Real demand underpins growth

It seems that its going to be build, build, build for the local property sector.

According to the third quarter report of Pinnacle Real Estate Consulting Services, indications are that there are sufficient reasons for real estate developers to keep building more homes and office spaces.

It noted that the real estate market has been blisteringly active in the past five years or so and that margins north of 30 percent were doable especially right after the Philippines was rated as “investment grade” by a number of international rating agencies.

So what are the factors that would continue to create demand for the real estate sector?

First, Pinnacle noted, is the continuing massive urban migration and strong consumer power generated by dollar-earners like the overseas Filipinos workers (OFWs) and the business process outsourcing (BPO) companies according to the Bangko Sentral ng Pilipinas. By 2017, revenues from BPOs will reach $25 billion and OFW remittances, $28 billion, and this dollar income will be chasing after consumer favorites like houses, cars, and appliances, it said.

Second, the report pointed out, is the relatively high 1.9 percent annual population growth rate characterized by a young, employable population sector.

The report said that essentially, the stability of the industry is underpinned by demand outstripping supply. At present, the residential housing backlog is five million units and independent foreign-based forecasters peg the same five million supply gap even up to the year 2030. The BSP has said that it will take the construction of 2,600 residential units every day to catch up and erase the backlog.

It added that sheer economic growth targeted at 6.5 to 7.5 percent GDP expansion from now until 2022 and the gradual reduction of poverty levels from 24 to 16 percent in 2022 would empower more people to afford some form of housing budget. Low-interest rate regime, which is a deliberate BSP policy, is also a prime factor that encourages people to go into house financing.

Pinnacle, likewise, noted that the Philippine economy has sustained its robust growth despite the negative impact of the Marawi conflict and that overall, the upbeat macroeconomic indicators bode well for the real estate market in general.

So what does the picture look like in terms of the different sectors of the real estate industry?

The report noted that as far as the office sector is concerned, the take up remains strong, despite a slight softening of demand from BPOs. Traditional companies and government agencies may fill in the demand gap. The sector is also characterized by very high occupancy levels and stable rents.

For the residential sector, it said that the housing backlog persists and that demand for residential products has been steady. The middle market condominium subsector is very competitive, while Metro Manila fringe areas are being explored to serve the demand for the affordable and socialized segments.

Pinnacle, likewise, noted that most if not all real estate developers have been cashing in from the robust Philippine economy and booming real estate market in the past years.

It pointed out that in some sectors, like the mid-market residential condominium market in Metro Manila, competition has stiffened in recent quarters since all of the players want to have a market share in this segment. Margins and profits are still there to be made, but have been compressing due to sheer competition. The office market is slightly softening due to the protectionist Trump administration, thereby creating a little bit of uncertainty. But Pinnacle believes that the property market will definitely expand and grow, but it is not for the feeble heart and underprepared.

There seems to be no stopping the Ayala Land Group. The report that in addition to launching P100 billion worth of projects this year, 64 percent more than in 2016, the group is investing P3 billion to build five dormitories on four sites in Makati and Taguig, with 1,500 units that can house as many as 6,000 people. The first dormitory will be ready next year, and has received interest from firms wanting to lease entire floors for their employees, it said.

Another trailblazer is SM Development Corp. (SMDC). The group recently launched Green 2 Residences, its first high-rise condominium project in Dasmariñas, Cavite worth P3 billion. Pinnacle said that this part of SMDC’s portfolio of “University Town” developments is aimed at college students and young professionals. It plans to sell 1,057 units at an average price of between P2.6 million and P4.5 million.

The property business contributed the most to parent SM Investments Corp.’s consolidated net income at 42.

Also in its report, Pinnacle said that the Megaworld Group, reported to be the biggest lessor of office spaces and urban township developer, recently launched its P30-billion 35.6-hectare township in San Fernando. In addition, Megaworld continues to ramp up its commercial portfolio with the opening of the P2-billion Southwoods Mall this year, its 14th mall. Megaworld is targeting to operate 28 malls by 2020.

Meanwhile, Robinsons Land Group has been growing its recurring income from malls, offices and hotels and is targeting to open its 271-room Dusit Thani Mactan Cebu Resort, a luxury resort property, by 2019. This is in addition to its Go Hotels; new malls in Cebu City, Tagum in Davao, General Trias in Cavite, and Jaro in Iloilo; and the mixed use development in Naga City, Bicol, the report added.

Another major industry player is the DMCI Group, whose housing unit is reported to hit its full-year target as of June. Total sales reached P26.2 billion as of end-June, which is higher than its target sales of P25.5 billion for entire 2017, prompting company chairman and president Isidro Consunji, to push its unit further and hit a total annual sales of P40 billion. DMCI Group sold 6,206 units and 3,473 parking slots by end of June, Pinnacle revealed.

Pinnacle director for research and consulting Jose Romarx Salas said that the top developers very well know their strengths and core competencies, and strive to maintain them, while at the same time find new ways to sustain their growth.

Salas expects the real estate market to be more competitive in the coming quarters, even as he gave assurances that all of the sectors rest on real demand, albeit somewhat softening.

For comments, e-mail at [email protected]