I decided this year to start sharing learnings and insights I get from people I get to meet. These ideas will hopeful inspire everyone to also "pay-it-forward" by sharing your insights to people who may appreciate and benefit from them.
Today's lunch was with a business collegue who is an executive of a large construction materials supplier. Our conversation gave me an impression that the real estate market in Manila for new developments, particularly in high-rise and upscale developments will continue to grow significantly, until at least upto 2010. The Philippine economy is pretty stable and growing and the investment climate is still appealing to foreign money. Already, residential condo price per square meter has risen by at least 20% from 12 months ago. It more difficult to look for good properties located in CBD's (Fort Boni stopped selling their prime lots since a few months ago) and even banks have sold most of their clean (meaning, non-tenanted and non-litigated)foreclosed prime assets.
In fact, here's an article clipping I wish to share courtesy of Phil Daily Inquirer:
2008 PROPERTY FORECAST 'Positive growth from OFWs, but be wary'
By Tessa SalazarPhilippine Daily InquirerFirst
Posted 01:45am (Mla time) 12/22/2007
(First of two parts)
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-Ã-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)."
