Vol. XXI, No. 189 [ Business World Online ]
Monday, April 28, 2008 | MANILA, PHILIPPINES
PROPERTY DEVELOPERS around the world are diversifying their markets as they try to soften the impact of the widening fallout from US subprime woes and an impending recession in the world’s biggest economy.
Real estate developers are expanding
in new territories outside the US.
While dollars from Filipinos abroad continue to come in, most are expected to postpone their real estate purchases this year as the global uncertainty worsens, analysts said.
Victor Asuncion, research head of CB Richard Ellis Philippines, said the US is one of the primary markets of most developers of residential condominiums, IT buildings, as well as hotels and resorts. "Therefore, in anticipation of any shortfall in revenue expectations from the US market, most property companies will expand their markets in new territories such as the Middle East, Europe and Central Asia. The US market will not disappear; it may just pull back," he said.
In the 2007 annual report of Ayala Land, Inc. released recently, company President Jaime I. Ayala said they would be focusing on key markets in the Middle East, Asia and Europe, where it has set up permanent marketing and broker networks.
The company has also created a Web site for Ayala Land International Sales, Inc. (ALISI). A wholly owned subsidiary of Ayala Land, ALISI was formed in 2005 to tap the market of Filipinos working abroad. It also sells Ayala Land’s residential projects.
"We are watching the situation very closely and are also adjusting our sales efforts by targeting fresh markets in the US and Canada," Mr. Ayala said, adding that the company was focusing on areas that have not been hit hard by the crisis, including Chicago and Vancouver and new markets outside the US.
Luis E. Icasiano, Federal Land, Inc. executive vice-president, said in an interview earlier this month that the property arm of the Metrobank Group was focusing on Europe. After the company opened an office in Milan last year, Federal Land is now looking at Barcelona and London.
Nielsen Media Research Philippines Executive Director Jay G. Bautista said remittances would likely suffer given the global economic slowdown.
"With the food crisis expanding, we feel consumers might start to prioritize expenditures focusing on the basics and probably thinking twice on nonessentials," he said in an interview. "That might affect their consumption of things like technology or gadgets, real estate and other big-ticket items," he added.
Dollar inflows remain strong, with the central bank reporting that remittances coursed through banks for the first two months rose by 14.7% to $2.5 billion despite the US slowdown.
For his part, Jones Lang LaSalle Leechiu Senior Manager Claro dG. Cordero, Jr. said the US economic slowdown and the housing mortgage crisis would likely to hit the demand for residential condominium units.
"This early, some developers have reported that there have been cancellations of reservations for presold units. The US economic slowdown could displace a number of workers and it is likely that some Filipino workers maybe [among those] who would eventually be without jobs," he added.
He said the continued appreciation of the peso against the dollar has cut the purchasing power of dollar-earning Filipinos by as much as 20% within a year.
"This scenario should have a major impact on the consumption basket of the workers," he said. He added that these would likely postpone plans to buy their first, second or third house .
According to Experts and Consultants in Real Estate (Excore), Inc. President Celedonio A. Pile, Jr., the property market appears cautious because of the US slowdown. "While we are just preparing our rollout for the US, we are experiencing resistance at a retail level such as individual buyers buying for their own use," he said.
Mr. Pile said there are talks that major players are also starting to pull back their marketing efforts in the US.
"There is a shift to other international markets like Europe and the Middle East that are not as affected as the US," he added.
Another consequence of the slowdown is that banks are more reluctant to lend to consumers, Mr. Cordero said.
"These effects are likely to slow down the strong growth of the residential property market as more inventories of residential condominium units are likely to be made available," he said.
There has been overbuilding amid weakening demand in the last 12 to 18 months and expected defaults from presold properties, he added. Mr. Pile said Excore is eyeing markets other than the US for its mid- and low-end products.
"In the US, we are tapping more the investor markets wherein they are out to make investments in the Philippines and not really for their personal use. Since they do not have good investment options in the US now, there are still investors with money looking for something good to buy," he said.
He also said the general sentiment of Filipinos in the US is that the slowdown would last for another year and the value of their properties would continue to slide by 10% to 20% .
CB Richard Ellis’s Mr. Asuncion said diversification is a strategy that will cover the shortfall. "Thus, property companies with a full line of real estate products will survive any short-run consolidation of the market," he said.
Property developers have started to look at other untapped markets like Europe to presell their properties, hoping to sustain the demand for their unfinished projects, Mr. Cordero said. These property firms, he added, cannot afford to lose the confidence of the local and foreign markets.
"What property firms can do to address these problems is to ensure the buying public that they will still commit to finish the projects," he said. He noted that demand from Filipinos abroad has helped to turn the residential sector around, but developers must also ensure that they can deliver and finish the projects for residents who are awash with cash.
Federal Land’s Mr. Icasiano said it is important for property developers to deliver on their promises especially the new entrants. "If they fail, that would effect the whole industry. Confidence of the consumers will be affected," he pointed out.
He added that big companies like Federal Land want to finish its projects ahead of time without sacrificing quality.
Mr. Asuncion told property developers to be more sensitive to the market. "Position your product and be conscious of the location. It will always be [about] location, location, location." — Ruby Anne M. Rubio
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