Interview: Joseph Yap
What is the outlook for demand in the residential real estate sector in the coming years?
JOSEPH YAP: In general, the residential real estate market will continue to be very strong given the demographics, population growth and housing backlog of the Philippines. The continued flow of remittances from overseas Filipino workers (OFWs), along with historically low interest rates, are key drivers for the residential real estate sector. The banking system is also very liquid, and many banks are aggressively cultivating their residential mortgage portfolios. As a result, homebuyers are finding it easier to finance their housing purchases. This increased liquidity will continue to give further impetus to the residential property market.
That said, there are many segments within the broader residential market, and it is unlikely that all of the segments will perform equally well. We see the largest potential in the affordable to middle-income housing segments for families. However, there are a number of factors that have raised concerns about the continued performance of other residential market segments. For example, there may be some oversupply in selected areas geared toward the investment market, rather than the more stable end-user market. The Philippines is seeing more luxury developments and high-rise buildings than ever before, but the market for such properties may be limited. Much of the demand for these types of properties may be more speculative and investment-driven. These segments will be the first to be affected should there be an economic slowdown.
Apart from the residential sector, which other markets present opportunities for developers?
YAP: Demand in the businesses process outsourcing (BPO) and office construction sectors continue to be quite strong, and is expected to remain as such over the next few years. While there were some concerns that the global economic slowdown would undercut demand for BPO services in the Philippines, this has proved to be unfounded and demand has actually increased to a point where it now actually outstrips current supply in the market.
Furthermore, the tourism industry is beginning to take off and more developers are interested in getting involved in tourism projects. As the government continues to prioritise growth in the tourism industry, and as more developers realise the potential offered by such projects, activity is anticipated to increase, though the lack of transport infrastructure may slow such developments. To address the problem of inadequate infrastructure, the government is expanding airports and toll roads through public-private partnerships.
Finally, the retail market will remain quite strong as long as remittances from OFWs continue to grow. Growth in this sector is a direct result of consumption and consumer spending fuelled by the remittances of OFWs to their families in the Philippines. While some shopping centres in the country have been overbuilt, and it may sometimes take malls a number of years to reach full occupancy, these commercial centres are popular with the populations in their communities. While there is sufficient demand to keep such projects profitable, development will continue.
Which areas of the country are poised to develop fastest in the coming years?
YAP: More than ever, developers are looking to regional growth centres as they seek to establish themselves in markets outside of Metro Manila and other traditional growth regions. While urban centres including Cebu and Davao continue to see heavy competition and many developments, non-traditional markets like Cagayan del Oro, Iloilo and Zamboanga are also experiencing increased interest. Some developers are even trying out high-rise condominiums in these alternative markets, though such projects remain experimental. Filipinos typically favour individual houses, and to date these high-rise projects have only been successful in the cosmopolitan centres of Manila and Cebu. In the past, such buildings have usually struggled to reach full capacity.
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