Lessons in Philippine Real Estate from the Past Crashes
In light of the current global slowdown brought about by the U.S. financial crisis, which originated from sub-prime property loans by the careless U.S. banks, we now reflect on the lessons that we Filipinos learned from our past. Builders have already started to review their plans amid fears that the huge Overseas Filipino Worker contingent that last year sent home more than 14 billion dollars, could shrink as jobs are lost in the recession-hit West. Two major players in Philippine Real Estate have already made some trimming moves to adapt to the current headwinds.
Ayala Land‘s chief investor relations officer Alfonso Reyes is already wary of the situation. “We haven’t experienced changes in default rates,” said Reyes. “But given the uncertainty of the environment, it is understandable that there’s a bit of a wait-and-see attitude that is prevailing in some of the hard-hit markets in the US,” he told. A third of Ayala Land‘s residential sales last year were to OFW’s, of which half were based in the US. The figure excludes sales to locally-based relatives who may be receiving remittance money from relatives abroad. But now, that figure has now dropped to 23 percent.
Meanwhile, SM Prime holdings, the Philippines’ top shopping mall operator, still expects net profit to rise 13 percent to 14 billion pesos (285.7 million dollars) this year as consumer spending remains firm in the retail sector. However, SM has announced that it will reduce its four billion-peso budget for the middle-income condominium market for 2009.
Despite all this though, top industry experts say that some high-end developments may be recession-proof thanks simply to their scarcity. Among these are Discovery Primea with its private lifts, bedrooms the size of a helipad and Italian marble floors, and the nearby Raffles Residences project. Discovery units are still being snapped up at USD$1.1 million dollars each, and Raffles units are going for a record USD$1.2 million dollars each — three years before they are even built. Seen from Ayala Land‘s Tower One headquarters, building activity in the Makati district has slowed, even though construction material costs have fallen substantially along with the commodity and equity crash.
Ayala Land retail occupancy rates still remain high and demand for the lower-priced segment of its residential market continue to be resilient. No project has been cancelled yet, but Ayala is aware of the prevailing situation, so their strategy now is to be a little bit more flexible to be able to manage risk exposure accordingly.
Real estate companies that survived the 1997 Asian crisis found new growth in outsourcing, where Western companies cut costs by branching out accounting and other segments of their operations to lower-cost, English-speaking corners of the Third World. The huge and increasingly affluent market of 8.5 million OFW’s also came into play, and this made the Philippine real estate industry attractive once again. “The property sector may slow down, but there will still be year-on-year growth,” said CB Richard Ellis research director Victor Asuncion.
Asuncion said Filipino developers have learned their lesson, and their debt exposure is limited as they sign office leases even before building them and pre-sell homes with flexible terms – helped by a housing shortage estimated by the government at 3.7 million units.
Credits to Source: http://www.philippinenews.com/article.php?id=3610
