‘Speculation’ on a real estate bubble

BIZLINKS - Rey Gamboa (The Philippine Star) - January 8, 2015 - 12:00am

Ramon Ang, titan of one of the country’s biggest conglomerates, warns of a possible property bubble this year.

Bangko Sentral ng Pilipinas chief Amando Tetangco, on the other hand, has been quite sanguine over any risks that the real estate sector faces.

Who do we believe?

For some people, including me, there’s always trepidation when discussing the business side of the property sector, especially those high-rise investments that continue to emerge even when it seems that real estate agents are finding it increasingly difficult to meet their quotas.

This is aggravated by the reality that the Philippines has one of the worst tracking systems when it comes to property investments and uptake, or even the basic supply-demand ratios that give a comfortable indicator of the state of real estate development in the country.

Private property development monitoring companies are either focused on selected sub-sectors only (like office-condo spaces or business processing-related leases, or are limited by geographic boundaries (Makati or Cebu commercial business districts).

Even when dealing with local housing demand, the government has a weak pulse on just how many Filipino families desire and are qualified to invest in housing projects, or for that matter, how to deal with the many Filipinos who will not be able to afford to buy their own house and lot in their lifetimes.

Real estate companies are pretty much left to rely on their own intelligence prowess and gut feel as to when, where, and what to build, especially now that selling to migrant Filipino professional and overseas Filipino markets has reached saturation points.

Slowing down

At least, it seems that the pace of selling development projects – both horizontal and vertical – has slowed down, and correspondingly, the number of groundbreaking of new projects has leveled out compared to a couple of years ago.

This perhaps is a basis for our government regulators to feel a tad optimistic about the situation and to declare that all is under control, even as the BSP once again introduced measures to limit banks from becoming vulnerable from property speculation initiatives.

After all, there seems no compelling reason to compare where the Philippines is now to where Thailand was in 1997 when the baht collapsed, bringing down its real estate sector and subsequently affecting other East Asian economies in what is now celebrated as the Asian financial crisis.

Then again, when we note that there will likely be a glut in housing units within the immediate few years after the numbers of new builds had doubled two years ago, we may be in for some price adjustments in property values. This could be a risk if the market panics because of dropping real estate prices.

Stock market

While the central bank continues to keep an eye on banks’ lending to the property sector, trouble may be brewing in a less-regulated area, one which has become a more recent source of new funds by real estate companies.

A number of property development companies have flocked to the stock market to raise fresh capital that would have been difficult to secure from the banking system given current regulatory limitations and prudent practice.  

The Securities and Exchange Commission, for a myriad of reasons, has not exactly been a proactive guardian of the money that the general public invests in stocks. In fact, it does not even have a good reputation for cleaning up the mess that otherwise should never have happened.

There are risks that have been identified, including a massive repatriation of Filipino working abroad should the global economy turn hostile. While this seems currently far-fetched, there is still vulnerability since about 80 percent of middle-ranged property development units being amortized are by OFWs.

Things could really turn ugly should these migrant workers find themselves in a situation where they lose their jobs and may be unable to pay for the monthly dues.

Attending to risks

Of course, one may conclude that much of what’s just been said is largely speculation, more a cause-and-effect intellectual masturbation that’s highly dependent on the improbable becoming a reality.

Still, a risk is a risk – and as such, needs to be given an appropriate action. Several areas need to be given immediate attention, starting with the mustering of an efficient data-gathering agency that will give regulators of this multi-billion industry the proper guidance.

There is just too much risk involved in real estate bubbles, and world history has added the global financial collapse of 2008 as a valuable lesson to minding what could happen wrong in the property market.

The SEC should draw up a plan that would likewise ensure that there will be more manageable risks involved in publicly-listed real estate companies, especially at this time when the winds of change are once again strongly rattling the world’s economic fundamentals.

The nationwide comprehensive land use program needs to be finalized, including the updated mitigation of risks resulting from abnormal changes in weather conditions that have been noted in recent years.

It follows that stricter rules and regulations need to be developed in the construction of real estate properties to withstand climatic changes as well as earthquakes that have been experienced in the country during the last few years.

Heeding and responding

We should heed what Ramon Ang has said and prepare for the worst – just as the whole of government should be inspired by the stoic disposition of the BSP while not leaving anything much to chance.

A real estate bubble that bursts is never easy to manage, just as the lessons from the 1998 Asian and 2008 global financial crises have taught the world. Let’s listen to rumblings, and never take these with a grain of salt.

After all, it’s the nation’s welfare at stake… and possibly even the world’s.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.

 

AMANDO TETANGCO BANGKO SENTRAL CORPORATE CENTER EAST ASIAN ESTATE EVEN PROPERTY REAL
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