Hurdling challenges in real estate

The opportunities may be massive, lucrative, and promising. But the hurdles are just as real and may hamper the potentially stellar performance of the Philippine real estate sector this year.

While there is a lot of optimism and confidence among players about the prospects in Philippine real estate, there are also pressing issues that could potentially weigh down the sector’s growth and profitability.

For instance, the local IT and business process management (IT-BPM) industry faces some uncertainties with Donald Trump as the new president of the United States, and with President Duterte’s earlier controversial remarks against the economic giant.

Prof. Enrique Soriano, executive director at W+B Advisory and program director for real estate at the Ateneo Graduate School of Business, warned that these pronouncements have a “slight chilling effect” as some IT-BPM firms were earlier reported to have already put their expansion plans on hold.

It should be noted that the US accounts for more than 70 percent of the IT-BPM business in the country, and the industry is currently one of the more significant growth drivers of the office property market. This particular segment has been touted as one of the brighter spots in the real estate sector.

And that’s just one part of the long story.

More challenges

According to Soriano, the real estate industry may likely face a number of other challenges which he identified as the following:

Global economic upheavals that might affect overseas Filipino workers’ movement (and therefore) their housing investments;

Political issues that might compromise decisions related to the Creation of the Department of Housing, which is a long overdue proposal (almost 20 years) to have a dedicated department to manage and regulate this important sector;

The country’s readiness to implement the Real Estate Investment Trust (REIT) Law, which is another overdue initiative that is expected to boost real estate investment for ordinary stock market players. The REIT law should be initiated hand in glove with the Tax Reform Law; and,

A potential conflict between two critical agencies in the government—the housing and agrarian agencies—as to the issue of land ownership.

Reforms

Apart from these concerns, Soriano also cited the need to institute policy reforms that will address other challenges that are structural in nature.

“There are hiccups and some of the major challenges are still structural in nature. External and global shocks are beyond our control and we cannot be competitive in the region if we do not address these structural constraints,” Soriano said.

“Overall, we need (to have) a housing roadmap and (to) enjoin stakeholders to pursue real estate corporate governance. For the sake of the sector and learning from past mistakes, the new administration should no longer appoint a politician to lead this very important industry,” he further explained.

Soriano added: “Property buyers also face high transaction costs, corruption and red tape, fake land titles and substandard building practices. Plus, the large informal housing sector and their incentives, make it less attractive for low to middle income families to buy or rent properties.”

Winning markets

But if property developers play their cards right, they might be able to capture a significant chunk of the market with their unique and value added concepts.

The concept of “townships” or self-contained districts alone has already attracted a slew of buyers, investors, retirees, foreign groups, and even the young professionals.

Green developments and mixed-use concepts will also inevitably become the standard for developments, he added.

Soriano further noted that dispersal of retail development remained key to sustained growth for players.

“The country is home to four  out of the 10 largest malls in the world, and where three (malls) are located within a 15 kilometer radius. Surprisingly, despite the competition, major malls are registering as much as 95 percent occupancy. This is a result of international brands entering the retail market and local brand expansions this year,” he explained.

“(However), this penchant to develop malls in major arteries is exacerbating traffic and their regulation is key. The better approach is the increasing interest of retail developers in setting up neighborhood malls in practically progressive municipalities all over the country,” Soriano noted.

Citing data from W+B’s Advisory’s research arm, Soriano said the country should expect close to a thousand neighborhood retail centers in the next three to five years, thanks to the robust local economy, overseas Filipino workers’ remittances and increasing consumption from domestic market.