What’s next for residential real estate

It may be difficult, for now, to map out specific next steps for the Philippine real estate industry because the reality is, everything remains fluid and in transition.

Uncertainty still hangs in the air as economies continue to grapple with and reel from the impact of COVID-19. In several webinars over the past few weeks, property consultancy firms and stakeholders have already announced revised forecasts and estimates, with expectations of tempered real estate activity—which means slower to no demand and softer prices, as expected during a crisis.

Stable, resilient

Some, however, chose to remain optimistic and look for opportunities amid this unprecedented crisis. And there may be reasons to be so.

Despite the fact that several segments such as commercial (malls) and hospitality (hotels and resorts) took a massive, direct hit when this health crisis erupted, some believe that real estate will remain resilient while others bank on its stability as an asset class. It should be noted that prior to the outbreak of the COVID-19 pandemic, real estate is regarded relatively as a strategic asset class as it can offer stable returns, passive income, diversification, and leverage.

“The impact of the COVID-19 pandemic has been swift and immense as evidenced in the immediate economic, lifestyle, and structural shifts experienced across the globe—and the Philippine real estate market has been no exception… While the current outlook remains uncertain, we project the Metro Manila real estate market to remain resilient as the industry continues to adapt to the changing environment brought about by the pandemic,” Janlo de los Reyes, head of research and consultancy at JLL Philippines, said in a report published in April.

“Real estate has just been a lot more stable asset class historically and definitely is right now… Real estate for the long play is a pretty safe and stable asset to hold, that’s why a lot of people hold it,” KMC Savills managing director Michael McCullough said in a briefing via Zoom.

Residential real estate

Although a slowdown in take up and project launches is expected, the residential real estate market in particular is seen to remain stable over the medium- to long-term according to Enrique Soriano III, executive director of Wong+Bernstein Advisory.

Soriano pointed out that there is still a huge unmet demand for housing in the range of 6 million units and that investors still trust property as a solid long term investment.

“It all boils down to the two Cs—certainty and confidence. The current decline in buyer and seller activity is only temporary because of the enhanced community quarantine and travel restrictions and the uncertainty brought about by the pandemic. The crisis has affected the global economy. Whether it is the 1997 asian financial crisis, the 2008 global financial crisis, or the SARS outbreak in 2003, we can always expect potential buyers to delay any property purchase,” Soriano said in an interview with the Inquirer.

“However, when ECQ restrictions are lifted and consumer confidence is regained, we can bank on buyers and sellers to resume their trade. It may not be as robust as pre-ECQ, but we can assume residential demand to slowly pick up. Why? When we see indicators like lower interest rates, a sign that the curve is flattening, and the awareness of virtual tools that minimize the risk of infection, we can anticipate a gradual increase in home purchases,” he further explained.

Attracting buyers

In a separate interview, Noel M. Cariño, national president of the Chamber of Real Estate and Builders’ Associations Inc. (Creba), agreed that there is still potential for take-up in the residential market since the housing backlog is still growing. This, however, will depend on how the industry will adjust to market realities.

Cariño cited for instance the need to pursue incentives for companies to thrive in the current business environment. Property developers may also have to adjust their payment terms or provide better discounts that could help attract homebuyers and investors.

“If the big developers (offer) terms that will motivate the market to consider, then they will buy. The market needs a special reason to let go of his money today… And I see this going for next 12 months up to the first quarter of 2021. From June to December, developers must come up with aggressive terms for the market to react,” he said.

‘Intent to buy’

Gerfer Mindoro, senior manager for research and consultancy at KMC Savills, meanwhile reported that on the consumer side, “there will be postponement of major purchases this year” against a backdrop of economic uncertainties.

He said this will be largely felt in the low income households because they are the most of vulnerable in times of economic disruptions and thus likely to prioritize the purchase of essentials. But the mid-market segment “may still have a steady stream of cash from receivables during this period, and sales is expected to be sustained post-COVID.”

Those in mid market segment, Mindoro added, still have the capacity to pay and so the “challenge now to the developers is to convert that capacity to pay into an intent to buy a property.” He said they expect property developers to offer promos and discounts of about 10 to 15 percent, especially for the ready-for-occupancy (RFO) units to encourage more buyers and protect their market share.