Local property sector boom seen to continue

Experts cite strong economic growth, low interest rates

The local property sector is nowhere near any bubble with residential and office rental rates and their property values in Metro Manila’s major central business districts (CBDs) are still likely to rise within the next 12 months on buoyant demand, property experts from Colliers International said.

In a briefing on Friday, Colliers Philippines associate director Julius Guevara said 5,900 additional residential units were likely to be completed each year, bringing the residential stock in major CBDs to 64,000 units by end-2014, 38 percent higher than the level in end-2011.

However, he noted that product launches and take-up were closely tracking each other, noting that the real estate industry was underpinned by the country’s strong economic growth, overseas Filipino remittances, record-low interest rates, prudent real estate exposure of banks and the growth in offshoring and outsourcing industry.

While the property was inherently cyclical, Guevara said in an interview that there were ways to avoid forming a bubble. Apart from closely monitoring market trends, he said the strategy of pre-selling a critical mass before starting construction was a big help to developers. “It’s less speculative if they do it based on demand,” he said.

“Not all cycles end in bubbles,” said Colliers Philippines managing director David Young, noting that at the moment, property supply and demand were moving in the same trajectory. He said there was no cause for alarm “unless we see a significant surge in construction levels where suddenly demand is not there to fill that space up.”

At present, implied land values are still rising. Based on Colliers’ research, land values in Makati CBD have increased by 5.8 percent in the second quarter year-on-year while values in Ortigas have risen by 5 percent. But Bonifacio Global City posted the biggest year-on-year increase at 19.3 percent.

By the second quarter of 2013, Colliers projected that land values would exceed P300,000 a square meter in the Makati CBD and P200,000 in Ortigas. Specifically, land values were forecast to hit P303,009 in Makati, P225,000 in BGC and P136,014 in Ortigas.

As of end-June this year, per square meter land values averaged P284,635 in Makati CBD, P192,574 in BGC and P131,427 in Ortigas. On a quarter-on-quarter basis, these figures were higher by 0.2 percent, 1.4 percent and 0.5 percent, respectively.

For grade-A residential units, rental rates in Rockwell, estimated at P675 to P900 a square meter, was seen to grow by 4 percent over the next 12 months. In BGC, the rental rate is seen to rise by 6 percent from P560 to P830 over the same period, and in Ortigas, by 5 percent from P270 to P460.

In terms of vacancy rates, Ortigas has the highest at 13.5 percent, followed by Makati CBD at 11.71 percent and BGC at 9.06 percent. Rockwell has the lowest at 3.4 percent, based on Colliers research.

The large supply of studio and one-bedroom units, a segment most associated with Grade-A and -B buildings, has contributed to the relatively high level of vacancies since last year, based on the research.

For office property, Colliers estimated that Metro Manila’s total office stock as of 2011 was 6 million sqm (net usable area). Makati’s share fell from 75 percent in the 1990s to just 48 percent at end-2011. This share might decline to 40 percent in the span of two years, Guevara said.

Office property inventory is expected to exceed 7 million sqm (net usable area) by end-2013, substantially driven by BPO offices. About 40 percent of the new supply would come from BGC, the research said.

In terms of vacancy rate, Makati CBD has a vacancy rate of 3.99 percent in the second quarter compared with BGC’s 3.95 percent and Ortigas’ 3.22 percent.

Colliers expects rental rates in Makati to rise by 4-6 percent in the next 12 months. At present, rental rates are at P840-P950/sqm for premium units, P550 to P900 for Grade-A units and P465-P530 for Grade-B units.

In BGC, the office rental rate is seen to grow by 3-5 percent in the next 12 months. Grade-A rental is now priced at P660-P790 and Grade-B at P450-P600/sqm in BGC.

For Ortigas, Collier projected a 4-6 percent growth in rental rates from P440 to P665/sqm for Grade-A and P360-P500 range for Grade-B units at present. - Doris Dumlao. Inquirer

Continued growth in real estate loans seen

MANILA, Philippines – Lending to the real estate sector is expected to continue to grow despite the tighter rules imposed by the Bangko Sentral ng Pilipinas (BSP) in measuring the exposure of banks to the sector, officials of a consultancy firm said.

Karlo Pobre, research analyst at Collier’s International said in an interview with reporters that a slowdown in real estate loans is not likely even as the BSP recently issued rules which expanded the definition of real estate exposure of banks to include not just loans for construction and development but also funds extended to individuals for the purchase of houses.

The expanded definition also covers investments in equities and securities with proceeds to be used to finance real estate activities.

Pobre noted that loans are seen to continue to rise amid a favorable economic environment.

“It (loans) will increase.…On a quarter-to-quarter to basis, it grew by (an average of) about 3.5 percent since first quarter of 2010,” he said.

On the other hand, non-performing real estate loans, have decreased to five percent from six percent in the first quarter of last year.

“We see that trend to continue because it has already established that downward trend since last year. Everything is on the rosy side right now,” Pobre said.

He said they welcome the move of the BSP because it shows that the central bank is taking a proactive approach in monitoring the exposure of banks to the real estate sector given the number of residential condominium units being put up.

“I guess, people are just overwhelmed and even BSP because, five to 10 years ago, we did not see this number of condo units being built... Everyone is just taking safety measures,” he said.

He added that there is no possibility of an occurrence of a property bubble right now.

Julius Guevara, associate director for advisory services at Colliers International said he also sees the recent development as a positive move by the BSP.

“I think the BSP has been very proactive in trying to just monitor how exposed the developers are. I guess it is because of the fear of the repeat of the Asian crisis back in the 1990s. I think it’s a good sign that the central bank is watching over this...so this is a bit of good news,” he said.

According to BSP data, banks’ property exposure was at 14.52 percent ending 2011.

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The BSP said that while the figure is below the 20-percent cap, it would continue to monitor developments in real estate lending.

Meanwhile, Colliers International said in its Philippine Real Estate Market report that total office stock is projected to reach 7 million square meters by 2014, over 20 percent higher than the previous year as strong demand from offshore and out sourcing sectors ramp up construction.

For the residential sector, over 46,000 units of high-rise condominiums were tracked last year and about 5,500 units are seen to be completed annually to leading to a 30 percent growth in total stock by 2014.

“Take-up remains consistently strong despite the substantial number of supply in the pipeline,” Colliers said.  - Louella D. Desiderio (The Philippine Star)

Property expert urges public to keep watch on interest rates

Real estate market analyst says that the Philippine real estate is in a healthy state and that a bubble is not imminent. Due to healthy competition, low interest rates, affordable housing packages, the industry continues to resemble a stable balance of law and supply. Still, the experts expect both buyers and developers alike to look into the 1997 Asian financial crisis and learn from the lessons it has offered. 

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Analysts may be one in declaring that the Philippines is safe from a real estate bubble just yet. One expert, however, did urge the public to keep a close eye on reliable indicators. Enrique Soriano, Ateneo program director for real estate and senior adviser for Wong+Bernstein Business Advisory, advised that the country shouldn’t let its guard down.

Victor Asuncion, CBRE executive director for global research and consultancy, assured that there would be no asset price bubble in the Philippine real estate industry, as most projects being built in Metro Manila and other urban centers cater to end-users and not speculating buyers, at least in the office and residential sector.

Nevertheless, Julius Guevara, associate director, valuation and advisory services and head of consultancy and research of Colliers International told Inquirer Property that because of its cyclical nature and the long construction period before units could be delivered to their purchasers, the real estate market would still be susceptible to bubble effects.

Prospect of a bubble

Guevara said: “Hence, the prospect of a bubble is always present. Bubbles typically emerge due to irrational price increases caused by speculative investment. They can also occur when supply cannot address a sudden spurt in demand, and since construction can take years, the supply may be introduced at a time when the demand has already been addressed. Currently, we are not experiencing a price bubble, since demand for real estate has been driven mostly by end users and developer competition has kept pricing relatively stable.”

According to him, Colliers’ International’s observations during the first quarter of 2012 showed that reservation sales grew healthily compared to the same period last year.

“So, we see no signs of decline in demand as of yet. Moreover, our developer clients have learned greatly from the lessons of the 1997 Asian crisis, and they continuously monitor the state of the market, assessing whether it is time to step off the gas and slow down.”

Dark cloud

Guevara, however, warned: “One dark cloud that we see in the horizon is the eventuality of an increase in interest rates. Currently, sales are being driven by local demand supported by easily affordable in-house payment schemes being offered by developers as well as low-interest housing loans from banks. They are able to provide low amortization packages because of a low interest rate environment.

“Benchmarks such as US Treasury rates and the Libor rate are at historically low levels, and Philippine lending rates have also followed suit. Given that they are at historical lows, it should be expected that they will one day go up; the question is when. Once the global economy improves and inflation needs to be checked, these rates definitely will rise, thereby affecting the ability of these developers and banks to offer affordable payment options,” he added.

Rate adjustments

Soriano agreed, but said: “Rate adjustments are not necessarily dark clouds. As a matter of fact, it can be favorable in harmonizing the sector. Increases in rates are actually a good remedy to balance the demand and supply.”

He added that an adjustment in interest and mortgage rates is inevitable. Interest rate has an enormous effect on property values because of the direct correlation on the price of borrowing money.

Interest rates may not necessarily dampen demand for real estate purchases, said Claro dG. Cordero Jr., Jones Lang LaSalle Leechiu’s head of research, consulting and valuation in the Philippines.

Competition among developers

“The decline in interest rates has certainly helped the demand for housing to increase but while this is true, an increase in interest rates in the near future may not necessarily dampen the demand for real estate purchases. One of the reasons interest rates went down (aside from structural changes initiated by the Bangko Sentral ng Pilipinas) is the competition among the developers. The sheer volume of new residential projects scheduled to be completed in the next five years is likely to influence interest rates to continue to trade at low levels.”

Cordero added that “when interest rates eventually increase, we can expect real estate prices to go down (or get corrected). Hence, while interest rates may eventually increase (and we can expect the payment schemes being offered by banks to tighten), the additional incentive for buyers is the relatively lower housing prices.”

CBRE Philippines said: “While interest rates, indeed, reached considerably low levels, the strong peso as well as continued positive developments in the market contribute highly in stabilizing the prevailing rates. Government spending is aptly covered by local and foreign credit, while confidence levels from the business sector remained high, thus mitigating risk considerations. Money supply is sufficient vis-à-vis the requirements for current developments and impending projects, hence increase at this point is not likely to happen within the immediate future.”

By: Tessa R. Salazar, Philippine Daily Inquirer

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