Falling OFW remittances, rising unemployment to push down property prices in Philippines by 15 per cent

The residential property market in the Philippines has been severely hit by the Covid-19 outbreak.

Home prices in the Philippines are likely to decline by up to 15 per cent after more than two decades of uninterrupted growth as a slowing economy due to the Covid-19 outbreak weighs on demand, with affordable and mid-income housing seen as the most vulnerable segments.

The twin blow of rising unemployment locally and job losses among Overseas Filipino Workers, and a slowdown in investment and hiring by Chinese-operated online gaming companies, known as Philippine Offshore Gaming Operators (Pogo), is likely to drag home prices lower this year, according to property consultancy Colliers.

“The last time we saw this level of correction was during the Asian financial crisis, in 1998 [and] 1999,” said Joey Bondoc, senior research manager for Philippines at Colliers. “This is probably worse than the global financial crisis, but not as bad as the Asian crisis, as the financial system is strong and interest rates are as low as they have ever been.”

Remittances from overseas Filipino workers, who drive the demand for affordable and mid-income housing units that are priced between 1.7 million pesos (US$34,000) and 5.9 million pesos, are expected to drop by as much as US$6 billion this year as thousands of OFWs are likely to lose their jobs amid the deep global recession.

The Philippine economy contracted by 0.3 per cent in the first quarter, a 22-year low. The outlook for the rest of the year also looks bleak. Ratings agency Fitch expects the economy to contract by 1 per cent in 2020, noting that the forecast “is uncertain and subject to considerable downside risks depending on how the virus runs its course globally and domestically”.

In 2019, mainland Chinese buyers, including Pogos, accounted for between 20 per cent and 40 per cent of sales of developers Megaworld Corporation, SM Development Corporation (SMDC), and Primary Homes.

“Without new Pogo employees and investors that will buy or lease out completed condominium units, we are likely to see an increase in vacancy in the secondary residential market which covers condominium units completed and turned over to unit owners,” Bondoc said. “We also need to closely observe key economic indicators such as unemployment and OFW remittances.”

Pogo employees and investors typically lease out completed flats, but given travel restrictions and paused expansion plans, vacancy in the secondary residential market is likely to rise from 11 per cent in 2019 to 15.5 per cent this year, said Colliers.

Meanwhile, the number of completed flats in Luzon, where the capital Manila is located, this year is expected to fall by more than 20 per cent to 11,000 from the previous estimate of 14,000 as the lockdown since March 16 has brought construction work to a halt.

The extension of the lockdown in Metro Manila to May 31 is likely to further slow down the completion of residential projects.

“The weaker business sentiment and the lay-offs and repatriation of overseas Filipinos are projected to impact real estate activity in short to medium-term,” said Janlo de los Reyes, JLL’s head of research and consultancy in the Philippines. “We have already observed a slower take-up of newly launched projects as prospective buyers evaluate their financial position and delay big-ticket purchases.”

Local village volunteers stand guard at a checkpoint of a residential area in Manila, Philippines, to prevent the spread of coronavirus. Photo: EPA-EFE

However, Ayala Land and SMDC, two of the largest developers in the Philippines, remain bullish.

In Hong Kong, Ayala Land saw an annual 6 per cent rise in sales in the first quarter, with units priced at an average of 4.5 million pesos accounting for most of its sales, according to Marites Bancod, country manager for Ayalaland International Marketing (Hong Kong). Hongkongers made up 81 per cent of its buyers.

“We saw a slight decrease in sales from the overseas Filipino market purchasing our affordable housing products,” she said. “However, Filipino professionals catered by our mid-market and high-end brands are still purchasing and taking advantage of the different promotions being offered.”

A spokesman for SMDC said the company expects to see strong demand from domestic and overseas buyers.

“Price growth and sales volumes may slightly move more slowly, but we are confident that we will recover quickly,” he said.

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