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RP housing booms as US slumps

Monday, July 30, 2007

SPECIAL REPORT

RP housing booms as US slumps

By Likha C. Cuevas-Miel, Reporter

REAL-estate agent Letty (name withheld upon request) was driving home after a long day when her cell phone rang. The caller was interested in
buying.

Houses and lots sell like hotcakes these days in the Philippines, in stark contrast to the United States, where a failing sub prime mortgage market has sent financial markets worldwide reeling.

The Philippine property market is booming, as can be seen by surging profits in blue-chip industry players like Megaworld Corp., which last week reported a 67-percent surge in profits on the back of scorching real-estate sales.

In a span of two months, Letty, for example, sold last year an P8.5-million 5-bedroom house and a 3-bedroom townhouse worth P4 million in a subdivision in Pasig. The buyers of both houses are relatives and dollars from abroad helped finance the acquisitions.

“About 80 percent of my clients are OFWs or Filipinos abroad who decide to buy permanent houses here,” she said. “It’s like the old times but the buyers are different.”

Before the financial crisis that crippled the Philippines and the rest of Asia, Letty was closing deals at an average of P5 million a month.

She started selling properties in 1997. It was the perfect time to be a real-estate agent.

Then in July that year, the peso wobbled and fell against the US dollar, while the local stock market came crashing down.

The effect of the crisis was not felt immediately—at least in Letty’s case—as she continued to sell properties through the rest of the year. However, demand for housing slowed to a crawl in the years that followed, sending fellow agents looking for greener pastures.

“The problem was that most of my buyers were investors, not end-users. When financial problems came, nobody wanted to buy properties anymore,” Letty said.

She wasn’t alone. Based on gross value added, the property sector still grew by 3.8 percent in 1997.

It then slowed to 1.6 percent and 0.6 percent in 1998 and 1999, respectively, before halting in 2000. The following year, the industry contracted.

Gonzalo Bongolan, Home Guaranty Corp. (HGC) president, said there was a glut in the real-estate sector after the Asian crisis so there was really no point in building more homes.

“They were just selling off the rest of the inventory [and] that’s the reason why the industry was slow to react. It had a lag time,” said the former stock market analyst.

With People Power 2 and 3 creating an unsavory investment environment, it was not surprising that people were afraid to buy houses. At that time, state-run HGC also suffered from heavy default rates of as high as 10 percent in the late 90s, from which it had failed to recover in the ensuing years.

Another problem the industry encountered just before and right after the crisis hit was a narrow market.

According to Alejandro Mañalac, Eton Properties executive sales director, the end-user buyers then were Chinese-Filipinos, who had the money then. So the small market for end-users invited speculators.

The situation was compounded by the presence of small developers who wanted to ride on the boom, which in turn led to a supply glut. “After the smoke [the crisis] cleared only the big ones were left. Those with more credibility,” Mañalac said.

The executive said the current cycle of high property demand is different, with the near-absence of speculators and wider market reach courtesy of new technology.

With the advent of the Internet and cellular communication, sellers are now able to extend their services to Filipinos abroad and even to foreigners who want to buy properties where they could retire.

“Those [OFWs] who left 10 [to] 18 years [ago] have come back [and] they have money right now. They’re ready to buy a house, they’re ready to retire. We have a maturing market,” Mañalac said.

First-time homeowners also abound in the market, driving the demand for condominium units that big and small developers are only too happy to fill, he said. So they are now building left and right.

Despite the dramatic increase in construction, a bubble is not yet on the horizon since supply still lags demand, Eric Cruz, executive vice-president of engineering and construction firm FF Cruz & Co., said.

“The bubble bursts only when investors are not able to dispose of their property and that scenario is remote,” he said.

He said that for the industry to experience a longer bull cycle, there must be more programs to help minimum wage earners afford houses.

Cielito Habito, Ateneo de Manila University economics professor, said the business-process outsourcing (BPO) industry is supporting the real property boom, which was absent in the pre-Asian crisis cycle.

And the boom is fundamentally supported as “all the other economic circumstances would point to relatively low interest rates, which drive real estate,” he said.

The industry will likely stay afloat for a while since property prices just started to pick-up, according to Colliers International, citing reflated land values in the Philippines.

“After six years of continuous decline, we believe that land value appreciation is justified by increased pricing power of developers in both office and residential segments,” the property consultant said.

Other factors pointing to an up trend are the “impressive” take-up in residential presales market, and the prelease take-up in the office market “considering that Manila has not historically been a strong prelease market.”

Industry insiders said the boom started last year, while others said it’s this year as the country is still seeing the onset of a bull market. However, many are cautious about pinning a date on when the party will die down.

For the meantime, Letty is just happy to assist clients who are house-hunting from one subdivision to another. And she is not alone.

“About 50 percent of those who left [after the crisis] already came back,” she said.

So happy times are here again.