A strong, long-lasting real estate boom

WE are now in a real-estate boom. I'm very bullish that this time, it will be stronger and longer-lasting than the one we enjoyed in the nineties. The real-estate industry, also known as the property sector, will drive our economy. In the United States, this sector is so important that the number of housing construction projects is used as gauge to measure economic growth.

Developers have learned from the weaknesses of the nineties' boom, and it is unlikely that the abuses at that time will happen again. It was, actually, the first boom in the domestic real-estate industry, and all banks were offering money left and right. The market was very liquid, you could practically do anything. It seemed there would be unlimited demand and everybody was thinking that this kind of life would go on forever.

Of course, it did not, and developers have realized that real estate is a boom-and-bust thing. There will be a boom and there will be a bust. We just hope that the bust period will just be a soft landing. It's not bad having a cycle, provided it's a soft landing, not a crash. For me it's just a corrective mechanism that happens when there is oversupply, a continuing adjustment on the law of supply and demand.

There are many developments that are helping the current boom which were not present during the nineties. Many of our overseas workers are buying houses and condominiums. Even the enactment of the dual citizenship law encouraged Filipino immigrants to buy properties here.

The Filipino-Americans have a feeling of prosperity because of the bull-run in the property sector in the US, when prices rose. Almost all the property owners became rich. The dual citizenship law provided an opportunity for them to acquire properties in their country of birth.

Another significant development is the new phenomenon of business process outsourcing, or BPO. It soaked up all the unfilled spaces in office buildings and even in the malls. It prevented what could have been a glut of malls. Now, mall construction is nonstop. It's not because retailing is that strong, but because many of these malls have call centers. Even the Mall of Asia houses a call center for a big American company.

With all previously unleased spaces filled up, demand for new stock is growing, and for the first time since the crash, buildings are being constructed. Lately, some of the major players have launched share offerings to raise more funds for construction projects—Megaworld, Robinsons Land and even Ayala Land. Many of the real-estate companies that experienced financial difficulties during the crash have recovered and are coming in strong. Add to that the prevailing low interest rates.

The move to introduce Real Estate Investment Trust (REIT) in the Philippines as an alternative source of financing for real-estate projects is another welcome development.

As it is, the only sources of financing for construction projects are bank loans or equity capital. Now traded on the stock market, REITs, are a cheaper source of financing than loans, and will also help the growth of our equities market.

Even the Special Purpose Vehicle Law (SPAV), which has been extended for one year, is helping the property sector, in addition to the banks. Now that prices are increasing, banks are able to dispose of their nonperforming assets (NPAs) and sometimes, even at a premium. Considering that they have already provided for these idle assets, their disposal even generates profit for some banks.

More and more banks are unloading their NPAs. These are being absorbed by the real-estate markets. So the banks are getting rid of their overhang, and with the ongoing consolidation, the banking industry is now stronger.

And then, of course, there is the tourism boom, which is also benefiting the property sector. We might be seeing the start of a tourism boom, and it looks like we will be finishing the year with close to three million visitors, which is an all-time high. Just three years ago it would have been unthinkable to have three million tourists a year, but it looks like we're on a roll as far as tourism is concerned.

And so, for the first time, we see a lot of people really talking about tourism. Old tourist sites are being reopened and new ones are being built. Existing hotels are enjoying higher occupancy rates. Resorts are getting hot—existing resorts are being improved and expanded, and new ones are being built on our beaches. Investments are coming from Koreans, who are becoming a major source of capital and are also among our major tourist markets.

The improvement in our airports also helps to boost tourism. The opening of the Naia Terminal 3 is just a matter of time. Our existing airports are OK, the Centennial terminal of Philippine Airlines is nice and we have improved the airports in Cebu and Davao; we are in the process of completing Iloilo.

So, we're on a roll. I'm optimistic that this real-estate boom will be long-lasting—unless, of course, something happens.

The reason why I'm optimistic is because we're still very low, there's a lot of room for growth. If we could just be on a par with our neighbors we would have achieved so much.