Real Estate on the Rise - By Cielito Habito (Inquirer) - 05/06/2007

MANILA, Philippines -- UNTIL early last year, communications, particularly telecommunications services, was the single fastest-growing industry within the services sector. In my economic briefings, I liked to say that the Filipinos' love affair with text messaging was driving the Philippine economy, and that wasn't too much of an exaggeration then.

New leader
Well, not anymore. In the past three quarters, growth in communications had slowed down to single-digit levels, after enjoying rapid double-digit growth over much of the past decade. Whether this is a long term trend is too early to tell, but at the moment, real estate and property development has dislodged communications as the growth leader in the services sector.

In the fourth quarter of last year, the real property sector posted a hefty 22.7-percent growth in real terms--now the highest-growing sub-sector within services. In the quarter previous to that, the growth rate was 26.2 percent. Against an average real growth rate of 16 percent in 2004 and 2005, real estate growth appears to be picking up lately. It has come to a point that renewed worries are now being heard that a real property bubble similar to what led to the 1997 Asian financial crisis may be looming.

A notable indicator is the recent upsurge in real property loans being granted by the Philippine banking system. Ten years ago, the Bangko Sentral ng Pilipinas (BSP) saw it fit to impose limits on the real property lending of banks. Is it time to revisit those limits again?

BPO-driven
What is driving the recent growth in the real estate sector? There is much casual evidence pointing to the surge in office space demands from the call center industry, and from the business process outsourcing (BPO) sector in general, as a primary source of the growth. Indeed, non-factor services exports, which prominently include BPOs, grew by a whopping 36 percent last year. We hear of the tight office space market in the Ortigas and Makati areas, for example, where call centers and other BPOs are snapping up office spaces faster than they can be built. And this is an industry that is not confined to Metro Manila, either. Major centers around the country are seeing a similar boom in these types of businesses, that include backroom accounting, medical and legal transcription, graphic and architectural design, animation, research and a number of others.

There is an interesting sidelight here: the "research" part of it includes the not-so-honest business of made-to-order term papers and thesis manuscripts for lazy students overseas--a business, I hear from a friend who is actually into it, that has a large and growing market. For decades, this "cottage industry" for manufactured or recycled research papers had been known to students to be thriving in the Claro M. Recto Avenue area in Manila. Guess what: the industry has now gone global--thanks to Internet search engines like Google and Yahoo! coupled with computer cut-and-paste technology, which make it very easy to come up with a credible term paper in whatever subject you can think of, within minutes.

Housing demand
Adding to the BPO office space demand is the persistent unmet demand for housing, especially in the low- to medium-income segment. While the market for high-end condominium housing units appears to have tapered, growing numbers of Filipino families are in need of homes. The demand from OFW families is particularly on the rise, with anecdotal evidence pointing to a growing portion of remittances now going into housing investments. Property developers are taking heed, including those that traditionally focused on the higher end of the market. The big names in the industry have increasingly gone into housing development projects targeted at this rapidly growing market segment.

Helping this trend is the current environment of low interest rates, which has made housing finance much more accessible than before. For this we have the improved government fiscal situation and surging money supplies worldwide to thank. Banks no longer see it as attractive to lend to the government as before, via investments in government securities and treasury bills whose yields are now much lower.

No bubble
At the same time, demand for bank loans from the traditional corporate borrowers has slowed down, with deepening capital markets and expanded financing options. Thus, the banks have turned to consumer financing in a big way--including home and auto financing--which is good news to the housing industry. Adding to all this is the growing demand for property development from the retirement estate industry, spurred by aging populations in rich countries. And then there are the shopping malls sprouting out all over, thanks again in large part to consumer purchasing power fueled by OFW money.