Mar 22, 2012 | Comments 0
The World Bank has reported a shift toward non-bank financing in the Philippines which has required careful monitoring of the developer’s exposure.
Inquierer.net has reported the Philippine real estate market as possibly facing oversupply risks. While the market is generally stable, the Philippine Institute for Development Studies states that “ownership of dwellings and real estate has been growing steadily at high single-digit rates from 2006 to 2011 except for a relatively low 1.4 per cent growth in 2009.”
A demand for office space has been brought about by the BPO industry while remittance fuel demand in the low-end to mid-range residential market.
According to real estate research and consultancy firm CB Richard Ellis, an estimated 60 per cent of remittances directly and indirectly benefit the real estate sector.
The BPO industry accounts for two million square metres out of a total office space stock of 5.7 million square metres in Metro Manila in 2011. As BPO firms can acquire full occupancy sooner the various projects being completed may eventually push vacancy rates upward and mute rental growth.
The World Bank also noted that “this reflects delayed supply responses to demand shocks, slow price adjustments owing to illiquidity, and market imperfections (e.g. difficulty of quick sales during times of illiquidity).”
In 2011 a record rental rate of four per cent has not reflected on the increased supply and the vacancy rate in the Makati central business district has started to rise in the fourth quarter of 2011. According to the World Bank, the rise went from 3.8 to 4.1 per cent quarter on quarter.
The World Bank said that due to oversupply of available units the residential segment faces risks which, in turn, is a potential contraction in remittances due to unrest in the Middle East, unemployment in Saudi Arabia as well as slow growth and recession in other parts of the world. There is also evidence suggesting that more developers have been offering in-house financing to buyers. As a result of these issues developers are more inclined to charge higher interest rates for in-house financing which limits adjustments to a short-term financing environment.
The Philippine Quarterly released a section stating that both commercial and residential property may see a stable demand this year.
Cited were the Pricewaterhouse Coopers (PwC) and Urban Land Institutes’s 2011 Investor Survey wherein according to Business World a “a third of real estate experts still recommend ‘buying’ for industrial/distribution, hotel, retail, and office properties…while almost half recommend ‘holding.’”
“Office space demand is expected to be buoyant as the Business Processing Association of the Philippines projects a 20% annual increase in employment through 2016 translating to an estimated 300,000 square meters in new office space demand per year,” the report said.
In contrast with the World Bank’s statements, it was reported that the demand in the low-end to midrange residential property market has been sustained by remittance. However, the report did note there may be a rise in vacancy leading to a sluggish rental growth.
The report said, “[M]assive supply of condominiums in the pipeline is beginning to outpace demand.”
One major developer responded to the vast supply by offering a discount of up to 40 per cent on selected units to remain outsell competitors. It is also noted that there is a general stableness in rental rates and property prices but the “underlying demand” has been debated contrasting between a steady and low increase.
“[B]eginning 2012 through 2014, an average of 470,000 square meters of new office spaces is lined up vis-à-vis an average projected take up of 250,000 to 300,000 square meters, which would result in higher vacancy rates and muted rental growth,” the report said.