Property development has been an important sector of the economy and anchor of economic growth for at least a decade or more. The primary driver of this growth is the vast housing backlog. There are portions of every major city in the Philippines that were built in the wake of the destruction from World War 2. You might see a modern apartment building or even a condominium surrounded by houses that could not pass basic safety and sanitation inspection if built today.
The property sector is a critical and crucial part, and an important indicator, of a nation’s healthy economic growth on many levels. Upward economic mobility and an increasing middle class are illustrated by people being able to afford better housing. People rising from the lower economic groups almost immediately buy better housing as soon as it is financially feasible.
Growth in the property sector and better affordable housing also move people from the urban areas to the “suburbs” because of lower construction costs. This helps reduce big city congestion and forces national and local governments to provide better infrastructure to service these new growth areas.
We can see the growth with our own eyes. The Pacific Star Building, completed in 1989, reigned supreme with 29 stories. The Petron Megaplaza, located a block away from the Pacific Star, took the title of tallest building in 1998. Now, the Grand Hyatt Manila in Taguig City towers over the nation at 66 stories.
However, the Covid-19 pandemic has had a dramatic and substantial impact on the global property business. Companies that have instituted long-term plans for work-from-home models are having a great effect on office rentals and prices. From the Wall Street Journal: “Manhattan Offices Are Nearly Empty, Threatening New York City’s Recovery. About 1 in 10 office workers have returned since Covid-19 hit, far fewer than elsewhere, hurting local businesses.”
If you do not have to report to work in the city, you may move out of town to better and cheaper housing. According to real-estate analytics company Zumper, the exodus out of San Francisco has been so great that the median rent for a one-bedroom apartment collapsed more than 20 percent in September from a year ago.
The conventional wisdom is that the Philippines is going to experience the same property sector problems. “Suffering continues for property sector: An international property consulting firm is advising property owners and developers to convert and repurpose their assets to survive.” And “PHL property sector takes hit from Covid-19 pandemic.” Some suggestions for repurposing make sense, like converting vacant mall spaces into micro-warehouses.
“Pogo exodus seen emptying more than a tenth of Metro Manila offices, condo units.” April 9, 2020: “The Philippines’ real-estate sector expects to see a sharp decline in sales in the short to medium term.”
But conventional wisdom is often—very often—wrong. Now the headlines read: “Houses and lots join condos to trigger record surge in property costs.”
Developers we talk to say buying activities of overseas Filipinos have surged. Domestic buyers are paying for reservations until banks decide to start processing loan applications. Construction would be going full speed if Covid restrictions would not keep their employees from working.
This headline probably sums up best the situation in the property sector: “Strong investor confidence in resilient property sector.”