Bernardo M. Villegas
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Boom, Bubble or Simply Bust

           I received a very insightful email from a Fil-American residing in Hawaii in response to an article I wrote about the possibility of a real estate bubble occurring in some market segments in the residential housing sector of real estate in the Philippines.  Before I quote extensively from his message, let me just summarize my current views about residential housing in the National Capital region, especially in Makati, Mandaluyong, Ortigas, Quezon City and other suburbs of Metro Manila.  After studying the findings of some of my colleagues at the University of Asia  and the Pacific concerning the five segments of residential housing, i.e. socialized housing, economic housing, low-cost housing, mid-level housing and high-end housing, the probability of an oversupply three or five years down the road is high only in the last segment, high-end housing in which the majority of  the buyers are purchasing units for investments or speculation and are not the ones occupying the units when they are built.  This is not the case with the other segments, especially the units selling from one to five million pesos.  The ones buying are those actually occupying the units once built, especially among the families of OFWs, the BPO workers or middle-income families with children studying in the universities in the urban centers of Metro Manila. In contrast, the units that cost P15 million or above are usually for rent.  But  there are just not enough rich Filipinos or expats who can afford to rent these units in the next three to five years.  Because of too much red tape and bureaucracy, Foreign Direct Investments are not pouring into the Philippines at the rate at which you see FDIs into China, Indonesia, Singapore and even Vietnam.  Just witness recently how the Government has been harassing the mining investors with changing and conflicting policies.

          Having said that, I do not expect a bubble as Japan witnessed in the 1990s, Thailand in the financial crisis of 1997, and the U.S. and Spain during the Great Recession.  The buyers of the expensive units are not highly leveraged.  In fact, there was a recent report that bank lending to real estate is still below the maximum limit.  What we will see is a slow down three years from now (call it a bust) as developers realize that they have overbuilt and postpone further expansion projects, especially in the Metro Manila area.  I don't see a similar bust in such urban areas as Cebu and Davao.  Developers are just beginning their feverish construction activities in these secondary cities. 

          Now, let me quote from J.J. Reyes of American Institutes located in Hawaii:  "At the request of a client, our Hawaii real estate company, Global Executive Realty, LLC did a study on the Metro Manila high-rise condominium market.  The lack of data bases similar to the Multiple Listing Services in most U.S. markets made the task rather challenging.  Still, we were able to conclude that there is already a real estate bubble by comparing the advertised developer prices to asking prices in the secondary market.  The bubble is lasting longer than we expected.  One possible reason is overseas Filipino buyers are delaying the burst.  They are dependent on information from sales representatives offering 'free' seminars in communities with a large Filipino population.  An additional inducement is installment payment, which we calculate to be as high as 13% financing."

          Mr. Reyes is more bullish about what he calls Continuing Care Retirement Communities (CCRCs).  He is actually visiting Manila from October 11 to 22 to brief property developers about prospects for CCRCs.  These are his projections:

          1.  CCRCs can be built away from Metro Manila and Metro Cebu because retiree residents are no longer dependent on proximity to places of employment.

          2.  The entrance fee or deposit is sufficiently large to pay for development, but residents do not receive title to the property.  This solves the issue of foreign ownership and eventual sale.

          3.  The healthcare component is labor intensive, which is good for the Philippine economy.

He estimates that there are more than 2,000 CCRCs in the United States. This will be the growth area in real estate once construction financing becomes available for large projects. Mr. J.J. Reyes may be contacted at email address

          Hard economic data about the various sectors of real estate will be presented in a one-afternoon seminar at the University of Asia and the Pacific scheduled for October 23, 2012 from 1:30 to 5:00 p.m.  The seminar is provocatively entitled "Is a bubble in the Philippine Real Estate Sector Developing?"  Information about real estate will be shared by the leaders of the industry.  Mr. David Leechiu, Country Head of Jones Lang LaSalle Leechiu, will talk about "Demand for Office Buildings".  I expect him to continue to be bullish because of the phenomenal growth of the BPO and KPO sectors.  It would be interesting to forecast the supply and demand situation in Metro Manila and Cebu and other less familiar cities like Dumaguete, Iloilo, and Tacloban.  There will be a paper on employee housing that presents the potentials especially among the workers of manufacturing enterprises in the various PEZAs around urbanizing areas in the CALABARZON and Central Luzon areas.   Dr Roberto de Vera, regional planning economist of UA&P, will present a geoconomic map of Metro Manila, showing the various real estate projects now being developed and what the NCR region would look like in the coming years when these projects are completed.  Mr. Isidro Consunji, President of DMCI Homes, one of the most active companies in mid-level housing, will talk about the projects of his company now and in the coming years.  Dr. Winston Padojinog, the real estate economist of UA&P, will present the findings of his study on the demand and supply in each of the market segments of the Philippine real estate sector. 

          Those interested in attending the conference may get in touch with the Business Economics Club of the University of Asia and the Pacific at 631-1305 or 637-0912 loc. 335, 309, 374 and 251.  For comments, my email address is