Is the Philippine real estate industry in a bubble?


shutterstock_164970755

The Philippine economy and the property sector have seen tremendous growth, prompting people to wonder if this indicates a real estate bubble. As Investopedia explains, housing bubbles occur when demand rises in the face of limited supply, attracting speculators who quickly buy and sell properties to get a quick profit. At one point, supply increases to keep up with the hot trend, but by this time the demand begins to taper off or stagnate. The prices sharply drop, and the bubble bursts.

A bubble is premised on an “artificial” rise in prices, brought about by two things: speculation and very low loan rates. The properties are not actually used or developed, but passed on for profit, gaining price with each exchange. The low loan rates also attract buyers who cannot ordinarily afford the property, and may be vulnerable to any shift in the economy. These factors create a situation that bloats property beyond any sustainable value.

Bubble vs. healthy growth

Experts say that this is not what is happening in the Philippines. Bubbles exist and then burst when there is a very big disproportion between supply and demand. When demand exceeds supply, prices peak; when the demand drops, the prices drop with it.

A bubble is premised on an “artificial” rise in prices, brought about by two things: speculation and very low loan rates.

 

The Philippine economy and property market is experiencing healthy, realistic growth.

The prices are not bloated; in fact, the rates in the Philippines are considerably lower than equivalent properties in Thailand and Malaysia. Bangko Central has also done an admirable job of curbing the prices. Loan rates are low, but at 7 percent, they are not so cheap that people would indulge in property speculation. In fact, most buyers are looking for home or business space.

From the experts

In an interview with the Foreign Correspondents Association of the Philippines, Bangko Central Governor Amando Tetangco Jr. said, “The demand for property assets reflects higher incomes among BPO workers, Filipinos abroad and the growing numbers of young professionals.”

He added that the “changing lifestyle of these workers has led to an increase in requirements for housing near the workplace during the week as they go home to the province only on weekends.”

Megaworld Corporation has recently infused billions on its latest township project, Uptown Bonifacio, and the units are attracting several segments of the market.

 

Tetangco summarized that with sales driven by real demand from OFWS, expatriates and BPOs, it was “a remote possibility” that a bubble would form and prices would collapse.

Areas of growth

There are also no indications of possible stagnation or overdemand. Areas outside Manila and the city proper are being developed, and even crowded cities like Makati and Taguig have new areas of growth, such as Bonifacio Global City. Megaworld Corporation has recently infused billions on its latest township project, Uptown Bonifacio, and the units are attracting several segments of the market–young families, yuppies, OFWs, expats–not speculators.

In a separate interview, Jules Kay of Property Report said that growth will ultimately be affected by “quality, design and architecture, especially for high-end developments.” Premium locations are quite bullish. Investment expert and fund manager Marvin Fausto also assures buyers that condo reservation sales are going strong with double digit growth.

Philippine Star business columnist Babe Romualdez says in his piece Betting on Real Estate: “Despite warnings about a real estate bubble issued by an economist, the Philippines is considered a very good market as underscored by the recent PricewaterhouseCoopers report that ranked Metro Manila as the fourth most attractive real estate market in the Asia Pacific region up from its previous eighth place ranking. Aside from the business process outsourcing sector that has driven demand for office space, continued strong inflows from OFWs has contributed to the upbeat sentiment in the residential market, with property investors looking at Metro Manila as a preferred investment destination.”

Author: Megaworld at the Fort

Google+:

Megaworld is the country’s leading residential condominium developer and pioneer of the LIVE-WORK-PLAY-LEARN-SHOP township concept.


One comment on “Is the Philippine real estate industry in a bubble?

Post a Comment

Your email address will not be published. Required fields are marked *