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Unlocking growth through infrastructure

By: - Reporter / @amyremoINQ
/ 04:02 AM July 25, 2020

There is a lot riding on the administration’s flagship infrastructure program.

Although the significance of the government’s “Build, Build, Build” program in pump-priming the economy has long been recognized and established, this ambitious initiative is now being touted as one of the strategies pivotal to the recovery of the Philippine economy.

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So as the government resumes work on some of these big-ticket projects, industries like real estate are now keeping a close watch on how the continued roll out of this P8-trillion program will play out amid the COVID-19 pandemic and an economic recession, and if it can truly be that much needed stimulus that will help the country bounce back.

The long-term benefits of infrastructure cannot be emphasized enough.

Impact, benefits

Inquirer Property polled several real estate consulting firms, all of whom had acknowledged the critical role that the “Build, Build, Build” infrastructure program can play during these times, while adding value to property developments across the country.

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Prior to the COVID-19 outbreak, key infrastructure projects had often dictated developers’ next strategies, telling them where to build next, and charting their path for expansion. Wherever the next major expressway, airport, seaport or railways will be built, property developers are sure to follow. After all, infrastructure improves connectivity and accessibility while boosting land values in what were once difficult-to-reach localities.

“The infrastructure program is a key element to the recovery due to the short and long-term impact. In the short-term, this can provide employment opportunities and drive economic activity across tangent industries. Over the long term, these projects would drive improved connectivity and mobility that would boost property attractiveness and continue to drive economic growth within and across markets,” Janlo de los Reyes, head of research and consultancy at JLL Philippines, said in an e-mail to the Inquirer.

“The long-term benefits of infrastructure cannot be emphasized enough. It will definitely add value on real estate developments. To a certain extent, it can be used as part of the government’s economic stimulus. However, given how the current administration has favored to finance these publicly, it may compete with the necessary funding for our pandemic response,” noted KMC Savills senior manager for research and consultancy Fred Rara.

New markets

Claro Cordero, director and head of research, consulting and advisory services at Cushman & Wakefield Philippines, meanwhile pointed out that as more infrastructure projects are completed, renewed investor confidence will help stimulate economic activities due to new investment options that bear more managed risks. This will be helpful in areas outside Metro Manila and existing urban centers.

“New markets will emerge as a result of improved consumer spending and the continued injection of fiscal stimulus in the form of the government’s Build, Build, Build program… The development of new markets triggered by the Build, Build, Build projects will support the flight-to-quality focus of real estate investors towards property developments that are not susceptible to major (external) shocks,” Cordero told the Inquirer.

He further noted that decentralization, which may be spurred by Build, Build, Build, will help developers and investors capture opportunities and unlock potential growth of property values in small quality developments in the non-core areas. With improved connectivity to economic gateways and traditional city centers, these new growth areas will help propel property values and stimulate further investments across other new markets.

The infrastructure program is a key element to the recovery.

Road to recovery

If infrastructure were to really stimulate the economy, this will also bode well for property. That’s because a crucial factor that will assist in the recovery of the Philippine real estate market is the return of optimism and confidence in the general economy.

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“As soon as the people feel genuinely safe from the COVID-19 virus and feel confident about job security, consumer and investor confidence will begin to surge up and trigger the recovery of the general economy and the real estate market,” Cordero said.

“Stimulating optimism and confidence in the general economy will help revive the appetite for purchases and investments in the real estate sector. The resurgence of new investments in the economy will trigger new job opportunities and stimulate demand for office spaces. As soon as consumer confidence returns, people will start to spend again, improving mall traffic and local tourism to similarly bounce back,” Cordero further noted.

Certain sectors, he added, remained attractive and are expected to ride out the crisis due to rising demand such as outsourcing and logistics/warehousing. Hence, infrastructure improvement and consistency/predictability in investment incentives are crucial to stimulate the recovery of the Philippine real estate market.

Rara also noted that industrial/logistics sector is seen to quickly rebound despite the drastic changes in the global supply chain. This is mostly because of the fundamental need to deliver essential goods, and the rise of e-commerce during the pandemic.

“However, the performance of the broader real estate industry is only second to the state of the overall economy. Our view is that more proactive measures must be put into place to keep the pandemic under control to push for economic recovery. The real estate industry will follow,” Rara said.

“The recovery of the Philippine real estate industry ultimately boils down to regaining the market confidence of investors, occupiers, and developers/operators,” de los Reyes added. “While the vaccine is key to this, real estate stakeholders are adapting through technology use and pivoting towards alternative and interim uses to generate cash flow and keep business afloat. At the same time, some stakeholders are shifting their operations to accommodate current and new demand in order to drive revenue.”

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TAGS: Build Build Build, Cushman & Wakefield Philippines
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