NO FREE LUNCH: Real estate on the rise
An article published in
Inquirer 05/06/2007
By Cielito Habito
MANILA, Philippines -- UNTIL early last year,
communications, particularly telecommunications services, was the single
fastest-growing industry within the services sector. In my economic
briefings, I liked to say that the Filipinos' love affair with text
messaging was driving the Philippine economy, and that wasn't too much of an
exaggeration then.
New leader
Well, not anymore. In the past three quarters, growth in communications had
slowed down to single-digit levels, after enjoying rapid double-digit growth
over much of the past decade. Whether this is a long term trend is too early
to tell, but at the moment, real estate and property development has
dislodged communications as the growth leader in the services sector.
In the fourth quarter of last year, the real property sector posted a hefty
22.7-percent growth in real terms--now the highest-growing sub-sector within
services. In the quarter previous to that, the growth rate was 26.2 percent.
Against an average real growth rate of 16 percent in 2004 and 2005, real
estate growth appears to be picking up lately. It has come to a point that
renewed worries are now being heard that a real property bubble similar to
what led to the 1997 Asian financial crisis may be looming.
A notable indicator is the recent upsurge in real property loans being
granted by the Philippine banking system. Ten years ago, the Bangko Sentral
ng Pilipinas (BSP) saw it fit to impose limits on the real property lending
of banks. Is it time to revisit those limits again?
BPO-driven
What is driving the recent growth in the real estate sector? There is much
casual evidence pointing to the surge in office space demands from the call
center industry, and from the business process outsourcing (BPO) sector in
general, as a primary source of the growth. Indeed, non-factor services
exports, which prominently include BPOs, grew by a whopping 36 percent last
year.
We hear of the tight office space market in the Ortigas and Makati areas,
for example, where call centers and other BPOs are snapping up office spaces
faster than they can be built. And this is an industry that is not confined
to Metro Manila, either. Major centers around the country are seeing a
similar boom in these types of businesses, that include backroom accounting,
medical and legal transcription, graphic and architectural design,
animation, research and a number of others.
There is an interesting sidelight here: the "research" part of it includes
the not-so-honest business of made-to-order term papers and thesis
manuscripts for lazy students overseas--a business, I hear from a friend who
is actually into it, that has a large and growing market. For decades, this
"cottage industry" for manufactured or recycled research papers had been
known to students to be thriving in the Claro M. Recto Avenue area in
Manila. Guess what: the industry has now gone global--thanks to Internet
search engines like Google and Yahoo! coupled with computer cut-and-paste
technology, which make it very easy to come up with a credible term paper in
whatever subject you can think of, within minutes.
Housing demand
Adding to the BPO office space demand is the persistent unmet demand for
housing, especially in the low- to medium-income segment. While the market
for high-end condominium housing units appears to have tapered, growing
numbers of Filipino families are in need of homes. The demand from OFW
families is particularly on the rise, with anecdotal evidence pointing to a
growing portion of remittances now going into housing investments. Property
developers are taking heed, including those that traditionally focused on
the higher end of the market. The big names in the industry have
increasingly gone into housing development projects targeted at this rapidly
growing market segment.
Helping this trend is the current environment of low interest rates, which
has made housing finance much more accessible than before. For this we have
the improved government fiscal situation and surging money supplies
worldwide to thank. Banks no longer see it as attractive to lend to the
government as before, via investments in government securities and treasury
bills whose yields are now much lower.
No bubble
At the same time, demand for bank loans from the traditional corporate
borrowers has slowed down, with deepening capital markets and expanded
financing options. Thus, the banks have turned to consumer financing in a
big way--including home and auto financing--which is good news to the
housing industry. Adding to all this is the growing demand for property
development from the retirement estate industry, spurred by aging
populations in rich countries. And then there are the shopping malls
sprouting out all over, thanks again in large part to consumer purchasing
power fueled by OFW money.
All these tell me that the recent surge in real estate development is not
quite the same as the bubble that led to the 1997 collapse. It appears that
brisk growth in the sector could be around for a while--and this is good
news for the Philippine economy.