Construction to pick up with rollout of PPP projects

Private construction is expected to recover through the course of the year as government infrastructure spending and public-private partnership (PPP) programs gain momentum, government officials said.

Private construction, which accounts for about 75 percent of the sector, contracted 9.9 percent in the first quarter of 2012. Public construction on the other hand grew 62.2 percent. This, as the Philippine economy expanded 6.4 percent in terms of gross domestic product (GDP).

According to the National Statistical Coordination Board, GDP would have grown by 6.6 percent in the first quarter of 2012 if private construction contracted by only 5 percent. If the sector registered zero growth, the domestic economy would have expanded 6.8 percent.

Ruperto P. Majuca, NEDA OIC and concurrent assistant director-general for planning, said that private construction reached a saturation point after seeing several quarters of growth. Another reason is that, while public construction complements private construction and vice-versa, there is a time lag before the effects are felt, Majuca said.

Benjamin E. Diokno of the UP School of Economics said via email that recent figures suggested the government would need to step up its PPP rollout and the implementation of its infrastructure program.

In 2011, “construction contracted by 6.2 percent because of the failure of the government to move its projects. The rise in public construction in the first quarter of 2012 is purely base effect. The worrisome trend is the behavior of private construction, which started to stall in the second half of 2011,” Diokno said.

Tokyo-based real estate market expert David C. Fan also said via email that the faster approval of the various PPP infrastructure projects would help private construction in moving forward.

“Many of the investments are really needed, which would not only provide near-term economic boost as they take place, but also raise the country’s long-term productive potential. A lot of latent potential is waiting to be tapped. As for the shortfall in private construction during the quarter, one possible reason may be that developers have ramped up condo construction rapidly up to now,” said Fan, who is portfolio manager for CB Richard Ellis Investors Japan K.K.

Fan also said that with the country’s move to introduce Real Estate Investment Trusts, allowing the public to buy stocks of property companies and earn from real estate, investors would be able to tap more capital for new construction activities.  Riza T. Olchondra