The Future Of Real Estate

Manila Bulletin--

Asked to speak at a conference of Quezon City realtors, I told them that they knew more of the industry than I did. However, at times the observation of an interested outsider could be useful.

While reminding them to learn the lessons of the past, I also emphasized that the future will not exactly be like the past. In the case of the real estate bubble which burst during the Asian financial crisis, I do not see in the near horizon any possibility of a financial crisis in Asia, given the safeguards put in place by most central banks in the region. Also if one looks at the prices of land, condominium units, and country club shares, one can see that in the case of country club shares, the nominal price is still lower than the prices in the pre-Asian financial crisis. In the case of real estate and condominium units, even if the nominal prices are higher, in real terms the prices are still below pre-Asian financial crisis levels.

Using a graph from Colliers International for the price of a luxury 3-bedroom condo unit, it shows that the current price per square meter is higher in nominal terms but still below the prices in real terms using 1995 prices as the base year.

Asking them, whether there is a bubble, all were unanimous that such was not the case. In a conversation with Senator Manuel Villar, he noted that the buyers are the end users of the property so that the speculative element is not in the picture. Past experience shows that undue speculation in the market is what drives prices sky-high and creates a bubble. Vice president Jojo Binay has stressed on many occasions the still significant gap between the supply of housing and the demand, especially in the low-income category. The banks also are quite conservative in financing real estate sales which again should dampen any tendency towards a bubble.

Strong demand is expected to continue on the back of the growth of some sectors in the economy. In the BPO sector, the Business Processing Association of the Philippines projects that by 2016, revenues earned will reach US$25 billion with around 1.3 million employees. Published data estimates that this will translate to US$12.9 billion in annual compensation with 13% to be spent on housing.

Remittances from Overseas Filipino Workers are still seen to continue an upward trend as well as a substantial portion going into housing. Per the Asian Development Bank, 2.1% or US$364 million of these will be spent on housing. The Filipino dream to have one's own home will fuel this demand.

Infrastructure development which will stimulate real estate development will accelerate, given the ''Daan Matuwid'' mantra of the Aquino administration which is resulting in project savings which can be plowed into more projects and in the clustering of projects into a holistic and logical pattern. Gone are the days when infrastructure sprouted all over the place with no connection with each other and the only unifying reason was that someone influential with the previous administration asked for the project.

What then can create havoc for these positive projections? I suggested three - if the Aquino administration deviates from the ''Daan matuwid'' and opts to compromise because of ''political realities''; if business, like the real estate industry is, ''taxed out of business''; and if there is a lessening of the resolve to amend the economic provisions of the Philippine Constitution to liberalize entry of foreign investors in real estate and the exploitation of natural resources. I hope these do not happen so that the Philippines will finally exit from the boom and bust economic cycle of the past.

Business Bits. The appointment of Dean Marvic Leonen as Associate Justice of the Supreme Court does not only lower the median age but brings in a fresh and welcome breeze into the judiciary, needing drastic reforms.