Philippine Real Estate Market – March 2009

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We all know that what’s kept this economy going are the Business Process Outsourcing Companies, Call Centers, OFW remittances, Medical Tourism, Bank Stability and our “resilient” local market.

For your info, i spent last Christmas season in the U.S. and saw actually what’s going on from the east to the west coast. It’s somewhat like the asian crisis that hit us in 1997.

Real estate prices have gone down as much as 60% in some states ( Las Vegas is worst hit due to speculation ). California has the highest foreclosure among all states in America. Because of the sub-prime terms, most property owners have just opted to have their properties foreclosed. Companies are closing down, people are losing their jobs, benefits and even their retirement funds have been affected. Some of my friends have opted to accepting a new job with a salary much lower than what they were making. Some even had to come out of retirement.

The world is undergoing a recession, in fact, just our neighboring countries in Asia such as Singapore, Hongkong, Japan, Malaysia and Korea are going through a property downturn due to heavy international financial exposure.

Given the above facts, i will now give my insights on our current market conditions.

Office

We have always been dependent on the US economy but fortunately, despite the global recession, the Business Process Outsourcing industry will continue to expand as the Philippines is one of the best countries to outsource business due to better English speaking and more patient agents, lower labor costs, cheaper office rentals and preferred lifestyle offered to expats. We are now second only to India in the outsourcing business and in fact, some Indian companies have bought in to Philippine Outsourcing companies as they see the enormous potential the country has to offer !

Most rentals which began five to seven years ago are undergoing renewals and rates are being negotiated. Some of these rates were as low as Php 450/m2 and have gone up as high as Php 1200/m2 exlcuding dues and Vat. With regards to Grade A buildings, we expect a correction of somewhere between Php 700/m2 – Php 900/m2 depending on the building. Makati and Ortigas Center offices located on lower grade buildings haven’t corrected much as rates have been acceptable to most companies. Major consideration for a company negotiating their lease is the capital expenditure to renovate a new office ! Everyone is always looking for a better deal. If you’re a unit owner, you’re also considering if you will give in to a lower rate rather than having a vacant unit for an unforeseen time.

BPO companies are now expanding to cities such as Cebu, Iloilo, Davao, Pampanga ( Clark ), Bulacan, Cagayan de Oro, and Lipa where their costs would be much cheaper. We expect this sector to increase conservatively at 20-25% this year inspite of this recession.

Residential Condominium

Condominium selling has slowed down for most developers. Most developers have stopped the road shows they were doing abroad. Some have held off plans to start their development. Buyers are opting for a unit that’s ready for occupancy rather than one that’s under construction. Prices have corrected about 7-10% in the Makati, Ortigas and Global City areas. Buyers are mostly cautious and are in the wait and see mode, however, if they are aware that’s it’s a good deal and they get the price they want, then a transaction occurs.

Some buyers / investors who bought condominiums through the road shows abroad are now defaulting on their payments inspite of measures being done by developers to restructure their payments. This started last year but the numbers have increased. The positive note on this is that Investors are keen on taking over distressed sale. I am sure i am not the only one getting this kind of inquiries.

Fortunately, everyone has learned their lessons from the Asian Crisis. Buyers have become more educated and have opted for safer investments. Developers have provided safer ways to buy properties such as build to own ( BTO ) schemes and have also customized their projects based on clients needs and budget. In addition, banks are now offering 10-15 year amortization programs which were unheard of before.

On the leasing side of condominiums, take for instance a prime development like Rockwell. There is just too much inventory delivered over the last year that a unit that normally leases out for less than a month, is now taking much longer. Lease rates have also gone down thus affecting the return on investment ( ROI ) an investor expected as unit owners just want cash flow rather than paying for association dues. Fortunately for these investors, they bought at a prime location, can you imagine those that bought at other locations not as prime and not managed well by a developer ? There are still facts not known to investors when buying a condominium and one of the most important factor is, who will be manage the building ? This always affects the value of the building on the long run both when being sold or leased out.

Residential Houses

This is one sector that remains strong but has also gone through a minor correction. Subdivisions in Makati ( Forbes Park, Dasmarinas Village, Bel-Air, Magallanes, Urdaneta Village ), Pasig ( Valle Verde ), Quezon City ( Corinthian Hills, Greenmeadows, Corinthian Gardens, Acropolis, White Plains, Ayala Heights, Ayala Hillside, New Manila ), San Juan ( Greenhills ) and Ayala Alabang. Property owners are trying to hold their prices but are being realistic ( some have been affected by recent scams and also foreign investments ) and that affects their decision on the selling price of their property. There are buyers but are mostly in the wait and see mode unless they get the price they want. Leasing remains strong but has also gone through some adjustments.

Warehouse / Factory

This is one sector that seems to balance itself out but we expect a positive growth. On one hand, a major company like INTEL closes down, on the other hand, major companies like TELETECH, CONVERGYS, TOSHIBA, and CITIBANK to name a few have expanded their operations here. More companies will follow suit as most US and European companies are looking at ways to reduce their costs. We just have to look at PEZA’s figures and performance and it speaks for itself. New thrusts in Medical Tourism, Information Technology, Retirement Ecozone, Tourism Development Zones and Agro-Industrial Projects provide very competitive incentives for locators. Our hats off to Director General Lilia de Lima who has increased investments by leaps and bounds. Value of investments on EPZA zones from 1981-1994 were at Php 33.7B compared to Php 1.327T from 1995-2007 when Ms. Lilia de Lima converted to EPZA to PEZA. Locators increased from 331 in 1984 to 1,956 in 2008.

Yes, it’s true that we’ve got OFW workers now being laid off abroad but remittances are still within reasonable level as per Banko Sentral. In fact, last year’s remittances were higher that 2007. We expect further correction, but major factors affecting our economy such as BPOs, Bank Monetary Systems, OFW remittances and of course, God’s Blessings on our country will keep us above waters.