Real estate industry – boom or bust?

PHILIPPINES – There are only Prophets of Boom and Prophets of Doom. Who is dominating in forecasting the future of the Real Estate Industry today?

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Gunigundo is one believer in the stability of the real estate industry in the Philippines. So he told realtors and businessmen during a forum sponsored by the Pasay Makati Realty Board recently.

Massive urban migration and strong consumer power generated by dollar-earners in the OFWS and the BPOs support the bullish foundation. By 2017, the BPO at $25-B and OFW remittances at $28-B -this will total $53-B in one year and will be chasing after consumer favorites like houses, cars, and appliances.

Added to this will be the relatively high 1.9% annual population growth rate characterized by a young, employable population sector (with, therefore, low dependency ratio) Essentially, the stability of the industry is underpinned by demand outstripping supply.

Currently, the residential housing backlog is 5 million units and independent foreign-based forecasters peg the same 5 million supply gap even up to the year 2030.

The BSP career officer says it will take the construction of 2,600 residential units every day to catch up and erase the backlog. Some argue this may not necessarily be true for the office types currently centered in Makati, Ortigas and the Fort Bonifacio areas.

Sheer economic growth targeted at 6.5-7.5% GDP growth rates from now till 2022 and the gradual reduction of poverty levels from 24% to 16% in 2022 empower more people to afford some form of housing budget.

Low-interest rates are also a prime factor that enthuses people to go into house financing. There are just so many banks jumping into end-user real estate lending. Lowinterest rates are-likewise- a function of a deliberate BSP policy of basing the rise and fall of interest rates on inflation.

Now the Philippines have had 74 consecutive quarters of positive GDP growth. We are even bruited as the New Tiger Economy with acceleration second only to China. Yet amid this impressive growth prices of goods and services (inflation) have remained stable at 1.8% in 2016 edging to 3% in the near term.

Guguinigundo cites the character of the Philippine economic growth as induced more by “improved productivity” compared to the traditional way of fueling growth by investing more in land, labor and capital, the three factors of production.

That kind of growth has resulted in an average growth rate of deposits of 13% in the banking sector reflecting new savings capability and ability to absorb bigger loans for housing.

Moreover, in the medium term, there is the looming ASEAN integration that will break the walls that divide the participating nations and make them into one. For instance, if the market for houses is today 100M (population of RP), the potential for growth of housing demand can zoom up to 650-M, the ASEAN population total.

This rise in population resulting from massive urban migration is shown in the horrendous traffic on the streets of Manila that costs the economy P2-B a day in lost income productivity. It can produce some downsides.

That is the reason why the Department of Public Works and Highways in the National Capital Region and the nearby provinces- which constitute a huge chunk of the income-generating populace are having their hands full in improving the infrastructure.

Good infrastructure in the area makes real estate dwellings and commercial areas attractive to consumers and businesses. Construction of new, the widening and rehabilitating of roads and bridges are a top priority in the medium term budgets of DPWH.

Metro Manila is serviced by three major bridges across Pasig, Marikina and the Floodway -part of the 30 total bridges. However, DPWH sees a need to construct 12 more bridges to ease traffic flow and decongest the existing 30 bridges.

Among the major ones are the P4.6B (via Chinese grant) connecting Binondo and Intramuros and the widening of the Estrella Makati to Mandaluyong Bridge, the 10,2 kilometers development of the “Laguna Lake Highway) from Napindan to the bridge in Taytay and the P70-M widening of the C-3 road to four lane structures.

Indeed roads and bridges are positive adjuncts to livable residences and viable commercial outlets. But not everyone is bullish outright about the permanence of the real estate boom.

One such man is renowned Private Investor Teodoro Sazon. He says bull markets do not run forever-not even after three decades of consistent growth.

A believer in the Elliot Wave theory -some Chartists believe we are at the peak of a five wave cycle -making a fall in both stocks and real estate jarring indeed. Sazon forecasts the fall can occur between 2018-2019.

Fresh in everyone’s minds is the 94% drop in the value of real estate in the United States circa-2007-2009 and the older 90% crash of Tokyo properties in 1980.

It is really a two-way street. And every investor is cautioned to look before one crosses the street- both sides- the left and right. The Bulls and the Bears.

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