Highs and lows of PH real estate

Amid the changing economic and political landscape in the country, the real estate industry has transformed dramatically since the 1980s, seeing a cycle of downturns and recoveries. After a decade of continued growth, the property sector is once again facing disruptions brought about by the COVID-19 pandemic.

The Philippine real estate industry, like in other countries, has a cyclical nature and is susceptible to periods of expansion and overbuilding, followed by a crash and price correction as seen in the past.

Debt crisis, political instability

In the early 1980s, the economy shrank as the Marcos regime struggled with a debt crisis, resulting in massive capital flight and weakened financial institutions, while the latter part of the same decade saw coup attempts taking place to overthrow the administration of former President Corazon Aquino.

The economic decline and political instability during this period shook the country’s property scene, but the crisis also ushered regulatory reforms that strengthened the banking system, with limits imposed on banks’ lending to the real estate industry.

Financial crisis

In 1997, countries in East and Southeast Asia faced economic collapse when a financial crisis spread throughout the region and other growing markets in the world.

The crisis derailed the Philippines’ economic growth as it affected the property market, which saw the biggest price decline of about 18 to 20 percent.

The Philippines, along with neighboring countries, took a beating from the economic slump. The country saw a full year recession in 1998, given a 0.5 percent GDP contraction.

However, unlike other Asian property developers with crises catalyzed by the bursting of a real estate bubble, the Philippines did not have the same problem. Other countries like Thailand had construction projects heavily financed by bank loans that led to bankruptcy, But Philippine developers had largely financed their projects via preselling, which assured them that projects would not end up unsold and unoccupied once they were completed.

Even before the Asian financial crisis, the Philippines had already developed a system less prone to loan problems by limiting property-related loans in the 1980s. This was after banks, including medium-sized commercial ones and the central bank, faced bankruptcy.

Despite the financial crisis, office supply then remained high, posting a 22 percent growth from 1997 to 1998.

The real estate industry stabilized in the early 2000s with the help of reforms such as Republic Act No. 9225 or the Citizenship Retention and Reacquisition Act of 2003, which allowed foreign citizens to acquire dual citizenship in order to acquire estate properties in the Philippines.

Further, the emerging business process outsourcing (BPO) industry increased the demand for office spaces then, while remittances from overseas Filipino workers drove the construction of residential buildings. The development of idle assets and properties as new emerging urban districts and landmark developments also began.

Slowdown

Office supply improved by 14 percent in 2001 and 5 percent in 2003 compared to previous years. However, the demand then dwindled as the economy weakened during the global financial crisis in 2008.

The real estate sector slowed down again during the global financial crisis, with office rents falling by 15 percent as BPO expansions froze.

After ramping up office supply to 480,000 sqm in 2008 and 523,000 sqm in 2009, completions fell sharply to 203,000 sqm in 2010 as projects were deferred or outright cancelled.

The Asian and global financial crises have compelled the central bank to strengthen oversight of banks’ real estate exposure by adopting stress testing.

Decade-long property boom

As the Philippine economy bounced back to 7.3 percent in 2010 from only 1.1 percent in 2009, investor confidence started growing, alongside the sporadic construction of condominiums as well as commercial and office buildings.

The property boom, which began in 2010, was driven by large and mid-sized foreign investments, BPO sector, OFW remittances and growing tourism arrivals. With rapid urbanization, mixed use developments, townships and estates that bring together homes, offices, shops, and schools, entertainment in linked communities became key sources of growth in the property market. Common spaces have also emerged as the needs of urban living evolved.

COVID-19 pandemic

But the continued growth of the real estate industry will likely be halted by constraints brought by COVID-19, Colliers International Philippines had said.

Unemployment, business consumer confidence, slowdown in OFW remittance inflows are among the factors that could affect the industry during this ongoing health crisis. The decline in tourism arrivals and limited mall operations are expected to bring down growth in hotel and retail segments.

Travel restrictions due to the pandemic are also seen to slow down the operations of Philippine offshore gaming operators (Pogos) which have driven the demand for office spaces and subsequently residential spaces in recent years, while work stoppages due to the community quarantine would delay project completions.

Sources:

Inquirer Archives, psa.gov.ph, industry.gov.ph, neda.gov.ph, boi.gov.ph, hudcc.gov.ph, bsp.gov.ph, psa.gov.ph