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[ANALYSIS] Direction of the property sector

Den Somera

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[ANALYSIS] Direction of the property sector
The property sector's outlook remains vibrant amid inflation and high interest rates

The market continues to hang in the balance. 

On its 36th week of trading last September 8, it again managed to stay above the market’s perceived breakdown level of 6,150 or so, which it almost did when it closed at 6,160.61 on the market’s 34th week of trading on August 25.  

While the real test is yet to come, it continues to refuse to go down any lower despite the extended selloff of foreign investors early this week.  

Within this dangerous setting, however, some glimmer of hope can still be seen. Much of the different counters of the market are holding on, one of which is the property sector.  

Its outlook, according to property consultants and experts, remains vibrant amid the threats of inflation and high interest rates.  

From its assessment on the status of the property sector for the first half of 2023, the chief executive officer of Leechiu Property Consultants, David Leechiu, claimed the Philippines is possibly one of the three countries in the world he could think of where the property market “is still buoyant, healthy, exciting, (and) optimistic.”

Singapore and the city of Bangalore in India was named by Leechiu as the two other places where the prospects of the property market are also looking good. He said Singapore is turning into the financial center of Asia, because of the exodus of capital from China and Hong Kong. Likewise, he claims Bangalore is fast becoming the business process outsourcing center with a burgeoning culture of consumerism.

Residential market

The landscape in the property sector in the Philippines is also shifting.  Its traditional drivers are starting to take a back seat due to new work practices, like the work-from-home arrangements, brought about by the COVID-19 pandemic and shifts in government policy directions and priorities.  

These traditional divers are the space requirements of BPO entities, the expansion needs for traditional offices and by the demand for floor spaces by online gaming operators, mostly by the Philippine Offshore Gaming Operators (POGOs).  

As of this year, demand from these markets continues to show some growth. However, this is estimated to be aptly met by ongoing supply initiatives which, at the same time, may also sufficiently cover projected demand requirements within the next one and one half to two years.

The residential market, in the meantime, is taking center stage as demand is starting to become promising. Among them will be the property types for condominium units, duplex houses, single detached/attached houses, and townhouses.

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According to Global Property Guide, the Philippines experienced a house price boom from 2010 to 2018. House prices in CBDs rose by as much as 125% or by 77% when adjusted with inflation. But with a slowing domestic economy, compounded by the US-China trade war, the housing market slowed sharply in 2019, it added. This was aggravated by the Covid-19 pandemic in 2020 and its further onslaught in 2021. The housing market was ranked by the firm as the worst-performing market of its type during these years.  

Colliers International Philippines gladly noted, in turn, the housing market’s recovery in 2022, in which it strongly expressed optimism this will continue in 2023, and onwards.  

The firm is particularly convinced that despite the economic headwinds created by “skyrocketing inflation rates across the globe and the lingering effects of the Covid-19 pandemic,” the country will pull through with its continuing strong macroeconomic fundamentals.  This outlook is shared by property consultant JLL Philippines from its recent report, as well.

Both firms, along with other property experts, are confident that the country’s good macroeconomic fundamentals and favorable demographics will fuel the further development of the sector’s major planks like office, residential, hotel, retail, and industrial areas.  

The infrastructure program presently pushed by the government that will support the continued development of satellite communities inside and outside of Metro Manila, Cebu, and Davao is seen to help materialize the consequent enhancement of the sub-segments of the property sector.  

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In this connection, stakeholders and speculators are both excited that the vigor in the government’s effort on infrastructure may just materialize the country’s long-time hope to attract more foreign investments. This could elevate the country’s visibility into “an attractive investment destination in the Asia-Pacific region” over the near and medium term.

Newcomers in sub-segments

The latest major player attracted to the developing prospects in the property market is Megawide Construction Corporation (trading symbol, MWIDE). The firm’s president and CEO, Edgar Saavedra, has found the demand for residential spaces buoyant and interesting to improve the firm’s consolidated net margins associated with property development.  

For one, he found that demands even for luxury residential types are looking good.  Second, the potential of the market in affordable housing units – which in his observation has never slowed down even during the pandemic – is growing more solid, too.  These observations have given Saavedra and his team greater confidence to enter into the foray for residential spaces. 

To fast-track the execution of the company’s plan, MWIDE acquired PH1 World Developers Inc. (PH1) from Citicore Holdings Investment, Inc. for Php5.2 bn.  

Another player trying to get its feet wet in residential development is Abacore Capital Holdings, Inc. (trading symbol, ABA).  It will start with a land of about 22.5 hectares in Silang, Cavite to create an income-generating residential development.  As of late, no update has been reported to the PSE.

The firms that have long been in the property sector but has quietly expanded into the residential market over the years are dominated by the big business conglomerates like Ayala Land Inc. (ALI), the SM group SM Prime Holdings, Inc. (SMPH), Megaworld Corporation (MEG) and related subsidiaries, Robinsons Land Corporation (RLC), Filinvest Land Inc. (FLI) of Filinvest Development Corp. group, to mention a few.

Notable at the time when it entered the property market was Century Properties Group, Inc. (CPG) which was led by Jose “Joey” E.B. Antonio through a reverse takeover. It was also dauntless because the company entered the property sector in the development of high-end real estate that was dominated and well-branded then by the old boys, so to speak.   

Beating the old boys, CPG slid fast into the strategy of not to rely on one asset class to reduce risk at the same time obtain greater growth and profitability. 

We will go through the evaluation of these companies next to continue with our search for investment winners and market performers. – Rappler.com

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. The public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at densomera@yahoo.com. 

1 comment

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  1. ET

    It is good to know that the property sector in our country is “holding on” despite the “dangerous setting.” But I perceived that Mr. Den Somera’s article is focused more on the middle- and upper-class market segments of the property sector. These market segments are the primary targets of the stated corporations. What about the poor and homeless? Can the government take care of their housing needs? If Mr. Den Somera or any other person can write on this matter, it would be worth reading, too.

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