Cheap loans boost Philippine real estate

The real estate market in the Philippines is expecting another good year after residential and commercial property purchases and rentals have been booming throughout 2012 on the back of a glowing economy, strong remittances from Overseas Filipino Workers  and business process outsourcing (BPO) as main drivers.

But a major factor for the boom are the all-time low interest rates which makes access to cheap loans easier for property buyers.

The property industry in the country can be assured of  at  least three more years of vibrant activity,  experts of global property managing firms Jones Lang LaSalle and CBRE Group said.

The office market will continue to benefit from the global offshore and outsourcing industry, while the residential and retail space markets would still be  propped up by  improving private consumption, according to the two real estate specialists.

The BPO sector accounts for 90 per cent of office space take-up in the country. It is forecast to double the current employee base of over 600,000 by 2016 as multinationals send more jobs to the Philippines. CBRE said that while demand in the high-end market will be sustained in 2013, developers will also focus on the mid-income residential market, reflecting the demand from the growing population of families and young professionals.

Most of the activity is taking place in the capital region. For example, the average base rent in grade A office spaces in Bonifacio Global City and the Makati Central Business District has gone  up 15 to 20 per cent since 2010.

Up until 2015, office supply set to come to the market is estimated to hit 7.9 million square meters with the current supply now at 6.2 million square meters. Vacancy rate across Metro Manila business districts meanwhile stands at 5 per cent, Jones Lang LaSalle said.

For private buyers, the Philippines has the lowest interest rates and best financing schemes for home ownership ever since. Interest rates range from 5 per cent to 11 per cent for short- or long-term payment schemes.

A study conducted by BCI Economics said the construction industry would  continue to grow. The pan-Asian construction sector research firm noted that new construction projects in the Philippines are seen to grow by 264 per cent in 2013 with new building construction expected to grow by 145 per cent.

However, some critics say a property boom built on cheap loans also holds imminent risks of a bust especially when banks start granting loans to high-risk borrowers.

For example, in Vietnam a three-year long property boom based on cheap loans and government stimulus packages has pushed up outstanding debts for real estate projects to very risky levels, leading to a bust happening in mid-2011. The market now remains frozen due to skyrocketing lending interest rates that have reached 18-20 per cent per year and low demand and purchasing power. House prices have declined substantially in all segments, by up to 30-50 per cent in many projects in Hanoi and Ho Chi Minh City. Transactions are scarce and many developments stand unfinished in big cities because of capital shortages.

Easy access to cheap loans in the Philippines may produce the same result eventually, director of research at AB Capital, Jovis Vistan, said.

However, such a scenario will not plague the country  “at least until the next handful of years”, said Jones Lang LaSalle associate director for markets, Philip Añonuevo, adding that “the holding power of Filipino buyers is longer.”