From the News! – Your Daily News

Doris Dumlao
Philippine Daily Inquirer

The exposure of Philippine commercial banks to the real estate sector expanded in the third quarter despite the worsening US property downturn that triggered a global financial turmoil, the central bank reported.

It reached P223.9 billion at end-September, up 5.1 percent from a quarter earlier and 16.4 percent from a year earlier, said the central bank, Bangko Sentral ng Pilipinas (BSP).

The additional exposure came in the form of P7.7 billion worth of new loans and P3.2 billion in investments in securities issued by real estate companies, the BSP report said.

Real estate loans increased 3.7 percent as of end-September from the end-June level. Loans extended for the construction and development of real estate properties for commercial purposes accounted for 71 percent while the remainder was granted for the acquisition, construction and improvement of residential units that will be occupied by the borrowing household.

In terms of asset quality, nonperforming real estate loans rose 5.2 percent to P16 billion from the previous quarter. This brought the ratio of non-performing real estate loans to total real estate loans to 7.4 percent from the previous quarter’s 7.3 percent.

Investments in debt securities issued by and in equity securities of real estate companies amounted to P8.9 billion as of end-September, up from P5.7 billion a quarter ago and P6 billion a year ago.

Earlier this year, the BSP approved a liberalization of regulations on real estate for the first time since the Asian crisis to pump in more money into two of the government’s priority sectors—infrastructure and housing.

The BSP agreed to adopt a single-industry limit of 20 percent on real estate loans as a share of total loans. The 20-percent cap was slapped on the banking sector’s exposure to the volatile property sector by the BSP shortly before the Asian currency crisis erupted, but a leeway to increase the exposure to 30 percent was incorporated, including loans not exceeding P3.5 million to finance the purchase or improvement of residential units.

Under the new rules, the 20 percent cap was kept but the BSP redefined real estate loans to carve out certain items such as those lent for infrastructure. Likewise excluded from the computation of real estate loan exposure was residential lending.

Cielito Habito
Philippine Daily Inquirer

AMID OUR ECONOMIC SLOWDOWN since the start of the year even well before the US financial meltdown ensued, there is one industry that has defied the general trend, even doing better this year so far compared to last year’s performance. The real estate sector grew almost 22 percent in the first half of the year, even improving on its 20-percent growth in the same period last year. In stark contrast, industries that had been zooming with double-digit growth in recent years, especially communication and finance, struggled with a mere 2.6- and 2.4-percent growth in the second quarter of 2008. Even worse, mining, which had also been posting double-digit growth rates up to as recently as the first quarter of this year, saw a dramatic reversal to a double-digit decline (i.e., negative growth) of -18.5 percent.

But in real estate, the upbeat mood appears to continue even up to now, US meltdown and all, which I witnessed first hand recently when I spoke before a group of property developers. This is truly one bright spot in our economy right now, with growth even accelerating against all odds. This seeming puzzle moved me to do some informal research by asking friends in the know, just to understand exactly what is going on.

Unmet needs

Even before, I had been telling my audiences that there are two basic reasons that may explain why demand for the products of the real estate industry as a whole continues to be high. One, there has traditionally and persistently been a tremendous unmet need for low- to medium-income housing in this country. The preponderance of informal settlers (translation: squatters) in populous areas of our country is our constant reminder of this unmet basic need in our society. Government has constantly lagged behind the growing need for mass housing, even as it has committed to addressing this minimum basic need as a government priority. Thus, anything that makes such housing more accessible (e.g., the OFW phenomenon, or easier housing loan terms) would translate to rising demand for houses, and hence rising production figures in the real estate industry.

And then there is the brisk demand for office space from the O&O (offshoring and outsourcing) industry, the new name for what’s been commonly known as BPO (business process outsourcing), including call center operations. Demand here is projected to continue growing even in the face of a US economy slowdown or recession. This is because cuts in outsourcing by US (and European) firms who are already outsourcing business operations to us would be offset by new business from other companies not previously outsourcing who are now driven to outsource, precisely to cope with their overall economic slowdown.

Store of wealth

But there’s more to explain the seeming puzzle. Bank of Philippine Islands president Aurelio Montinola told me that BPI continues to show encouraging figures for their housing loans. He points out that unlike westerners who have an array of options to store their wealth in, Filipinos are basically limited to three things: Cash (whether kept under the mattress or in banks), stocks (including bonds, mutual funds and trust accounts) and land (more generally real estate, including condo units). When times are hard and inflation is high, people prefer not to hoard cash. Right now, the volatility in the stock markets also drives the weak-kneed away from financial investments. And so, those with spare wealth are running to real property, which Filipinos have always perceived to be the best store of wealth.

Ayala Land is indeed feeling this drive to acquire lands and condos, which I gathered in discussions with its president, Jim Ayala, and vice president, Art Corpuz. Even then, both think there will have to be an inevitable slowdown induced by the US meltdown, but this is more of a prudent forecast rather than actual experience as of now. For now, the brisk demand, about a third of which comes from overseas Filipinos, is in the P2-8 million property category, essentially the upper middle-income market.

Low income boost

But the figures are even better this year for the lower-income housing market as well, according to Pag-IBIG Fund president Romero Quimbo. He attributes this seeming boom-amid-adversity experience of Pag-IBIG to the reduction in the interest rates they effected since June last year, when on the guidance of the Vice President who is also the government’s housing czar, interest rates on their housing loans were lowered from 12 to 7 percent. According to Quimbo, this has almost cut in half the monthly amortizations for a P750,000 house from P8,000-9,000 to just P4,000-5,000. This appears to have made housing much more accessible to the lower end of the market, and has translated to much better figures for Pag-IBIG this year than in past years. The good thing about this against-the-tide surge in housing, whether in the lower- or middle-income levels, is that this sector has traditionally been known to have one of the strongest multiplier effects on the rest of the economy.

Will this good performance of real estate hold up even if the US goes into full-fledged recession? While it’s prudent to expect the worst, this industry has so far defied the trends, and from the explanations I’ve heard, it’s not a fluke.

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Comments welcome at chabito@ateneo.edu.

Tessa Salazar
Philippine Daily Inquirer

MANILA, Philippines—We may have hot weather and hotheaded drivers, and “hot” money pocketed by some corrupt government officials, making life a little bit more difficult here in the Philippines. But looking at the brighter side, one “hot” item may bring back the word “pearl” in Asia’s struggling Pearl of the Orient.

The Philippines was recently declared as a popular real estate hub in Southeast Asia by international commercial real estate services firm CB Richard Ellis Philippines.

It further cited that “investment opportunities in tourism, infrastructure, mining and real estate remain high” here.

In its July 2 news release sent to Inquirer Property, CBRE Philippines general manager Trent Frankum even used the superlative “hottest” in his description of how foreign investors took up properties in the Philippines. He enumerated the positive effects of the stable Philippine peso, increasing tourist arrivals, the BPO boom, and the influx of overseas Filipino workers’ dollar remittances on the property market.

Frankum’s declaration was heard in the recently held SMART Investment and International Property Expo at the Hong Kong Convention and Exhibition Centre June 21 and 22.

Not yet overpriced

In a recent phone interview with the Inquirer Property, Joey Radovan, vice chair of CBRE Philippines, said the reason for the country’s popularity among property investors was that “we’re not yet overpriced, we’re still cheap.” He cited, for instance, that Singapore is three to four times more expensive than Manila.

Rodovan, who also heads the global corporate services, said the developers are seriously looking at the European and Middle East markets.

Rodovan singled out business process outsourcing, tourism and OFW money as major drivers putting the Philippines in the map of Southeast Asia’s most sought-after business locations.

Colliers

“Broadly agree” was the term used by Colliers International Philippines’ managing director David A. Young, when asked to react on CBRE Philippines statement that the country is the “hottest” real estate hub in Southeast Asia.

Said Young: “The Philippines’ real estate market is attracting unprecedented levels of investor from investors, most visibly in hospitality and tourism projects. A virtuous circle is evident. Capital investment in new infrastructure and tourist-related facilities is enhancing the Philippines’ offering to new markets and generating increased visitor spending.

Despite this wave of new investment the Philippines is still playing catchup relative to its regional competitors. When it completes in 2011, Kingdom’s Fairmont Hotel will be the first new luxury hotel to open in Makati for 15 years.

Tourists, hotels, condos

CBRE Philippines cited that last year, tourist arrivals broke the two-million mark for the first time since 2004, with arrivals rising to 3.091 million. CBRE said it is expecting new markets, such as Russia, Middle East, China and Korea, to help sustain tourism growth. CBRE is also projecting arrivals to increase to 3.4 million this year and generate US$5.8 billion in international tourism receipts.

Hotel room occupancy rates rose to 73.06 percent in 2007 from 71.95 percent in 2006. “New hotel and resort developments are currently in strategic business locations such as Makati City, Fort Bonifacio and the Bay Area as well as top tourist destinations such as Cebu and Boracay, further enhancing industry prospects,” Frankum said.

New development projects include the US$153 million Kingdom Hotel, a combined hotel and residential condominium that will rise in Makati City.

“We expect 18,143 units to be provided from 28 upcoming residential condominiums in Makati that are targeted for completion between 2008 and 2013. Likewise in Fort Bonifacio, 11,652 units are expected to come on the market from 33 residential condominiums being constructed from 2008 to 2012,” Frankum said.

Meanwhile, the offshoring and outsourcing (O&O) boom in the Philippines has created new opportunities for the real estate market, Frankum stressed. “Major investors and businesses are looking at the Philippines because it is one of the largest English-speaking nations in the world and has 33.5-million Filipinos in the workforce,” he noted.

Ma. Elisa P. Osorio
Philippine Star

The Philippines is the hottest real estate market in Southeast Asia, a ranking official of  international commercial real estate service provider CB Richard Ellis (CBRE) said yesterday.

“Investment opportunities in tourism, infrastructure, mining, and real estate remain high in the Philippines,” CBRE Philippines general manager Trent Frankum said in a speech at the International Property Expo in Hong Kong.

“Foreign investors are looking at the positive effects of the stable Philippine peso, increasing tourist arrivals, the BPO boom, and the positive effect of overseas Filipino worker (OFW) dollar remittances into the country,” he added

The Smart Investment and International Property Expo, one of the largest and longest-running real estate expositions in Asia, showcases global real estate market opportunities and features property experts and investors from global companies headquartered in Asia, Australia, and the UK.

According to Frankum, investing in the Philippine real estate market is a smart move given the country’s strong tourism program. Likewise, it is one of the best outsourcing and offshoring (O&O) destinations.

For tourism, Frankum said they are projecting 3.4 million foreign arrivals this year. This would generate almost $6 billion in revenues.

He said foreign visitors will come mainly from Russia, Middle East, China, and Korea

Last year, tourist arrivals broke the two-million mark for the first time since 2004, with arrivals rising to 3.091 million.

Hotel room occupancy rates rose to 73.06 percent in 2007, from 71.95 percent in 2006. “New hotel and resort developments are currently in strategic business locations such as Makati City, Fort Bonifacio, and the Bay Area as well as top tourist destinations such as Cebu and Boracay, further enhancing industry prospects,” he noted.

New development projects include the $153 million Kingdom Hotel, a combined hotel and residential condominium that will rise in Makati City. “We expect 18,143 units to be provided from 28 upcoming residential condominiums in Makati that are targeted for completion between 2008 and 2013. Likewise, in Fort Bonifacio, 11,652 units are expected to come on the market from 33 residential condominiums being constructed from 2008 to 2012.”

Meanwhile, Frankum said major multinational BPO operators are currently expanding their presence in the Philippines

“Major investors and businesses are looking at the Philippines because it is one of the largest English-speaking nations in the world and has 33.5 million Filipinos in the workforce,” Frankum said.

“Offshoring and outsourcing will continue to drive demand for real estate, particularly in the office space market,” he added.

CBRE is a global leader in commercial real estate services specializing in investment sales, commercial and industrial leasing, asset management, property management, project management, facilities management, and research and consultancy.