‘Build in Cebu, Davao’

AMID “little frosts” seen in some specific locations in Metro Manila, the Philippine property market, according to a real estate expert, will continue to experience robust growth anchored on the country’s broadening middle class, strong inflow of remittances and overall optimism and business confidence in the market.

Enrique Soriano, program director for real estate of the Ateneo Graduate School of Business, said Cebu, in particular, remains an ideal location for real estate developments given its strong portfolio.

“There are little frosts in specific locations but they are not real bubbles that we normally should be concerned about. A bubble is healthy. What is unhealthy is when its bursts,” said Soriano, in an economic briefing last Monday hosted by Cebu-based World Wide Central Properties, a new player in the real estate industry here.

According to Soriano, a bubble occurs when land prices significantly go up and outstrips the collective income of home buyers. A bubble may potentially burst when there is an imbalance of lending, spending and employment. A real estate bubble may have a huge impact if there would be multiple buyers borrowing money for the property sector.

No down payment?

He said he is not personally comfortable with the “no down payment” policy implemented by developers just to attract the market, as it may attract unqualified buyers.

Inexperienced developers may also trigger a crisis in the sector. Soriano said the Bangko Sentral ng Pilipinas (BSP) should carefully screen borrowers and adopt strict lending policies to ensure the limited exposure of banks to the property sector.

“We are now monitoring the performance of some 18 to 22 buildings in Metro Manila in collaboration with the BSP,” he said.

But the real estate industry in the Philippines is standing on solid ground, backed by 80 percent major real estate players pushing inventories in the market and the growing number of Filipino professionals now working overseas.

Sixty percent of real estate sales come from the overseas Filipino market.

Banks, on the other hand have also learned lessons from the Asian and recent global financial crises, pushing them to limit their loan exposure to real estate.

“It is the growing affluence and investment appetite that will keep fueling property sales,” Soriano said. “We now have a growing population of buyers who are educated and financially literate about investment and spending.”

Soriano sees a continued boom in the industry driven by the 39-million housing backlog. At the current rate of production, developers cannot even afford to meet the 50,000 housing requirement per quarter. Demand in various housing segments remains robust, particularly in the socialized and low-cost housing at 72 percent; and middle and high-end segments at seven percent and one percent, respectively.

Time to disperse

The competition in the real estate sector is in the middle to high-end range or houses ranging from P1 million to P5 million and P5 million and up. Soriano said the biggest chunk of development in Metro Manila is the medium-rise buildings (MRBs) at 50,000 units last year and Cebu’s 7,000 units.

Soriano has also asked developers to disperse and move out of the concentrated Metro Manila and explore huge market opportunities in key cities like Cebu and Davao.

These two areas were recently identified by property experts as “the next emerging central business districts outside Metro Manila due to their economic and commercial activities,” according to a news report.

“There are more affluent people outside Metro Manila,” Soriano said. By 2014, Cebu is expected to deliver some additional 30,000 units in the sector.

As competition in the real estate industry heats up with units becoming “extremely affordable” coupled with easy financing schemes, differentiation is the key for developers to survive.

“No economy will help you if you are a copycat,” said Soriano.

When looking for condominiums to buy, buyers are advised to not only consider the company’s track record but also the property’s facilities and maintenance.

While economic expectations are “positive” in the next 12 months, Soriano said the Real Estate Investment Trust (REIT) will be a game-changer in the industry. The Department of Finance (DOF), however, has been holding its implementation due to tax issues.

REIT is a stock corporation created for the purpose of owning and managing income-generating real estate, such as office buildings, residential condominiums, shopping centers, hotels, warehouses, hospitals, airports and toll ways.

Soriano believes that if REITs will debut this year or in 2014, its effects will be significant and the stock market’s strong performance will be sustained. But if the economy sours, and no REITs will debut next year, some softening in the market will be felt by 2015.

The REIT Act of 2009 requires REITs to list their shares of stock on the PSE. The REIT distributes 90 percent of its distributable income to investors in the form of regular dividends and receives special tax considerations as an incentive.