Property market: Sustained growth not a bubble ever


Manila Business Insight

November 21, 2012

The property market is in for sustained growth until 2013 contrary to fears of an asset bubble, property consultant CBRE said in its yearend briefing yesterday.

CBRE chairman Rick Santos said the Bangko Sentral ng Pilipinas is but exercising prudence when it said it is keeping a close watch on the real estate exposure of banks while banks themselves have become cautious due their experience in the Asian financial crisis of 1997.

“Banks are strong and liquid. Banks are prudent on who to lend to, how much to lend. I don’t think there is a bubble but this is just the start of a sustained growth,” Santos said.

CBRE also said borrowers now are end-users and not speculators while property firms which take out loans spend the money immediately to fund their developments.

Due to low interest rates, mortgage payments have become more affordable when compared to those in the late 1990s.

Demand in both office and residential is being adequately served, according to CBRE as it and fears of glut or overbuilding.

Santos reiterated his earlier observation that the Philippines is now experiencing the best real estate market in 20 years, saying “it took two decades to get the stars aligned, but now, we’re looking at sustained growth and success. The challenge is how to cope with this unprecedented success.  If you build it, they will come—be it office, residential, or leisure properties.”

In the office market, pre-leasing is not only back but is back in a big way, with lease transactions hitting 450,000 square meters this year as locators book now for spaces coming up   three years down the horizon.

Quezon City is a new growth area in office space, fuelling also some development in the northern part of Metro Manila are is

The office market is still 80-percent driven by BPOs and 20 percent traditional office space such that older buildings are facing tough competition from upcoming ones, forcing some of them to retrofit these buildings.

Santos said the Philippines is experiencing phenomenal growth similar to India’s experience in the 1990s as a BPO and multinational corporations hub  in Southeast Asia.

He said the Philippines is one of the most cost effective outsourcing destinations in Asia, and is becoming the lifeboat for many European and US companies that need to outsource. Santos said the fiscal cliff in the US would only force companies there to outsource.

CBRE said the overall vacancy rate in Metro Manila is a low of 6 percent, although in some areas is as low as 2 percent as CBRE noted a strong takeup quarter to quarter the past four years.  The vacancy rate is kept at a single-digit rate as developers continue to build to fill up the gap.

A spillover of the growth of the BPO sector will cascade in the residential segment.,

Santos said that  while demand for the high end market is sustained in 2013, developers are moving to the mid-income residential market segment within the P45,000 to P80,000 per sqm range, the  broad-based and affordable segment where demand is reflected.

In Metro Manila, upcoming condominium supply is 40,000 sqm in a three-year period.

Developers are also prudent nowadays that do not build until they hit a comfort level, six months to a year from the time it is launched.

CBRE said the demand is pushed by a  growing population of families and young professionals and supported by the record-low interest rates that  range from 5 percent  to 11 percent for short- or long-term payment schemes.

“This has opened the opportunity for more Filipinos to become owners rather than renters,” Santos said.

Victor Asuncion, CBRE research head, said based a start-up or younger borrower could get as low as 11.5 percent for a 20-year loan.

“Because of liquidity, Filipinos are empowered to buy, backed by  stringent requirements (of banks) against leniency in 1997.

Asuncion said buyers of condominiums and land normally pay 20 percent in  downpayment and the 80 percent is on loan either through banks or  Pag-IBIG.

Asuncion said developers are avoiding inhouse financing because borrowers normally make balloon payments at the end or take out loans,” Asuncion.

He said Pag-IBIG, which is actively address the housing backlog either through lower interest rates or by increasing the value of the loan, which is now P6 million.

Asuncion said Pag-IBIG wants to be more active in 2013 in lending to house and  condo buyers by targeting or identifying qualified members to buy houses and package them to developers. This would give developers guaranteed buyers.

Santos said higher remittances  also manifest a strong demand for residences of OFWs and their families. The top four regions where OFWs are mostly deployed from are those coming from regions 4, 4A and Metro Manila and which account for 35 percent of OFWs. So it is not unusual that housing developments are happening here.

Santos said CBRE sees the  gaming sector  as a new growth area, fuelling luxury tourism as a niche and spurring growth in retail.

As the Philippines try to capture 10 percent of the global gaming market in two years, Santos said the Philippines would in five years challenge Las Vegas in gaming revenues just like how Macau and Singapore do.

Santos while the Philippines nearly lost manufacturing 15 years ago, today there is a resurgence of investors with rising labor cost in China, the Thailand flood, worries in Taiwan, fragile relations between Japan and China which cause some of the locators to slowly come into the Philippines.

This would also spur demand for office spaces and factory and industrial sites.

In infrastructure, CBRE said  a more transparent mechanism of disbursement on government projects will bring the construction industry back on track and will greatly influence the growth of the economy.

“The old cliché, “build-it and they will come” shows the high correlation of the infrastructure development and real estate investment growth,” Santos said, citing developers in the last decade,  such as the Subic-Clark-Tarlac Expressway (SCTEX), Daang-Hari Road (Las Pinas-Cavite), Southern Tagalog Arterial Road (STAR), Cavite Expressway (CavitEx) and the Circumferential Road 5 (C5) among others wich have resulted to new development frontiers for many developers.

Orion Support Incorporated (OSI)

Dear Rick,

Following up from my initial request to you for support in finding a new office location for our company, Orion Support Incorporated.   Well, we moved in to the LTA Building on Perea Street, fifty meters or so from Paseo de Roxas this weekend, only a 4 minute walk to AmCham and under excellent terms.

While I think you assigned both Morgan Mcgilvray and Sherdil Rana to support our original request; as you know, Morgan was very tied up with his wife giving birth during the period we identified this location and negotiated with the landlord, Mr. Mike Arroyo. Yes, the former First Gentleman. But in my short interaction with Morgan, I can see that he is a solid, young professional.

With regards to Sherdil, I want to tell you that with 35+ years of interviewing hundreds and hundreds of individuals, I was impressed with his professionalism, focused support and “can-do” attitude  from the point of identifying our potential office space, and through the negotiation stages prior to the signing of our 6 year contract.  I was impressed with his considered opinions, insightfulness with regards to Philippine business culture and his sage advice related to our strategy in the negotiation process.  Sherdil was able to negotiate a rental rate per square meter about 150 – 200 pesos less than the going rate in this area, and with only a 7% increase after 24 months. Add to that, he secured for us three parking slots at no additional cost, two months security deposit versus the standard three, and two months advance rent to be applied to the front end of our contract versus the back end as is the case in most rental contracts. And, he got the landlord to repaint the entire office with three coats of mildew resistant paint at their expense.   But best of all, we were given a 6 year lease, with only having to give two months notice and forfeit only our two month security deposit to move out anytime with no additional penalty!


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