Construction sector thrives amid the crisis

Even if its heydays seemed to have slowed down as a result of the current global economic meltdown, the continuous inflow of several new investments in sectors such as tourism, ICT and BPO this year still kept Cebu’s construction industry afloat and its growth is slightly unabated that its stakeholders remain bullish.

Cebu Contractors Association (CCA) president Peter Paul Dy said that the year 2008 was highlighted by the construction of several medium and high-rise buildings in different locations within Metro Cebu.

Dy said the year was marked by new projects and redevelopments in Cebu’s major malls, commercial estates as well as in the residential development segments which leveraged growth for the construction industry this year.

Last October the SM Group of companies launched SM City Cebu’s Northwing, a new venue that introduced new products, services and offerings to Cebu’s growing consumer market.

SM also started refurbishing the former Sheraton Hotel beside the mall which was re-branded this year as the Raddison Hotel Cebu, another world-class hotel development which is targeted to be completed in 2009.

The conglomerate also announced plans this year of putting up a convention center in its remaining lot at the North Reclamation Area to create a mini-version of the SM Mall of Asia Complex in Manila.

 This year also marked the unveiling of the redevelopment of the Ayala Center Cebu called as the Terraces as well as the re-launching of the Cebu Marriott Hotel which has been simultaneously grand launched last December 15.

The Terraces in Ayala houses homegrown, national and even international dining concepts and options which included coffee shops, restaurants, bars and cafes such as American chain TGI Friday’s, Starbucks, The Gustavian, Lemon Grass, Café Laguna, Siam, Hukad, Gloria Jean’s, Fullybooked, Figaro, and among others.

Other than the two major mall operators in the country, homegrown mall developers in Cebu also launched this year development and expansion projects such as the Elizabeth Mall (Emall) which opened its second wing at the Sanciangko Street in the downtown area.

This year, Cebu’s biggest hardware and do-it-yourself home improvement company Cebu Oversea Hardware Group under the Golden Great Value Properties also introduced its biggest project as it launched another value shopping destination for Cebuanos called as the Parkmall in the Mandaue Reclamation Area which opened its Atrium last October.

Several pocket developments within the city were also noted this year with the construction and opening of commercial mixed-use buildings such as the One Mango Avenue in Maxilom, The Gallery in Mabolo, A-Mall in the ACT Tower as well as Shangs Mactan Town Center (MTC) in Lapu-Lapu City, and the recent Ye Sen Fa 138 Mall in Colon.

Meanwhile, office spaces for call centers and BPO firms in IT Park continue to flourish and just recently this December, Primary Properties Corporation, one of Cebu’s builder of industrial and commercial establishments launched the newest addition to its rank of multi-tenanted buildings at the booming Asiatown IT Park in Lahug called as the I3, the third building to be completed after the successful ITWINS project.

The Skyrise 3 Building as well as the TGU Building was also inaugurated this year and another BPO building in the port area was also started as well as the Robinsons Land Corp.’s (RLC) Robinson’s Cybergate has started construction at the Fuente Area.

Even hotel developments were on the rise this year as effects of the flourishing tourism industry in Cebu which made way to construction projects in line with this sector such as the Imperial in Mactan led by Korean investors, the Nature’s Legacy Hotel in the Mandaue Reclamation Area, the on-going construction of the Diplomat Group in Archbishop Reyes and the high-rise condotel project of Filinvest Land called as the Grand Cenia in the Cebu Business Park, among others.

Real estate investments were also on the rise as housing developers from the low-end to the high-end market segments successfully launched and kicked off several residential projects this year.

“Together, these projects employed several hundreds of workers, not to mention the materials that were used in construction. In short, these projects contributed substantially to the local economy,” said Dy.

Even the government sector also lined up infrastructure projects for Cebu this year such as the recently finished P1.2 billion Mandaue-Consolacion Bridge, the recently inaugurated Banilad flyover as well as the P23.6 million RORO port currently being constructed in the Bogo and the on-going P2.31 billion road construction project across the 9.45 km Cebu North Coastal Road.

Dy discussed that the two major issues which struck their sector this year included the escalating costs of construction materials and the lack of skilled manpower.

He said that the former resulted from supply and demand while the latter could be due to migration of workers to other countries especially the Middle East, which noted a growing demand for skilled manpower.

United Architects of the Philippines Chapter president Allan Choachuy recently said that most of their members are being pirated to work abroad and even locally, most fresh graduates are also urged to work for BPO design and architectural firms which pays more, leaving them a limited number of skilled draftsmen.

Other than these problems, the construction industry was also hit by the soaring prices of oil, which is one of the factors in the prices of construction materials.

“The skyrocketing price of oil which reached a record high this year also caused worries to industry players because their workers demanded higher wages to cover for the increasing prices of prime commodities. Not only that, construction companies were directly hit by the increasing fuel costs because of their heavy equipments in operation,” Dy added.

Hardware Consolidated Inc. board of director and vice president for marketing and sales for Cebu Oversea Hardware Co. Inc. Charles Kenneth Co said that the high growth of the construction sector this year was dampened by the “meteoric rise” in commodity prices that stakeholders hedged by either advancing projects or delaying them.

Co also said that increases in prices slowed down the demand and it also increased cost of delivery services without being able to pass on these cost.

And despite the previous roll backs of oil prices in the last quarter if this year, freight and trucking rates did not correspondingly go down so prices remain up as suppliers of construction materials were still compelled to increase their prices to cope and achieve their target margins, said Co.

Dy on the other hand added that the continuous roll backs in oil prices in the last quarter of the year could be taken positively but this was overtaken by the US Financial crisis which started to affect the sector in the last quarter of the year.

“If ever foreign direct investments to Cebu in particular will nose-dive, then lower oil prices will only have a minimal advantage. What the industry really need is the continuous flow of projects,” Dy added.

Meanwhile Hardware Consolidated Inc. and ABCED System Corporation president Basil B. Ting in an interview said that for the last quarter this year, the hardware sector which mutually benefits from the projects in the construction industry experienced a slowdown of orders as some of their clients hold the bookings of stocks because most have held their development projects.

He shared that some of their players have speculated that construction will continually be at its peak this year because of the many on-going construction projects in the area so some did overstocking thinking that they can sell these stocks at a higher price.

But then the global crisis came and made this effort of stocking irrelevant as prices of materials have dropped down even lower from the prices that these materials were bought.

“Some thought that the industry could consume the volume because they speculated that the construction industry will continue to grow this year but then everything went down and since hardware products have small margins, many of our players have lost profits,” Ting explained.

National Economic Development Authority (NEDA) Central Visayas regional director Marlene Rodriguez said in a recent 888 News Forum that as of October this year, indicators have started to manifest that the global economic crisis has started to take a toll on the macro economy of the region.

She said that the most vulnerable sectors affected by the crisis include tourism, retail, export and construction.

Rodriguez explained that the slowdown in construction has resulted with the soar of prices of steel and cement this year on the onset of the crisis which did not help the industry’s growth for this year.

“Some big ticket projects were put on hold as huge market put their investments on hold. The OFW markets reconsider their plans to buy residential properties,” said Rodriguez.

But the construction industry stakeholders have different takes regarding the current global economic meltdown.

Cebu Holdings president and former Cebu Chamber of Commerce and Industry president Francis Monera said that the effects of the crisis in their company is not yet being been felt and its exact effects to Cebu’s local economy is not yet determined but they continue to calibrate their moves and developments to prepare for the market upturn.

He even said that they are expecting to end this year with the highest financial performance in their 20 years history.

CCA’s Dy said that the current financial crunch is indeed a major concern to their sector because it leaves them vulnerable as decrease in projects could result from a slowdown of the economy.

But he said that the decline of the sector is not much felt yet this year as most construction companies are still in the finishing stages of their on-going projects.

He said that the large projects for the majority in their sector reflects growth of the industry and the prime mover ofe this growth is the in-flow of the direct investments coming from both IT related businesses and tourism.

Ting meanwhile reflected that compared to 2007, the first half of the month this year was stable amidst fluctuations in construction prices but the problematic period came on the second semester as the financial crisis hit the world.

Although he stressed that the effects of the current crisis varied depending on the product line of hardware players; however, those selling major construction materials such as steel, cement, plywood and pipes have been badly hit while some who sold power tools, furnishings, lighting and electrical supplies and other secondary construction materials were less affected.

“The developments of Cebu’s local economy fueled the growth of the construction industry so hopefully inflow of investments will continue because these are the factor that makes the industry afloat,” Ting added.

Co on the other hand believes that in terms of volume, there isn't that much growth in the sector this year apart from the drastic increase in prices and the current crisis made everyone from their sector cautious and they are not certain how bad it will get for the next fiscal year.