A sober look at the property boom
It's in bad taste to revel in one’s success just when your neighbor is down in the dumps.But in the case of the Philippines’ newfound property boom, the party simply cannot wait. After all, it took the country nearly a decade to shake off the debris from a financial crisis that left many real estate projects unfinished and sent huge amounts of capital down the drain.
So while we should keep an eye on the United States’ sub prime market debacle, we shouldn’t lose sight of the potential of the local property sector. Those living abroad sure aren’t taking their time and watching the boom from a distance. In fact, a growing number of Filipinos living outside the country, including overseas contract workers, are plowing their savings into the local housing industry.
A look into the books of blue-chip property firms like Megaworld would indicate that the bulk of their growth is due to real estate sales, and only to a smaller extent on the business process outsourcing craze.
This is why a number of property developers have set up marketing units abroad, to benefit from the renewed interest in the Philippine real estate sector. This interest is only partly due to risk aversion, as investors shy away from the troubled US market and seek safe havens abroad.
A greater part of the attraction of the local property sector is the country’s sound economic fundamentals. This is economese for low interest rates, easing inflation, a strong currency, and improving government finances. The Philippine real estate sector in particular is reaping the benefits of a low interest-rate regime, thanks largely to easing inflation.
Before the government’s bungling of its first-half fiscal position, benchmark rates as measured by the yields on risk-free government bills and bonds, had sunk to historic lows. This was after consumer prices rose to their slowest in years, with inflation back in the low single-digits.
Combine that with strong remittance inflows and you have the makings of a strong domestic economy supported by robust consumer spending.
Dollar inflows boost the country’s foreign-exchange hoard, which in turn helps bring down inflation and with it interest rates.
Property companies are the first to benefit from sliding interest rates, as this makes bank borrowing cheaper. Indeed, a growing number of lenders are offering long-term housing loans with fixed interest rates. State housing agencies likewise plan to cut their loan charges.
It is a good time to buy a house or condo, or refinance an existing loan, using other people’s money.
This is why the Bangko Sentral ng Pilipinas’ recent reduction in its overnight borrowing rate is welcome news. In so far as it discourages banks from leaving their excess funds with the BSP, the monetary loosening prods them to increase lending to the public.
With easier access to bank lending, which is still the main source of credit in this country, the pace of economic activity quickens, creating more jobs, and hopefully better-paying ones. Moreover, Filipinos, especially those benefiting from remittances, can leverage on these flows and borrow money for consumption or income-generating activities.
Having said the above, the recent retreat in the US stock market, which has reverberated across Asia, should be viewed with concern not because of any direct impact it has on the Philippine economy and its job- and income-generating capacity. But because an erosion of consumer confidence in the world’s largest economy would take its toll in terms of spending on all things the US imports, including the
Philippines’ digital signal processors, wiring harnesses, garments, and electronics components among other items that find their way on the shelves of Wal-Marts and Sears stores across America.
Of course, a feeling that they are worse off than before would cause Americans, including Fil-Americans, to cut back on non-essential expenditures, which include that nice vacation lodge along the Batangas coastline or on a hilltop in scenic Tagaytay.
Its not just about sustaining confidence in the Philippines, but also keeping foreigners’ and overseas Filipinos’ confidence in their future economic condition. And that is one important reason why we should prevent the revelry from deluding us into complacency. Our neighbor’s woes may yet befall us.
