Low-end housing shortage continues

Despite declarations by the Bangko Sentral ng Pilipinas that the real estate sector is not in danger of crashing because of the visibly fast and hurried pace of construction still ongoing for almost a decade now, banks have reportedly issued tighter rules on lending to the industry.

This bodes well for the property sector that several international groups and think tanks have been flagging as in danger of exceeding loan exposures. This should put to rest a lot of apprehension that the Philippines is on the brink of a real estate bubble bust.

Property development for different segments 

Lately, there have been new companies joining the bandwagon and coming up with more aggressive construction project proposals. But far from trying to make a bid on the high-end property market, these entrants are eyeing different segments.

This is an interesting case since most of those that have come on stream and starting up are funded by solicited equity, something akin to an investors’ fund where the primary sources of investments are from individuals who have been promised a handsome return on their equity when the projects are completed.

The inspiration, it would seem, is the success of existing family-owned real estate magnates who have managed to build their modest ventures in the early 1990s into the conglomerates they are today.

What fuels the movement of these small investors into real estate projects these days is the fact that there is enormous cash that sits idle in banks, earning a pittance, owned by people who have either retired or have earned while working abroad.

Market demand at middle and low segments

Not to be misconstrued, some of these peddled venture capital proposals do indeed have sound economic basis and are managed by trustworthy proponents – meaning that a committed investor would likely see substantial returns on his capital in two to five years, something that would be unlikely if the cash were just sitting in a vault.

There is, after all, a need for these kinds of property development. The backlog for houses continues to be huge, especially for the middle and low market segments.

In contrast to the huge number of high-end residential builds seen in the more exclusive high-rise real estate as well as gated village projects, the new ventures for middle- and low-end housing are still far too few and often located too far from the metropolis.

The buyers for new homes in the middle market are still overseas Filipino workers who look forward to upgrading their current lifestyles with the improved salaries they receive from better paying jobs abroad.

Of course, in the low-end segment, the demand is even greater – but with fewer investors willing to take the plunge despite the enticement of income tax holidays and other perks, primarily because of expected risks and attendant headaches.

Some of the bigger real estate property developers are already moving into the middle-income sectors, but the number of units being built is still below demand levels, and oftentimes, beyond the financial capability of many potential buyers.

This kind of environment is what makes small real estate investment companies hustle for projects that, if managed correctly, would be able to answer the need for housing by those not served or underserved by the bigger players.

More incentives needed

Ironically, banks continue to put more emphasis on serving these big real estate companies and ignore the more important need to open capital to the small real estate firms that would help serve the bigger part of the population who need to own homes.

Perhaps if our government were to put to heart the need to provide homes to more of its citizens, then the working masses of Filipinos would be more appreciative of where their taxes are going.

The current incentives may need to be further sweetened to encourage existing and new real estate firms to methodically plot out a plan that would wipe out the current housing backlog, most especially for low-class workers and their families.

The lack of housing for majority of working Filipinos is a major national problem that impedes the ability of the nation to even improve further its productivity gearing.

To those wishing to put their savings in these kinds of investment proposals, it is still best to get competent advice. There are now a few companies in the market that have the expertise, and it would be good to approach them.

Readers’ comments

One of our readers, Michael McCullough, who is the managing director of KMC MAG Group Inc.  – with offices in Bonifacio Global City (BGC), sent some sort of reassurance on the property bubble question. Here’s what he wrote:

“Nice article on PhilStar about Ramon Ang worrying about a real estate bubble. Our own research expert, Antton Nordberg, wrote an interesting piece on the speculation in BGC lots.

“I’ve been looking closer at the sales take-up in the residential sector as our data becomes better. I’m personally surprised how many condo units continue to get built and sold. That being said, there may be a few bumps in the road, but the overall long term outlook for the Philippines is positive.

“Feel free to reach out to us if you need any research data on the local real estate market.”

Another reader, Shelby Payne, wrote:

“I always enjoy your articles and read them all of the time. I read your recent one on the property bubble and as an expat living here for many years, I wonder if it will hold on or if that bubble will burst. 

“I live in Makati, and left and right I see condos going up and can’t figure out who is buying units in these buildings. Yet, for some time now, things have held on, but I always wonder if that will create problems soon.”

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.