IS THE Philippine real estate bubble about to burst? We hate to be called bearers of bad news, but all indications seem to lead to that possibility.

Many would dispute this grim prognosis because a quick look at the current real estate industry would show that there appears to be no stopping the property market boom. 

And that is exactly what property development moguls want the people especially their intended clients to believe- that the property boom is here to stay.

The top three developers, Ayala Land Inc., SM Prime, and Robinsons Land, and other smaller developers are getting ready to launch and open to the market 600,000 square meters of commercial and office spaces from now until 2018.

Malls are going to go up in selected areas in the country. To many undiscerning and ordinary people, this could be good news on the real property market in the country.

 

PLAY OF MIRRORS

Market observers, however, say the property boom being pictured by the industry leaders could be more of a mirage and a play of mirrors.

In fact, the rise of mega buildings, many along EDSA and developed by the top three builders, is not necessarily a sign of a growing economy and business in the country.

The frightening part here is if these mega structures are unsold and made idle by a shrinking market even more compromised by uncontrolled use of free funds in banks.

Shrinking market is what the country should expect after last week’s Philippine Daily Inquirer headline: PH stocks fall in global rout.

 

BOON TO THE ECONOMY?

But government and business leaders think otherwise. They believe that a weak peso is a boon to the economy.

In an economy dependent on foreign investments, the sharp decline of the peso against the US dollar means the billion dollars remittance of OFWs will fetch more pesos for use of OFW families.

Government economic planners are expecting that with more pesos on the hands of the OFW beneficiaries, this will result in a spike in consumer spending.

Dollar investments entering the country will fetch more pesos per dollar.

Likewise, this would give investors higher peso value to their dollars and enhance their capital value.

So, is it the perfect time to invest in the Philippines? We don’t think so.

Local economists are saying that the weakened peso is healthy to the economy even when imported goods and foreign debt payments get more expensive.

 

DOWNSIDE

The downside however is that as a country where industry and factories are heavy users of imported inputs, the weaker peso would mean higher cost of production of goods for local consumption and exports.

Further, major infrastructure projects are funded by foreign loans that will suffer from the weak pesos. But Victor Abola, of the University of Asia and the Pacific says 75 percent of the economy will benefit from the weaker peso.

He is convinced that the weak peso will spur consumer spending.

But the question however is, will it be enough to keep afloat a massive spending spree on mega properties and will roll out hundreds of thousands of square meters in floor spaces for commercial use?

 

P5 TRILLION BANK LOANS

There is reason to doubt and even fear that a property bubble that OpinYon predicted in 2012 could happen soon.

Total bank loans for the real estate sector in December of 2014 was P5.117 trillion, up from P4.704 trillion in September of that year.

From December of 2009 to December of 2015, bank loans for property development consistently rose. In 2009, property loans totaled P3.129 trillion and moved up to P5.117 Trillion in December of 2014.

The level of bank exposures to property loans tells us that the growth is more loan-driven than a result of market forces response and needs.

This is more evident by the fact that when you go around in various areas of the metropolis especially inside the malls, it’s not uncommon to see attractive young ladies handing out brochures of properties, usually condominium units that they are selling.

 

YUPPIES OPT TO STAY

These pretty sales executives may not look like that they are in desperate mode to make a sale, but their body language indicates that takers are hard to come by.

Fact is, their sales are few and far between because their intended market, the young urban professionals especially those call center employees who earn at least P30 thousand per month are not buying.

When those condominium units were being built, many developers thought that those yuppies would buy or rent condo units especially that are just stone’s throw away from their workplaces.

However, an informal survey conducted recently by OpinYon on those yuppies would help explain why they are not buying condominium units.

It appears that around 76 percent of these yuppies are single and are still living with their parents and have no plans of moving out to live alone in the immediate future.

Also, many of them prefer to stay in their parents’ house because they have nothing to worry about what food to prepare or who would do the laundry for them.

Thus, they get to enjoy the good life by regularly going out to party with their friends and more than 80 per cent of those asked by OpinYon admitted that a huge chunk of their salaries are spent on latest electronic gadgets and on their so-called night-outs or gimmicks.

 

OVERSUPPLY OF UNITS

Many of those in the real estate industry are not saying it, but whispers are loud enough to be heard and the big question is – is the property bubble about to burst?

et us not forget that for the past eight years, real estate has been one of the true major drivers of our gross domestic product (GDP) and there are tell-tale signs that it is slowly reaching its saturation point.

Even international financial institutions like the International Monetary Fund (IMF) and World Bank (WB) have already warned a few years back of a “potential bubble in the country’s property market”.

This is mainly because there appears to be an oversupply of developed properties with very few buyers, resulting in many unoccupied and dimly lit condominium units.

 

LAX POLICY

It is worth noting that there appears to be a very lax policy as far as government regulators are concerned with regard to how banks provide loans to real property developers.

The following table would show that there is a marked upward trend beginning from December 2009 on how much banks are giving as loans to real estate developers up to December last year.

WHAT NOW?

It has been established that there is an oversupply of units especially those that belong to the so-called small, mid-end condominiums that cost only P2 million.

Some potential buyers that are sweet talked by attracted sales executives usually initially express interest to buy but because they don’t have enough money, they would end up walking away from the deal.

Despite the gloomy outlook, there is still a chance that developers could escape the real estate burst but if only they could effectively tap the resources and wealth of our overseas foreign workers (OFWs).

There are more than 10 million OFWs scattered all around the world and their remittances which as of 2013 had reached US $22.9 billion in 2013 – could be the key that would save the developers’ necks.

But those in the property sector must devise new ways on how to convince the families of those OFWs that the best way to invest those hard earned dollars is through property acquisition.

At present, it appears that a big chunk of OFWs remittances are spent on unnecessary items such as gadgets, electronic appliances, food and others.

This ‘bad habit’ should be reversed if only to save the real estate industry from bursting.

A collapse in the property bubble would surely trigger a collapse of the country’s banking system. What happened in the USA could soon happen here, and experts are saying that its impact on our economy could be four times worse than what the USA has experienced.

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Thursday, 05 December 2019
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