Interview: Jose E B Antonio
To what extent is the Covid-19-induced recession impacting real estate supply and demand?
JOSE E B ANTONIO: The playbook of the current crisis is different because we cannot answer the fundamental question: when will it be over? We can only analyse the important moving parts in the economic formula: demand, supply and psychology. Uncertainty affects supply, as manufacturers may scale back if they lack the confidence it will all be sold. However, psychology is the most important, as it determines the propensity for demand.
Around 40m Filipinos are affected by unemployment – following an estimated 10m job losses, combined with an average of three to four dependants per middle-class employee. It remains to be seen how this will affect demand, and whether consumers will prioritise real estate investment over other alternatives. After 48 quarters of continuous growth, the business community has confidence in the Philippines’ ability to recover, and real estate companies generally have strong balance sheets. However, if the crisis lasts for another year, real estate demand could be at risk.
In terms of supply, bringing back the labour force is challenging. Contract employees are a weak link in the chain, and companies had to find high-cost solutions after they reduced their workforce in the earlier stages of the pandemic. Supply chain disruptions in other countries can also be problematic for importing construction goods – particularly for small companies without a strong supplier network. There is enough supply for 2020, but we could feel repercussions in 2021.
What can be done to tackle the estimated affordable housing backlog of 5.7m units?
ANTONIO: The government has been taking steps to address this: bank interest rates for developers have been reduced from an average of 6.5% to 4%, and potential buyers can access lower-interest housing loans through the government’s Pag-IBIG Fund. Whether people have sufficient resources to afford property given the rise in unemployment is a common concern, but as of the third quarter of 2020 the middle-income market had not experienced a decline in sales. Rather, priorities have changed: housing now receives a greater share of the household budget.
Will the pandemic change real estate demand?
ANTONIO: Before the pandemic, provinces around Metro Manila were registering significant growth because land in the capital is scarce or expensive. Moreover, the transport network has improved, enabling people to live outside Metro Manila and work in the city centre – or work from home online. This is a positive trend for developers seeking to diversify their portfolio given the high land prices in Metro Manila.
Demand for housing is driven by opportunity: people buy property where they have professional development opportunities, and these have been emerging in areas outside the capital. For example, the government is expediting construction of the 65-km Philippine National Railway road between New Clark City in Pampanga and Malolos in Bulacan, where the government aims to develop a new business centre. If successful, people will be able to live in either Clark or Manila and commute to Bulacan. As this demonstrates, infrastructure development is relevant not only for housing, but also for broader economic opportunities.
How can real estate leverage digital technology?
ANTONIO: Digitalisation is relevant for most key sales processes: from presenting projects to turning over units, the steps can be completed digitally and without contact. The process starts with agents, who no longer need to meet with clients. For overseas workers, it is even easier: buyers can complete the entire process online, from seeing the property and surroundings, to finalising the paperwork and financing. Local firms have been quick to adopt digital tools; however, they are ultimately just tools. Business depends on the product.
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