Thursday, July 2, 2009 | MANILA, PHILIPPINES [BusinessWorld Online ]
BY KRISTINE JANE R. LIU, Reporter
THE STOCK market is not the only one benefiting from investors’ change in sentiments as the country’s residential sector is also showing signs of recovery after a slow first quarter, even if outlook for the office sector remains bleak, analysts from property consultancy firm Jones Lang LaSalle Leechiu said.
"There was so much negativity [at the start of the year] but when people saw that things are not as bad as they first thought, they started to come out and make investments," Jones Lang’s Country Head David Leechiu said.
Condominiums produced 9% to 11% yields last year and although this year’s yield is expected to fall to 6%, this would still be higher compared to most investment vehicles.
"There is so much yield that is changing hands from one generation to another and the biggest beneficiary of this is the middle class. The influx of condo space that will come late this year and early next year will produce a reduction in rent allowing them to afford better accommodation at better prices," Mr. Leechiu said.
Moreover, prices in the high-end residential market, primarily in enclosed villages like Alabang and Forbes Park, have not come down despite the crisis.
Buyers, who are also financial market investors, have been burnt badly by fund managers that they do not trust themselves in investing heavily in the stock market anymore, Mr. Leechiu added.
"As a result, they have put so much capital out of the stock market and the bond market and are putting it in real estate instead," Mr. Leechiu said.
The business process outsourcing (BPO) industry is also helping the property market hold up. This sector, he said, continues to drive expatriates’ population upward in the Philippines.
But unlike before when they were largely concentrated in Makati, expats are now scattered in other places like Quezon City, Alabang and Ortigas Center.
"This explains why rents in many parts of the country are holding up and that is also the reason why mid-end sales across all developers are up," Mr. Leechiu said.
While the financial statements of property numbers are not due until next month, developers like Ayala Land, Inc. are giving hints of a better second quarter.
Last week, Ayala Land said site visits and reservations — the leading indicator of the property market’s health — and bookings were up for high-end unit Ayala Land Premier. The high-end unit was hit by the slowdown with profits cut by half from January to March.
The property developer said reservations as of last month already reached the P1-billion mark, a huge difference from the P500 million registered in January, buoyed mainly by a strong domestic market and central bank interest rate cuts.
"The concern of most academicians and economists before is that remittances from overseas Filipinos might suffer this year, but they were proven wrong. Remittances continue to grow and that is benefiting the residential sector," Mr. Leechiu said.
"I think it will continue to be that way towards the end of the year and throughout most of next year," he added.
Overseas Filipino remittances went up by 2.19% to $1.441 billion in April, official data showed.
Different story
While the residential sector has emerged somewhat unscathed, the office sector has been hit hardest even if demand remains, because supply is increasing at a faster rate. This has led to lower rental rates.
"Developers overestimated the growth in demand and they were not prepared to hold back when they should have because their rivals are [still pushing through with their projects.] The office sector was therefore hit the most," he said.
In its quarterly report, Jones Lang said average rentals in the first half of the year stood at P7,818 per square meter (sq.m.) a year, down by 1.4% quarter-on-quarter and 3.6% lower year-on-year. Office rentals for prime and Grade "A" developments in the Makati Central Business District continued to fall because of supply pressure from new buildings and weaker demand.
Capital values also declined to P72,000 per sq.m., down 4% quarter-on-quarter and 6.9% year-on-year.
"The significant decline in rental and capital values is expected to take effect in the second half this year should the current depressed market conditions persist in the next quarter," Claro G. Cordero, research head of Jones Lang said.
Mr. Cordero said he expects landlords to offer flexible rental terms over the next 12 months to offset the effects of the expected relocation of various companies to other business districts.
The saving grace, he said, will be the dramatic drop in future supply as some developers have put projects on hold. Better global economic prospects are also seen to ease the downward rental pressure, he said.
But as the global crisis continues to go deep, the country will be one of the few to benefit as multinational companies will be forced to outsource operations, and much of that activity will come to the Philippines.
"There is so much more to be done and many companies who did not want to do it before are now more open. Even if the country slips into the recession, the BPO industry will continue to grow," Mr. Leechiu said.
Alastair Hughes, Jones Lang’s chief executive officer for Asia-Pacific, said this is mostly the case for the region, which will likely come out of this crisis better than Europe or the United States because of emerging economies China and India.
"Europe has been more affected than Asia Pacific because it has only one emerging economy, Russia, which is a big growth driver," he said.
China and India are still doing good and are still expected to grow by 5% to 9% this year, Mr. Hughes said. This, he said, will create a "ripped effect" across the entire region.
"So there is more reason for Asia to hold up better than Europe. Also from the practical point of view, people in Asia Pacific did not go crazy in terms of borrowing money on the back of real estate," Mr. Hughes said.
"This probably the first synchronized global property recession... the biggest difference between Asia and Europe is that the latter went into a recession two years ago and Asia lived and watched through it."
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