2011 PHILIPPINE REAL ESTATE INDUSTRY PERSPECTIVE
By: MARIANNE T. ESCANILLA
Sunday, January 29th 2012
2011 was a landmark year for the Philippine property industry across all its sectors—and even proved stronger than the preceding one.In a recent report by the BusinessMirror, a marked confidence seemed to have returned to the local real-estate industry at the start of the past year as foreign investments and improved infrastructures started to strengthen real growth in rental rates and yields.
The “landscape” has been in the state of a hectic swirl in the past 12 months as extensive construction transformed the Philippine capital into a growing world-class metropolis. Outlying provinces and major cities such as Laguna, Batangas and Cavite were likewise developed into vibrant economic growth areas that complemented the center of activity that is Metro Manila.
In the first quarter of 2011, the industry was still reeling from the effects of the 1997 Asian financial crisis that brought the real-estate sector into a long ennui. After four years down in value, the current property boom indicated that the industry had awakened from its slumber and was on a steady climb.
In fact, CB Richard Ellis (CBRE) Philippines Chairaman and Chief Executive Officer Rick Santos said that there will be a continued show of confidence in 2012 in all sectors of the property industry. According to him, the strength the field had shown in the past year was built from 2010 and will also be significant coming into the present year.
According to Colliers International’s first-quarter report on the real-estate market, the Philippine government was optimistic that the economy will achieve a growth of 7 percent to 8 percent by the end of the year. Inflation had also started to accelerate, in March 2011 at 4.3 percent, a nine-month high.
In their follow-up report for the third quarter of the year, Colliers International claimed that the economy has already achieved then an increase of 3.4 percent. A major contributor to the growth was consumer spending which increased by 9.9 percent, although capital formation through construction dropped by 4.9 percent.
In addition, Business Monitor International stated in their property sector quarterly report that land values had also increased last year, but in a slower rise compare to the last quarter of 2010. With the current planned developments in the traditional business districts, land values were expected to grow at an average of 3 percent to 5 percent in 2011.
Despite difficulty sustaining economic momentum and with export demand from major developed trading partners softening, the Philippine real-estate sector had set for generally buoyant short-term expansion. High take-up rates kept pace with supply in the office segment, maintaining healthy rental growth. The ever-expanding retail sector has made a competitive property market, of particular note the competitive rental rates south of Manila such as in Cebu. Thanks to the many special economic zones and foreign manufactures looking for lower-cost operating environments, the promise in the industrial real-estate market was encouraging.
Commercial/Office Market Overview
Despite issues with oversupply in several areas, office space rental take-up was expected to increase by about 10 percent in 2011. As a result, conditions are positive in all commercial sectors, such as office, retail and hotel as well as in residential property.
In the KMC MAG Group third-quarter market report in the same year, the economy continuously gained strength from the start until the end. Given the momentum, Metro Manila’s commercial real-estate market also continues to accelerate.
Last year’s performance was also largely led by the rapid takeoff of the business-processing outsourcing (BPO) sector. This—combined with an overall positive outlook of stakeholders toward the current administration—helped increase the demand for major investment properties.
Increased political stability also promoted investor confidence in the Philippines. Foreign direct investment (FDI) continues to flow as companies discover attractive investment options for the Philippines. The commercial real-estate market (particularly Philippine Economic Zone Authority or PEZA-accredited buildings) has seen increased demand in response to this.
Behavior of investment sales activity remained modest with rates per square meters at the range of P130,000 for Bonifacio Global City, P95,000 for the Makati Central Business District (CBD) and P80,000 for Ortigas.
The same promising outlook for the commercial/office sector of the Philippine real-estate industry, as stated, was driven by the upsurge in the number of BPOs which set up their headquarters in the country. The employment and income boom generated by these companies, in turn, fuel a consumer boom that has resulted in the take-up of more commercial spaces.
Residential Market Overview
The Philippines’s major real-estate developers led by Ayala Land, Vista Land, Robinsons Land Corp., Century Properties, Megaworld Corp. and Rockwell Land have been actively launching residential projects. Pre-selling entire towers in advance of construction is common. The market is divided between owner-occupants and investors hoping to turn a profit; however, majority of the investment is driven by the secondary market: potential tenants searching for units available for lease, including short-term rentals to accommodate tourists.
Also, the demand for condominiums is expected to gain strength as the number of companies establishing offices in the CBD and their employees steadily gaining numbers. With the increased requirements of high-rise, mid-rise and low-rise estates, Phinma Properties, DMCI Homes, New San Jose Builders and SM Development Corp. were deemed to be the major players in this sector. They have established a niche in this market segments together with some more key players such as Camella Condo Homes of Vista Land and Amaia of Ayala Land.
CBRE’s Santos said that the affordable condominium market is one segment that changed the landscape of housing development because it has attracted a lot of buyers from the middle class and OFW households. Designed for the predominantly “C” socioeconomic class, the reasonably priced condominium is an ideal investment for young professionals working in the business districts of Metro Manila as well as start-up families or first-time buyers. This scenario is also being seen emerging in key urban centers such as Metro Cebu and Metro Davao.
The residential and commercial/office and segments of the Philippine real-estate industry have shown remarkable year-on-year growth in terms of the number of development projects, as well as sales. These developments indicate that it is now on a growth trajectory expected to be sustained in the short to medium term.
The Philippines is thus expected to emerge from this cycle as a country with bustling metropolitan areas with ultra-modern skylines and picturesque housing estates. The landscape, in turn, will make the country a better and more conducive place to reside and do business in and thus will lay the foundations for future industry growth. The promising outlook for the residential sector of the local real-estate industry is fuelled by rising incomes due to the steady growth in the economy for the past several years, as well as massive interest among overseas Filipinos wanting to establish permanent or temporary residence in the country of their birth or ancestry. The continuous influx of expatriates in the country likewise contributes to the demand for such residential facilities.
Going into 2012, Santos said the trend to watch is the things that will happen in European economy and whether they will be forced to outsource to cut cost. “Large financial companies will be under increased pressure to save money and will thus outsource their support functions here,” he said. He said there will also be a trend toward maintaining satisfactory property management of buildings to ensure the loyalty of tenants.
In 2012, Asuncion said he sees new property developments in secondary areas will take longer to sell or lease inventory relative to those situated in prime locations. “This will cause the total industry statistics such as vacancies and lease rates to be challenged,” he said.
(Sources: Colliers International, KMC MAG Group, Business Monitor International, CB Richard Ellis Philippines and Raoul Rizal Reyes/Correspondent–BusinessMirror)