Vol. XXII, No. 79 [ BusinessWorld Online ]
Thursday, November 13, 2008 | MANILA, PHILIPPINES
BY KRISTINE JANE R. LIU, Reporter
REAL ESTATE companies should tap other markets and exercise caution in their selling strategies to protect themselves from an ongoing financial crisis in the US and Europe and the global economic slowdown, property analysts said.
CB Richard Ellis Philippines, Inc. Director Victor J. Asuncion noted that the best thing realty companies can do during a crisis is to address the present demand.
"There is a strong demand for completed projects because this addresses the immediate need of a client who will more likely finance a newly bought unit from his savings," he said.
Real estate companies should thus avoid depending on pre-selling and instead finish a certain project first before marketing it to clients.
"If you analyze the market, pre-selling a project that will take around two to three years to complete is not the right way to go right now," Mr. Asuncion said.
"What companies should do is identify prime location, build a medium-rise house immediately and have this occupied," he added.
He said mid-rise condominiums — those that are limited to 10 storeys — take only six months to a year.
These, he added, would attract more customers because they can have the house immediately unlike high-rise condominiums that take two to three years to complete.
"There is a slowdown in pre-selling right now. In a situation where cash is king, consumers do not want to part with their money for something that they have to wait for two to three years," Mr. Asuncion said.
He noted that completed projects benefit from actual, not future demand, and this is what property companies should look into.
"These are projects attuned to the situation because they cater to end-users," he added.
He said the high default rate would be felt more by property companies that focus too much on pre-selling their yet-to-be-built projects, which buyers associate more with investment.
Claro Cordero Jr., Jones Lang LaSalle Leechiu senior manager, shared the view. "Pre-selling might be riskier during these times. But in a way, [the only positive thing perhaps] is that a real estate developer is getting feedback from the market whether they will have buyers by the time the project is completed."
But all is not lost for companies that are now pre-selling units. Mr. Cordero said property developers should tie up with financing bodies like the Pag-IBIG fund to lessen the risk of defaults.
Meanwhile, property firms should seek a commitment from potential occupants before building office projects.
"This way, the company is assured that there will be a client," Mr. Cordero said. He added that lease terms with an occupancy commitment are usually longer, giving a realty company a consistent source income.
Target end-users
Contrary to popular belief, demand for housing especially from the middle and upper markets remains strong, Mr. Asuncion said.
A client from these segments will buy a house and occupy it, not just for investment purposes.
"Targeting those who are looking for houses as a form of investment will not do well because there is an economic slowdown and customers will prioritize what they need and not what they want," Mr. Asuncion said.
He said the rich try to take advantage of the situation by looking for bargains. These people use about a third of their disposable income to buy a house.
"Target the local buyers that have permanent employment. During a crisis, economies with significant population will make it through because of domestic demand" Mr. Asuncion said.
Among the cities where there is still a strong demand for housing, especially for mid-rise building, are Cebu, Davao, Angeles City in Pampanga and Sta. Rosa in Laguna.
Meanwhile, Mr. Cordero said property companies should stop focusing too much on Filipinos working overseas.
"A prudent company should know the risks of targeting only this sector. They should have a right mix of buyers," he said.
The property analyst said property companies can start tapping those who are just starting a family. Property companies whose products cost lower than P3 million can still find buyers from the low-end and mid-income segments.
"Property companies should not limit themselves to the high-end market because they usually buy houses as a form of investment. They can choose to forgo this," Mr. Asuncion said.
Mr. Cordero said the best places to build residential houses are areas that are served well by public transportation, which young professionals prefer.
He said property companies should brace themselves for the worst, since nobody knows for sure how the US financial crisis and global slowdown will affect demand in the future.
"This is an entirely new situation and we have no road map to follow," he added.