Forget the Mayan prophecy. The world is still alive and the real estate industry is looking forward to a more fruitful 2013.
We look back at the year 2012 about the things that happened to our industry. Mr. Ramon C.F. Cuervo III and Prof. Roque Sorioso shared their inputs while we researched on other real estate institutions on what transpired in the real estate industry for 2012.
According to Prof. Sorioso, the Philippine property market performance during the first semester of 2012 was by and large positive. Listed company earnings grew by 22.3% while revenues grew by 25.9%. This was made possible by higher completion rates in projects, particularly residential projects, which pulled up the whole market. Third quarter performance is likely as good as the first quarter, given the unexpectedly strong GDP growth rate of 7.1%. The main driver, according to the NEDA, was strong consumption and government expenditures, supported by good growth in agriculture and exports.
ROQUE SORIOSO, JR.: Philippine property market performance during the first semester of 2012 was by and large positive. Listed company earnings grew by 22.3% while revenues grew by 25.9%. This was made possible by higher completion rates in projects, particularly residential projects, which pulled up the whole market. Third quarter performance is likely as good as the first quarter, given the unexpectedly strong GDP growth rate of 7.1%. The main driver, according to the NEDA, was strong consumption and government expenditures, supported by good growth in agriculture and exports.
Inside Philippine CBDs, luxury condominium units leased at historically high rates. Residential rental levels, unlike office space leases, have already exceeded their pre-2007 crisis levels. With current positive economic trends, the residential sector is poised to continue its upward trend for the rest of 2012 and most likely 2013.
Central business district occupancy rates are effectively at full capacity since observed vacancies are mostly structural vacancies (statistically, vacant units are in-between leases or are not available for lease). Appraisers in the field, however, have observed instances of high end residential units that are unoccupied or not used as residences. This may suggest speculative demand becoming substantial over time.
In recent real estate conferences in late 2012, there have already been observations of an oversupply in the middle cost and high end residential markets, particularly around the CBDs and within Metro Manila.
Bankers refer to an emergent mini-bubble, as real estate developers’ residential property projects are leveraged at an all-time high, and the most at risk are probably developers of luxury condominium units, which risk oversupply. This problem will materialize if demand abates if and when the expat market shrinks from spates of external financial crises. In contrast, low and middle cost housing that caters to endemic domestic demand, OFW families and IT-BPO employees will experience sustained demand even in the event of external crises as that demand segment are all end-users and associated negative income effects due to external crises have a relatively long lag time.
So while middle and high end residential markets will be vulnerable to external shocks owing to their speculative components, the lower cost residential market segments should continue to be strong for months after the advent of external shocks.
And while middle cost and high end residential project developers have been forewarned, the trend to over-develop that segment continues, with most developers anticipating continued future growth, lured by higher margins compared to the lower end of the market.
COLLIERS INTERNATIONAL: No completions were sighted in Makati CBD in 2Q12. However, about four high-rise condominiums may be turned over by year-end. This includes the premium condominium Raffles Residences, with some 220 units. The large supply of studio and one-bedroom units, a segment most associated to Grade A and B buildings, has contributed to the relatively high level of vacancies since last year. Yet in the second quarter, overall vacancy rate in Makati was stable at the 11% level.
PINNACLE REAL ESTATE CONSULTING SERVICES, INC: The residential market continues its strong push as new product launches continue in the different areas of the metropolis.
The high-end market behaves differently from the rest of the residential segments as buyers in this segment traditionally have the funds on hand or have easy access to it. The acquisition of units is fairly straightforward in most cases and funding is much less of an issue as compared to those in the lower segments because of this.
It would be safe to surmise that buyers in this segment acquire their units for investment purposes given the relatively small size of the market. Ayala Land officials have also claimed that majority of their buyers acquire their units for investment purposes. This would seem like a worthwhile investment given the high demand and tight supply in the leasing market for these types of units especially with the growing expatriate population.
For the rest of the segments, the prevailing low interest rates and high liquidity in the financial market allows both developers and buyers access to financing for the construction and purchase of these residential units. From the developers standpoint, the availability of financing from the banks assures them easy access to funds needed to complete their undertaken residential projects as well as begin construction on new projects moving forward. This scenario likewise gives their projects a better likelihood of being sold as this would open their units for sale to a large market.
Banking officials, some economists and real estate practitioners don’t see a property bubble coming anytime soon even with the continued residential project launchings. According to them, most of the project launches are in the underserved affordable housing segment which has a large market base. Add to the fact that government housing officials and developers have maintained that there is still a substantial housing backlog that needs to be served and that this still exceeds the current project launches in the market. With this in mind, most major property developers have announced major project launches can be expected in the coming year.
RAMON CUERVO: I forecasted that in 2012 economic laws and the real estate cycle will show an inevitable slowdown in real estate particularly in the mid to high end condominium market. This I believe is now saturated especially in central business districts of Metro Manila. The obstacles, dangers, and factors to the growth of these condominiums are: oversupply of high-end condominiums and speculative pricing, taxation, high maintenance cost, and monthly dues.
A consequence to these negative factors will lead to less sales and increase in rental market for residential units.
Investors who bought units are now forced to give discounts, improve the fixtures of these units, and seek better tenants on a long term because of competition.
In a nutshell, the residential sector is driven by the need for affordable housing. There is a strong demand and a need to supply at least 3 million homes a year. Affordable prices ranges from 500k to 3M at locations that are in different regions and cities. These housing must also be accessible with transportation facilities, near places with work, schools, hospitals, commercial centers and other facilities, like areas of worship and recreation.
However, the truth is, as we enter towards the beginning of 2013, we still experience a strong demand in Real Estate in urban centers, particularly near universities and colleges. Developers are now open to pocket projects that contribute to urban renewal.
As a summary, 2012 was a very good year for the residential sector. Thanks to low interest rates, OFW remittances- especially our seamen- and demand for second homes and “half-way houses” by workers, students, and BPO agents.
To be continued… RACuervo, still has to seek Santa’s advice on whether Real Estate was wise and if we, Realtors, were nice.
Thank you to all. Have a merry, happy, and blessed Christmas!
Sources of Data:
- Roque Sorioso Jr.
- Colliers International
- Pinnacle Real Estate Consulting Services, Inc:
- Institute for Philippine Real Estate Appraisers (IPREA)
- National Statistical Coordination Board (NSCB)
- Bank Sentral ng Pilipinas (BSP-Central Bank)
- Philippine Stock Exchange (PSE)
- Department of Tourism (DOT)
- BusinessWorld (various issues)
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