With property boom in GenSan, will bubble burst again?

Edwin G. Espejo
This city in southern Mindanao is agog with construction activities with commercial buildings and residential properties rising fast. As far as the realty sector is concerned, it is again a sellers’ market

GENERAL SANTOS CITY, Philippines – This city in southern Mindanao is agog with construction activities with commercial buildings and residential properties rising fast. As far as the realty sector is concerned, it is again a sellers’ market.

SM General Santos mall is slated for opening on August 10, making it part of the nationwide footprint of the country’s largest mall operator.

Several economy hotels and business inns are also frenetically rising in addition to new ones that are already operating. Some old inns were renovated and refurbished after years of virtually operating on zero occupancy.

The country’s biggest property developer, Ayala Land Inc, is also said to be eyeing a handful of property for its own expansion here, as do several others that are quietly scouting for landbank for mid-level and high end subdivision projects.

Villar-led Camella Homes has a residential project going on at Barangay San Isidro, while construction retailer Wilcon Builders recently acquired a 1.4-hectare lot along the National Highway.

This flurry of construction activities is similar to 20 years ago, when General Santos City also saw an unprecedented growth in construction business following the massive infusion of aids and grants from the US and Japanese government.

Sins of the past

These multimillion dollar funds led to the expansion of Makar Wharf, the construction of the airport and fishing port complexes and the 120-kilometer concrete asphalt road that connected the western and eastern portions of nearby Sarangani.

The rise of these facilities, in turn, was also fueled by the entry of several manufacturing plants, particularly in the tuna processing sector and the phenomenal development of the tuna industry.

The 1997 Asian financial crisis brought the city’s rapid rise to a screeching halt as the real estate property sector took a free fall. Although the ensuing devaluation of the peso also had its silver lining as far as the tuna export sector in that the tuna export business benefited from windfall profits, many of the fishing companies that earlier availed of the dollar-denominated loans would also suffer from consequences of the bubble burst.

Just like everywhere else in the country, several land owners here lost their investments and the banks were flooded with non-performing assets. Ten years ago, former Mayor Adelbert Antonino said the banks in the city were awash with cash. What he then cannot explain was that there were no loan takers. Then, the city was just 4 years removed from the 1997 financial crises.

The economy of General Santos City then took a beating but did not die, thanks in part to the resilient tuna industry, which almost singlehandedly propped up the local economy.

But over the last few years, the tuna industry is showing sign it has already reached is full potential and may even be on a slight and consistent decline. How far it can bottom out is still a cause for worry for the national and well as local government.

So what is fueling the current construction boom?

Real estate loans

Most of the ongoing constructions are either housing projects, commercial buildings and, of course, malls and mall expansions and a slew of road network and facilities.   

The entry of the country’s major shopping mall chains are obviously geared towards the dollar remittances market of overseas Filipino works (OFWs). The Socsksargen region, after all, has the highest number of overseas Filipino workers (OFW) in the whole of Mindanao and remittances have been the primary reason in increased consumer spending.

Despite the resurgence of consumer spending, banks are still conservative in exposing their vast and idle loan portfolios.  Yes, the banks here are still awash with cash and they can go overly aggressive, offering as low as 3.75% interest rate to big ticket local investors as in the case of a top Philippine bank when it opened up its loan facility for the expansion of a mall here.   

Or they can opt to remain conservative and continue to stick to their 10% to 12% prime rates, in the case of savings and commercial banks, and up to 15% in rural banks.

While competition is fierce because of the openings and opportunities, banks are still cautious and discriminating in extending loans to clients in the property sector ever wary of the 1997 experience where they ended up being depositories of foreclosed properties and non-performing assets.

Unlike the pre-1997 fiasco however, most local borrowings are no longer for expansion or initial investments in the fishing industry and the property sector. One banking source said most loan applications in his branch are now for trading activities in the agriculture sector. This seems to be the growing investment trend after the fishing industry has apparently ‘maxed out’.

From tuna to trading hub

But will the bubble again burst once the construction boom dissipates and ebbs?

There are emerging signs the city should not be overly optimistic as some completed commercial buildings have now some empty and unoccupied spaces. Malls here either having a hard time filling up the empty spaces or they go bottom out by offering partnership and or joint venture-type arrangements with locators for rentable spaces.  

One way to keep these locators from going elsewhere is to opt for a share in the net profit instead of fixed monthly rentals as one homegrown mall owners here are doing.

A governor in a nearby province say he rather would have that the economic boom in the region is anchored on the rise and emergence of manufacture of basic and intermediate goods rather than consumer-based spending with the development of agriculture outside General Santos City as precipitator of growth.  

One bank manager agrees that the future of General Santos will depend on its ability to expand beyond being the hub of trading and services that it is now developing into after the tuna industry reached the equilibrium and maximized its potential.   

Both, however, agreed that while the construction boom is giving General Santos a big lift despite the apparent decline of its once sunshine industry, it is not the only gauge of how strong and fundamentally sound its economy is.

The 1997 fiasco may not come to pass this time but it doesn’t mean General Santos has already become immune to it. – Rappler.com

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