THE Philippines’s real-estate sector may suffer from a decline in demand in the near term, according to the World Bank.
In the East Asia Pacific Update, the World Bank said the likely major source of the projected decline was weak overseas Filipino worker (OFW) remittance inflows.
“This source of demand could decrease if a slow global recovery were associated with weak remittance inflows. In addition, in Malaysia, the Philippines and Thailand, prices in high-end markets [such as the luxury market in Manila] are relatively more likely to deviate from fundamentals, and could therefore see some adjustment even in the absence of major external shocks,” the World Bank said.
The World Bank explained that the Philippines, Malaysia and
other countries in the East Asia and the Pacific region have recently experienced sharp increases in real-estate prices. However, the bank explained that while these may have been fueled by high demand, not all these were fueled by stable sources such as income, population growth and employment.
The Philippines’s weak spot in real estate, the bank said, is that about 40 percent of new housing units in the country are financed by OFWs.
“Where housing price growth is mainly driven by rapid credit expansion, for instance linked to loose monetary policy or easily reversed portfolio capital inflows, the economy may be more exposed to the risk of an abrupt downturn,” the bank explained.
The slowdown in the real-estate sector could also affect allied industries such as construction and
building materials.
It can be noted that private consumption continues to drive the country’s economic growth. This was supported by remittances that reached $12.7 billion, or 4.7 percent, of the country’s gross domestic product (GDP) in the January-to-June 2014 period.
Remittance flows account for 10 percent of the Philippines’s annual GDP, while remittances in larger countries like China and Indonesia only account for a percent of GDP.
“Annual remittances are equivalent to half of foreign-exchange reserves in Vietnam and more than 71 percent of reserves in the Philippines,” the World Bank said. “In the Philippines, there is also evidence of significantly higher investment in housing among remittance-receiving households.” But the Washington-based lender was quick to point out that the Philippines’s monetary authorities have been prudent and imposed stricter capital requirements for real-estate lending such as the one implemented in July 2014.
It added that stress tests were also ordered by the Bangko Sentral ng Pilipinas on bank loans extended to the real-estate sector with an assumed 25-percent write-off on sectoral exposures.
In 2013 the World Bank said that while many OFWs and business-process outsourcing firms were buying real-estate properties, they were exposed to external risks such as the slowing global growth, which could impact on real-estate sales in the country. It explained that a low interest rate environment could also lead to relaxed “credit standards and documentary requirements for household real-estate loans” and threaten the sector with defaults.
The bank further said there are findings that the demand for mid- and high-end condominiums “may be overstated” since only 10 percent of the country’s population belong to the middle- and high-income brackets. This could lead to an oversupply in condominiums and falling real-estate prices.
1 comment
That’s exactly a repeat of what the World Bank said in 2008. And records will prove that remittances continued to rise until the present. Also, a big slice of the market for high-end condominiums in Manila are expats and foreigners who are not allowed by the Costitution to own lands in the Phils.