property firms to replace telcos as stock picks

An article published in The Philippine Daily Inquirer, July 30, 2006

THE BOOMING property sector, fueled by inflows from overseas Filipinos and a recent phenomenon of affordable condominium living, is seen replacing the maturing telecommunication counter as the new investors' darling in the Philippines

Deutsche Bank, in a Philippine strategy research paper titled "Where is the Consumer?" said that while mobile phones had crowded out all other items in the stagnant local household budget in the last five years, first-time home buying may be becoming the "new thing" in this country.

"A variety of factors, such as downsized units, developer-financed payment schemes and subsidies from relatives working abroad, have lowered the entry point to home ownership in the way that pre-paid cards did for the mobile phone," Deutsche Bank strategist Anton Periquet said in the paper dated July 25.

He projected that property developers, like the telcos in the early part of the decade, were set to deliver a string of earnings surprises for many years to come as telcos were entering the "utilities" phase of their life-cycle wherein returns were "coming down to earth."

Looking back earlier in the decade, Periquet explained that telcos delivered stunning growth rates despite tight consumer budgets because the principle of economic substitution was in play--the introduction of a new basic necessity in the form of mobile phones, without an accompanying increase in consumer income, resulted in cutbacks in other expenditure items.

He said this was why the local stock market reflected a telco bull market within a bear market in the broader economy.

"But that was yesterday's story. As the telco bull market matured, the long moribund property market was bottoming," Periquet said. In 2003, low vacancies in the residential and office markets began to push yields up and a year after, expansion began in earnest in the residential sector.

He added that downsized housing products, unprecedented easy payment schemes, historically low mortgage rates and implicit subsidies from an enlarged pool of overseas-based relatives had shattered barriers to first-time home buying--much like how falling handset prices and low-denominated pre-paid phone cards spurred the telco sector years back.

"Our thesis? That, as the mobile phone hits the natural limits of penetration in a lower income economy, it will be replaced by the first-time home as the new, new thing," Periquet said.

Aside from pent-up demand arising from political uncertainties in the past, a few other unusual factors were cited as key drivers of the booming property market, including the growing acceptance of high-rise urban residences.

"condominium living is a relatively recent phenomenon in the Philippines, especially outside of the wealthy urban class. But with rising transport costs and worsening traffic, high-rise dwelling in cramped quarters close to one's place of work has become a palpable alternative to the long commute to the outskirts," Periquet said.

He also noted that the offering of smaller unit sizes as well as developer financing offered by a newly recapitalized bunch of developers, had brought urban dwelling within the reach of a new, previously neglected market--the buyer with neither any savings nor access to bank credit.

Finally, subsidies from abroad were likewise emerging as an important factor behind the boom in the property market.

The Deutsche Bank strategist estimated that some 30 percent of all transactions of listed developers, possibly as high as 50 percent if indirect contributions were counted, emanated from higher earning overseas-based Filipinos.

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