Bernardo M. Villegas
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Real Estate Scenarios During Pandemic (Part 1-3)

          From the beginning of mankind, the three basic necessities of human beings have always been listed as Food, Shelter and Clothing.  If we relate shelter to the real estate sector, one can  assert that even in the midst of the ongoing pandemic and especially after it is put under reasonable control (say, two years from now), real estate is and will continue to be a good investment at all economic levels of society.  For the households that have monthly incomes ranging from Php 20,000 to P70,000 (classified as low-middle income and middle-middle income by economists from the Philippine Institute of Development Studies ) there is effective demand for low-cost and economic housing units that can range from P800,000 to P5 million per unit.  These households constitute 36 per cent of all households which in 2020 are estimated to number about 22 million.  Thus, there are about 8 million households which are actual owners or potential buyers of low-cost and economic housing.  Studies done by housing economist Dr. Stan Padojinog estimate that about 5.7M of these households still do not own their own housing units.  This is the existing unfilled demand for socialized (4.8M households for housing price range between Php 480,000 to P750,000), economic (.304M households for price range of Php 750,001 to P1.75Million) and low-cost (.602M households for price range of Php 1.75M to P3.0M) housing.  Many of these households depend to a great extent on the foreign exchange remittances that they receive from their relatives who are OFWs.  Even with the 600,000 displaced OFWs who have returned because of the pandemic, there continue to be close to 10 million abroad who are expected to send some US $30 billion of remittances (down from US $34 in 2019) in 2020.  That is why there continues to be a strong demand for low-cost and economic housing during the pandemic.  OFW remittances are expected to bounce back quickly (V-shape recovery) after the pandemic is put under control world wide.  Thus there will be sufficient incomes for many households in this category to satisfy their demand for low-cost and economic housing for some time to come.  What is more, the Philippine population continues to grow at 1.4 percent annually, adding to  housing demand.

         A separate market related to housing is the demand for all types of construction materials as those sold in home depots and similar stores for owner-driven construction.  In a full blown study done by Dr. Padojinog for Habitat for Humanity entitled “Clearing the Backlog:  An Updated Study of the Supply and Demand on ODC Segment,”  valuable insights for both government and private business were provided about Owner-Driven Construction (ODC), defined as that housing segment characterized by (1) security of land tenure; (2) daily income ranging from a maximum annual income of Php 90,000 to Php 270,000 (more or less equivalent to the classification of low-middle income in the PIDS classification mentioned above); (3) ownership of a residence which may start as a ”temporary” housing unit but in which they are willing to invest  and upgrade; and (4) usually rural or peri-urban location.  In the study, the following terms used were defined as follows.  “Unserved market” refers to those who cannot afford to purchase units in the open market because of limited access to information  and/or lack of purchasing  power to qualify for and access available financing offered by government housing finance institutions such as the Home Development Mutual Fund (HDMF), the Socialized Housing Finance Corporation (SHFC), and other private financing  institutions such as commercial, rural and consumer banks.


         The categories of housing units based on current market prices are as follows:  1) Socialized housing:  price ranges from Php 480,000 to Php 750,000; 2) Economic housing: price ranges from Php 750,000 to Php 1.75 million; 3) Low-cost housing:  price ranges between Php 1.75 million and Php 3.00 million;  4) Middle-cost housing:  price ranges between Php 3.0 million and Php 6.0 million; 5) Upper-class housing:  price ranges from Php 6.00 million and above.  The study revealed that a significant size of households in the Philippines currently cannot participate in any housing finance program because their earnings cannot meet the thresholds normally required by p public and private finance institutions for housing loans.  As of 2018 the unserved segment is estimated to be close to 5.6 million households.   Most of the demand for housing is concentrated in the socialized and economic housing segments.  Although many of these households can comply with the housing finance requirements to purchase housing units on credit, these units are not available in the market.  If we combine the unserved segment and the special and economic segments, the total would be 11.3 million households, which account for close to half of the total 22.7 million households estimated in 2015.  The backlogs are nationwide, occurring throughout the different regions. The combined total is close to the 2015 census estimates on the types of house ownership which revealed that around 45 percent of all Philippine household do not “own or have owner owner-like possession of properties. 


         Government housing policy does not directly address the unserved segment nor the backlog.  There is exclusive reliance on direct housing production through the National Housing Authority (NHA) and some LGU-based projects to cater to specific beneficiaries and on in-house financing programs such as SHFC, CMP, and HDMF, among others, or through balanced housing schemes and fiscal incentives  extended to private developers.  Given the huge backlogs, it is clear that the response and performance of both the public and private sectors to the housing problem are highly inadequate. Private sector response to market opportunities and to public policy in housing has failed to address the primary sources of the backlog, which is concentrated in the socialized and economic housing segments.  Housing production capacity has not only failed to increase, but construction resources have also been diverted to higher-end segments where margins tend to be higher, and to other non-housing projects such as the Government’s Build, Build, Build program as well as the private sectors’ commercial offices, retail spaces and industrial projects.   To be continued.  



Real Estate Scenarios During Pandemic (Part 2)

October 23, 2020


         A  study done for the Habitat for Humanity by the Centre for Research and Communication (CRC)  showed that among the 5.6 million households belonging to the unserved market, about 55 per cent or 3.1 million households meet the profile of owner-driven construction (ODC) segments.  They enjoy property rights and have incomes that are below thresholds of lending terms set by financial institutions.   According to the study, these households are concentrated in regions,  provinces and cities where housing affordability remains an issue.  The two complementary segments—the unserved segment and the ODCs—are outside the purview of government policy as well as private sector initiatives.  For ODCs, the possession of a valuable asset like real estate property provides the security and the opportunity for these households to improve their plight, given their limited purchasing power, as long as they can be provided with some form of direct assistance and support.  Based on preliminary studies of Habitat for Humanity in the Philippines, the typical abode of an ODC remains a multi-dwelling facility that lacks important access to basic necessities such as telecommunications and internet, is unable to withstand the effects of severe climate change and natural calamities and, with the COVID-19 pandemic cannot meet the required design to facilitate physical distancing and isolation if one or more members of the family are infected by the virus. 

         The study opened the eyes of both public policy makers as well as private investors to the opportunities provided by the sheer size of the ODC market and its concentration in some areas which can provide the necessary economies of scale, magnify the opportunities as well as the positive impact for stakeholders —government , business and civil society—who can address the needs of the ODC segment of the housing market.  Concentrating sources and efforts on a large and focused segment such as the ODC can lower costs and magnify the multiplier effects.  It is estimated that the construction cost of the ODC segment made up of 3.1 million households is at least Php 641billion. Unfortunately, budget constraints limit this market as the latest (2015) survey results indicate that this estimated segment can afford to allocate only Php 6.7 billion of their households income  to housing development.


         As I discussed in this column in an article entitled  “Build, Build, Build for Housing”  some months ago. it is wise for government housing agencies to relocate informal settlers in medium-rise buildings (MRBs) in urban centers.  These MRBs can be constructed as Public Private Partnership projects which are heavily subsidised.  For example,  a Local Government Unit can contribute land that it owns in the middle of urban centers and a real estate developer can invest in the construction of the MRBs.  An example of this is the Bistikville housing project which was a partnership between the Quezon City Government and the PHINMA Properties.  A similar project was put up in Cavite and was called Strikeville.  Since households among informal settlers earn less than Php200,000 annually, it is more prudent to have the units in these MRBs rented out rather than owned since these informal settlers do not  have the financial wherewithal to amortise payments needed to own the property, no matter how low the interest rate  charged may be.  What will have to be developed is a good estate management system for these projects so that they do not deteriorate though inappropriate practices that may be common among lower-income households. It also gives leeway for families at this level to eventually move to better quality housing units as their incomes improve.  The units in which they used to reside can then  be rented out to other informal settlers lower in the income ladder.


   For the more expensive units, detached or condominium, the market is made up of those households earning about P70,000 to P120,000 monthly.  These belong to the upper-middle income households which constitute 4 percent of the total households or a total of about 4.4 million households.  There are no estimates of how many of these households are actually homeowners.  They have sufficient incomes to be able to acquire their own homes or to invest in the more expensive units to rent them out.  The demand for these units is expected to slow down because a good number of the heads of these households have suffered from business failures or from being laid off in such sectors as travel and tourism, retailing, media and entertainment and other sectors hard hit by the pandemic.  I expect the market for expensive housing units (P10 million or more) to weaken during the pandemic and about two years after the pandemic.    One exception I perceive is the strong market for condominium units among parents who have children studying in universities like De La Salle, Ateneo, UST, and UP who want to provide their children with dormitories physically close to their campuses. The demand for these alternative homes for the children of the well-to-do will continue even if blended learning will be part of the new normal.  These units are always a good investment because there will always be upper middle income families with students in these universities.  There is also the demand from workers in the BPO-IT sector that will definitely benefit from the expansion of digitalization and e-commerce worldwide and domestically. Even during the pandemic, some of the BPO-IT companies were expanding.  A good number of them were very creative in preventing a significant slowdown in their business by housing their workers in the empty hotels close to their sites. 


         Also partly exempted from the general slowdown of demand for high-priced condominium or detached housing units are those that are part of an integrated community approach to urban living.  With limited public transportation and limited mobility during the many lockdowns occasioned by the pandemic, upper middle-income households may be attracted to these integrated housing communities that are being put up in the emerging metropolitan areas close to the Metro Manila area, such as in the provinces of Cavite, Rizal, Batangas and Laguna; the so-called Pampanga Triangle made up of Angeles, San Fernando and the Clark-Subic complex; Metro Iloilo; Metro Davao and Metro Cagayan de Oro.  Leading real estate developers are investing in integrated communities in these emerging metropolitan areas and actively marketing their products to the families being started by the millennials and the centennials.  These integrated communities have the attraction of the housing units being located within walking or biking distance from schools, offices, supermarkets, churches and other public amenities.  The pandemic, whose virus is expected to linger in the environment for a long time to come even when the vaccine is discovered and widely distributed, will lead to a permanent change towards a preference for  having home integrated within a community that requires the least physical movement from place to place.



Real Estate Scenarios During Pandemic (Part 3)


October 30, 2020


At this juncture, I would like to refer to a detailed report from the country’s top real estate adviser, David Leechiu (who I am proud to say was one of our first students  when the University of Asia and the Pacific was  just a fledgling College of Arts and Sciences in the late 1980s). David is the founder of Leechiu Property Consultant.  He projects that the BPO sector will resurge in 2021 because by then both the USA—our biggest market—and the Philippines would have adapted to a new normal.  According to him even in the height of the pandemic this year, one of the biggest brands clients gave his firm a requirement of 4,000 seats to be concluded before September 2020.  Such a demand would imply space of anywhere from 20,000 to 30,000 square meters. He confirms my view that as the developed world struggles to recover from the Great Depression, many of the large corporations will be compelled to offshore even more jobs to countries like India and the Philippines.  An encouraging detail is that despite some BPO offices not been used during the strictest periods of the lockdowns, 95 percent of rents were still being collected.  Most office landlord gave rent deferment only while a few gave rent discounts and fewer still partial waiver. 


         On the negative side, David estimates that more than half of restaurants will not survive, especially those outside malls. This will lead to a decline in the ground floor rents. The bright side, though, is that this will open up more opportunities for other brands to emerge and other players who could not get space before the pandemic.  In his opinion, the lower-middle income consumers will repopulate the malls while the middle-middle income and high-income ones will resort to online transactions.   I agree that the lower-middle income consumers have little choice in spending their leisure time in more expensive places like mountain or beach resorts.  They use commercial malls as air-conditioned public parks in which they can spend their weekends with their families.  I expect, though, that there will always be need for physical distancing and the wearing of masks and face shields.


         I am getting conflicting feedbacks from real estate executives about the POGO sector.  David Leechiu opines that POGOs will make a big come back as soon as travel  bans are lifted.  He even thinks that there will be an additional market for our POGO operators:  India.  He says that India may come and enter the market this year but it will not be as large as that from China.  My own gut feel is that the impact of the pandemic will be long lasting on the POGO operators and that the slowdown, if not their total disappearance, will have to be part of our contingency planning for the office and residential sectors.  Although there is an expected slowdown in the business of the POGOs, part of the slack in the demand for office space will be filled by the expansion in the BPO-IT sector, especially post-pandemic.  As pointed out by David, as corporations in the US and Europe struggle to recover from the effects of the pandemic, many of them will actually be motivated to outsource more of their customer and business services to countries like India and the Philippines.    This will keep demand alive for office space, especially in new metropolitan areas in the Philippines like Batangas, Central Luzon (especially the so-called Pampanga triangle of San Fernando, Angeles and Clark-Subic), Iloilo , Davao, Cagayan de Oro and even smaller cities like Bacolod, Dumaguete, Puerto Princesa, Laoag and Roxas City which are beginning to attract BPO-IT locators.


         The trend towards working at home that may be continued even after the pandemic will not dampen the demand for office space.  Among other reasons, more space will be needed by those who actually report to the office because of the continuing need for physical distancing.  Also, there are already reports about the toxic effects of working at home which put a lot of pressure on peace and harmony at home.  There are just too many distractions at home, especially since children have to increasingly get used to blended learning even when face to face classroom instruction will already be permitted.  In the United States, there are already reports of  increased domestic violence because of these toxic effects of working at home.  This view is shared by David Leechiu.  In his words:  “Work from Home (WFH) is not sustainable in the Philippines for many reasons:  poor telecom connectivity, too many relatives and, therefore, distractions (domestic violence being a major factor).  It is simply too hot because 70 percent of households do not have roof insulation nor air-conditioning nor access to clean water.  Corporate fraud will accelerate significantly because in work from home there is very little supervision and, therefore, more risk for fraud and corruption across all levels….”


         David presents another reason for a strong recovery of the demand for office space. He calculates that the physical distancing that will be required for a long time to come will actually lead to more demand for office space.  For example, companies with 1,000 workers use 6,000 square meters of office space.  With lockdown only 40 to 50 percent are on site, another 25 percent  work form home (WFH) and the other 25 percent are just on standby because they are unable to work from home.  When lockdown is lifted, many companies will practise physical distancing so they will need 9,000 to 12,000 square meters temporarily as long as  distancing is still required (which could be a long time).  This will create more demand for office space.  He estimates that there are only 34,000 square meters of PEZA space entering the market so that there can be a shortage in this sector.


         As mentioned above, the real estate sector that will experience a significant contraction in  demand will be retailing.  It will take a long time before Filipino consumers will recover their habit of going to malls and dining out in restaurants.  The COVID-19 threat will be around even if a vaccine is discovered and widely distributed.  The same can be said of real estate related to the travel and tourism sector.  Domestic tourism will be the first to recover but domestic tourists will prefer to stay, not in high-end hotels, but in bed and breakfast facilities especially in the major tourism destinations like Palawan, Bohol, Siargao, La Union, Batangas, etc.


         Even in an economy such as the Philippines in which domestic consumption of goods and services is the number one engine of growth, the real estate sector is still a major contributor to both employment and income growth.  Except for the sectors mentioned above that will experience a slowdown and even outright disappearance in the demand for real estate, the Philippine real estate sector will be for the next decade or so an attractive choice for investment by both domestic and foreign investors.  The fundamental reasons for such a bullish outlook for the real estate sector are the young and growing population, the transition of the Philippines from a low-middle income economy to a high-middle income one and the expansion of economic activities away from the National Capital Region to other alternative metropolitan areas that even before the pandemic had already been growing faster in Gross Regional Product than Metro Manila.  For comments, my email address is