No stopping the property boom for PH mart’s bulls

Second of a series

Not everyone is worried about the Philippine property boom.

In fact, at least one major property consulting firm believes that the bullish sentiment that has boosted the local real estate market for the last decade will continue over the near term amid strong demand from the business process outsourcing sector and expatriate Filipino buyers.

According to officials of Jones Lang LaSalle Philippines, the local market is not on the verge of overheating and forming a 1997-style property bubble.

“Debt levels across the entire spectrum of buyers are very low,” JLL country head David Leechiu said in an interview, adding that this situation provided property buyers, developers and banks with enough cushion in the event of a sudden market downturn.

“All this growth in the last 10 years happened with very little leverage,” he pointed out. “That gives everyone a comfortable buffer.”

Calming fears of an oversupply in the property market, JLL officials said the projected expansion of the outsourcing and offshoring sectors —BPO firms which use the country’s large talent pool to staff contact centers and back office operations for multinationals—would continue to support demand for new office space.

In fact, the consulting firm noted that a total of 500,000 square meters had so far been committed as of the end of November 2014, mostly for the BPO sector—a record for the country.

The strong appetite for office space has resulted in average vacancy rates in major central business districts dropping to just 4 percent, and only for small and irregular office space cuts.

A fresh supply of newly built office space will bring the market’s total supply to over 700,000 sqm., but even this will easily be gobbled up by the BPO sector, JLL predicted.

In the meantime, even the residential property sector—long expected to be the nexus of a feared property bubble—will continue to see strong demand from buyers, officials of the property consulting firm said.

“A healthy flow of remittances from overseas Filipinos will buoy investment demand,” said JLL’s head of research and consulting Claro Cordero.

In 2014, 204,300 residential condo units were present in the Metro Manila market with 41,800 units completed this year alone.

Another 58,800 units will be completed next year, and 145,400 condo units will be added to the supply from now until 2020.

“If you look at the numbers, it looks like a lot, but the demand is definitely there to support it,” said JLL chief operating officer Lindsay Orr.

This was echoed by Leechiu who noted that, while the residential condo market would be deluged by a sudden supply surge over the near term, the pipeline of new condo developments was expected to tighten two years after.

This means that those buying residential condos even at today’s peak prices will likely benefit in terms of capital appreciation or rising rental yields.

While being broadly bullish about the property market, JLL officials do concede that the unbroken upward trek in property prices had raised questions in the minds of people, especially those who had experienced the painful popping of a real estate bubble before.

To these fears, the property consultants pointed to the moves by banking regulators to cool the property market by imposing lending curbs on banks.

Leechiu said the proposed policy of the Bangko Sentral ng Pilipinas to cap banks’ loan-to-value ratio for real estate lending at 60 percent from the present level of 80 percent would result in short-term pain, but would be good for the market.

“It will be a drag on the market, but it is a prudent move,” he said.

(To be concluded)