000 sq m on the drawing boards. “If the planned developments do not push through, the supply would remain tight,”
Raymundo assesses.
Vacancy in all districts is at single digit levels, while there is not much new supply to be added in 2008.
• Makati CBD. End 2007 vacancy is at 3 percent. Only 60,000 sq m of space will be complete in 2008.
Office vacancy will remain below 5 percent throughout 2008.
• Ortigas Center. End 2007 vacancy is at 4 percent. Only 20,000 sq m of office space is being constructed
for completion in 2008. As with Makati CBD vacancy rates, Ortigas CBD vacancies will remain below 5 percent throughout 2008.
• Fort Bonifacio. “The fastest growing area in the country right now has also been benefiting
from the office “spillovers” of Makati CBD. End 2007 vacancy here stands at 10 percent. Space for completion in
2008 is estimated at 200,000 sq m. While this may seem a lot, a number of projects are already getting precommitments for
leasing space.
High-rise residential condominiums posted strong sales 2007. High-rise residential living is now broader,
targeting middle-income (starting prices of P1.25 million per unit) to the high-end (in excess of P15 million per unit) segment.
Some trends in this sector are:
• Accessibility is a key factor, particularly for middle-income segment. Thus, expect more of these
kinds of development along the Edsa corridor.
• Heavily themed projects are in, given the increased competitiveness. “There are new developers
in the market who are even getting good presales take-ups,” Raymundo observes. The year 2007 witnessed new concepts
such as Z-lofts, themed cluster developments, interesting pocket gardens and sole amenity floors. Expect to see more of these
coming out in 2008.
• Level of facilities and amenities would be taken a notch higher to differentiate projects. This
will be seen in the high-end segment wherein the level of facility and amenity will justify the price premiums.
• Price premiums would be based on proximity to retail centers, schools, business districts as well
as transportation hubs.
• High-end developers will test the P110,000 per sq m price level. This is marketable for projects
launched in prime locations, and having excellent amenities.
• Expect the emergence of cluster residential condominiums executed as an enclave. This would highlight
the sense of exclusivity and privacy—a luxury in congested urban centers—to select buyers.
• Based on selling prices that increased 10 percent in 2007, expect an additional 10 percent increase
in 2008. Some locations, though, may find it harder to impose price increases due to relatively larger supplies. An example
of this would be Fort Bonifacio. Currently, nearly 7,000 units are being sold and constructed here from 2008 to 2011.
Trends
Hotels and leisure developments will figure more prominently in 2008. Some trends:
• Leisure is catering to a broader market. So leisure lots are now being offered in smaller cuts and
more affordable total contract prices such as Playa Calatagan. There are now also condominium projects that make it more affordable
and easier to maintain. Examples of these are Hamilo Coast, Terrazas de Punta Fuego and Alta Vista in Boracay.
• More leisure concepts are being launched. Boutique hotels will be more prominent. These are hotel
developments with less than 30 rooms but are high on style and amenities.
• The announcement of more hotels (Raffles and Fairmont in Ayala Center) in the Makati CBD will be
a welcome relief. The year 2007 saw frustrated travelers finding it hard to book hotel rooms in the Makati CBD. The high occupancy
rates in the Makati CBD and increasing tariff rates (the $150-$200 effective rate is now being achieved) have led to spillover
demand to other locations such as the Bay Area in Manila.
• Fort Bonifacio will likewise host more hotels to augment the tight supply in the Makati CBD. Shangri-La
is the most prominent, having acquired a 1.5-hectare property in the former military base.
Emerging markets
Santos said investment in the Asian real estate industry has historically been concentrated in mature markets
such as Tokyo, Singapore, Hong Kong, and fast-growing cities in China.
The downward pressure on returns in these mature markets and excess liquidity in capital markets is encouraging
investors to look seriously at emerging markets in Southeast Asia, resulting in a steady advance in investments there.
“The Philippines, in particular, is slowly growing in terms of investment as a result of the huge
demand for offshore services,” Santos said. “And that growth is accelerating,” Rick Santos, CB Richard Ellis
Philippines chair, said in a statement.
Santos added that another factor influencing the Philippine real estate sector is an increase in the number
of initial public offerings (IPO) by real estate developers. From 2004 to 2007, 21 firms went public, seven in 2007.
Also in 2007, three other real estate companies—Anchor Land Holdings, Vista Land and Lifescapes and
Eton Properties Philippines—announced plans for IPOs. Funds generated by the IPOs are expected to be invested in new
projects.
“As a result of these recent developments, global insurance conglomerate ING has placed the Philippines
in the top three investment sites among emerging markets in 2007,” Santos said.
“Foreign property investment in the residential market has experienced robust growth, partly as the
result of an influx of Korean investors into the country. Korea’s Hanjin Heavy Industries and Construction Corp. invested
$13.7 million for a high-rise residential development in Fort Bonifacio,” Santos said.
“Increasingly, we see a variety of Philippine projects being sold in key overseas markets including
California, the US East Coast, Dubai and Hong Kong,” Santos said, “which will also contribute meaningfully to
growth in Philippine real estate.”
