Property: Best in 20 years
Malaya Business Insight
17 January 2013
The Philippine property market is enjoying its best year in two decades with low interest rates sustaining an already strong demand .
“We’re looking at sustained growth and success. We are now experiencing the best real estate market in the Philippines in the last 20 years,” said Rick Santos, chairman of property consultancy firm CB Richard Ellis.
Victor Abola, University of Asia and Pacific Economics professor, said a review of housing prices between 2006 and 2009 showed that housing prices had become more affordable that “50 percent” of all income class can now afford to buy a house.
“As interest rates go down more people can afford,” said Abola.
This view is shared by Bobby Dy, Ayala Land senior vice president, adding that because of better environment, people now can buy their own homes instead of living with parents.
“Twenty years ago, people in their ‘30s were staying with their parents. But now they can buy their own home. And with the sustained improvement of the economy, we foresee the property market improving further,” he said.
Dy also noted that 10 years ago, a borrower can get a 10-year loan for 12 percent interest.
“Today, one can get a 20-, 25- year loan at 10 percent. A P17,00 a month amortization can now be had at P7,000 monthly amortization,” he said.
Antonino Aquino, president of property development giant Ayala Land, said he expects the “sweet” time for properties to last longer.
“What we have today is unlike that of 1997 (before the property crash). We have learned our lesson,” said Aquino.
“Growth slowed down in 2008 and 2009 and picked up only in the past two years,,” Aquino said at the sidelines of the launch of Ayala Land’s newest project, Circuit Manila.
Regulators are also on the lookout for market overheating with new measures in place to shield banks to avoid the recurrence of the 1997 crisis.
a CBRE Philippines individual & competitor, meanwhile noted growing speculation in the residential market. More buyers are buying properties to lease them compared with those who buy to live in them.
“When supply is high , there’s high vacancy rate that should dwindle down, which means you have a healthy supply and demand,” he said.
“It’s when supply becomes vacant for more than a year that’s when landlords start dropping their rents or prices. Valuation also decreases,” he added.
First Metro Investments Corp. sees the economy this year growing between 7.5 and 8 percent, with robust investments in the country’s various industries. In the office space segment, the growth continues to be driven by the offshore and outsourcing sector.
In the office space segment, demand is seen to hit a record 430,000 square meters.
Initial figures by same CBRE competitor for the period January to November, show that office space demand hit 425,000 sqm., 18 percent higher than the average demand of 360,000 sqm in the previous year.
Even before preferred office buildings are completed, companies are committing to take up space, indicating strong optimism and heightened business activity. Pre-commitments are backed up by signed lease agreements between parties, and advanced rent and security deposits are paid.
Pre-commitments more than doubled in January to November 2012 compared to the same period the year before.
The average base rent in Grade A office spaces in Bonifacio Global City and the Makati Central Business District has gone up 15 to 20 percent since 2010.
Pre-commitments are also being made on office spaces that are set for completion by 2014.
Up until 2015, office supply set to come online is estimated to hit 7.9 million with the current supply already at 6.2 million sq.m.
Vacancy rate across Metro Manila business districts meanwhile stands at 5 percent, the property consultant also said.
Should the Philippines post a “stable fiscal position and good credit standing by 2013/2014,” it expects “other demand drives to create an additional demand of roughly 100,000-200,— sq.m. of office space.
“The Philippines is becoming the lifeboat for many US and European companies that need to outsource in order for their businesses to survive and actually preserve jobs back in the US and Europe. We see a return and rapid expansion of US and European MNCs to the Philippines.
The Philippines is becoming the BPO banking hub of Asia,” said CBRE’s Santos.
Traditional companies like Coca Cola and Aboitiz Group are to eat up about 25 percent of current demand in Metro Manila at 100,000 sqm.
Coca-cola and Aboitiz are moving to new corporate spaces in Bonifacio Global City.
“For the office market and retail, (demand would be robust for) at least the next three years,” said Anonuevo.
In the residential segment, the market is expected to benefit further from the record low interest rates and increasing spending capacities of families.
The Philippines has the lowest interest rates and best financing schemes for home ownership today. Interest rates range from 5 percent to 11 percent for short- or long-term payment schemes.
Family spending is improving aided primarily by the growing overseas Filipino remittances and job creation primarily from the business process outsourcing industry.
First Metro pegs remittance growth this year at between 4 and 5 percent, despite threats from the Israeli-Palestine conflict, Eurozone debt problem, and the US fiscal cliff.
Santos said higher spending capacities has opened the opportunity for more Filipinos to become owners rather than renters.
Victor Asuncion, CBRE head of research, noted the continuous increase in housing loans volume.
Developments continue to rise in various parts of the country with focus now diversifying to the lower-priced segments of the market.
CBRE expects developers’ focus to be trained on the mid-income residential market segment within the P45,000 to P80,000 per sqm range.
CBRE meanwhile is bullish about the tourism segment, with the ongoing investment in the country’s gaming sector.
“The Philippines is the `Macau’ in leisure and gaming of Southeast Asia,” said Santos.
“In five years, the Philippines will challenge Macau and Las Vegas in casino revenues,” he added.
The government’s entertainment complex project in Paranaque City is provided impetus for tourism development.
“Investment in the hotel and hospitality real estate asset class is experiencing record growth. In addition, commercial properties such as Aseana One in the same district have become an attractive destination for firms seeking to do business in the proximity of the entertainment district,” he said.