Challenges and Opportunities in the Philippine Real Estate Industry
Address of Sen. Ferdinand R. Marcos, Jr.
51st National Convention
Philippine Association of Real Estate Boards
Cebu City 7 October 2011
It’s an honor and a pleasure for me to join you here in Cebu City for this 51st National Convention and elections of the Philippine Association of Real Estate Boards.
I would like to spend my time with you here today to take a snapshot of the challenges and opportunities facing us in the housing sector today.
At the same time, I will brief you on our work at the Senate and the Senate Committee on Housing and Urban Development, and what we are doing with respect to policy-making in addressing the major challenges in our housing sector.
If you live and work in Metro Manila and the major urban centers of our country, no citizen or visitor can fail to note the frenetic pace of construction and development now going on all around us. Something is happening that was not there a decade ago.
In our national capital especially, widespread construction and property development is rapidly transforming Metro Manila into a world-class metropolis. What all of us used to lament when we go abroad – the comparative backwardness of our capital as compared to other cities in the world – is slowly but surely being changed.
The following are the key positive developments that is driving growth and optimism in the real estate industry today.
First, the industry is now firmly recovering from the ill effects of the1997 Asian financial crisis, which as we all know drove our real estate sector into the shallows, and in other Asian countries shattered the bubble in this sector. The current property boom looks vey real and solid; it looks like we are in for a prolonged period of growth – unless the threat of a global depression totally brings everything down to earth.
Second, the residential sector of your industry is showing remarkable year-on-year growth, in terms of the number of development projects and sales. This growth is being fueled by the steady rise of the Philippine economy over the past few years, and the great interest of our overseas workers in acquiring homes for themselves and their families. A growing expatriate population in the country is also contributing.
Third, the commercial/office sector is likewise experiencing vigorous growth. The surge in number of Business Process Outsourcing (BPO) companies that are setting up shop in the country is fuelling this growth. The employment and income boom generated by these companies is in turn fuelling a consumer boom that has resulted in the speedier take-up of commercial spaces. SM and other mall developers have never half it so good.
Fourth, on the finance end, the Bangko Sentral ng Pilipinas reports that the exposure of banks to the real estate sector, particularly in the form of loans extended for property acquisition and investment s in property securities issued, has been steadily rising. The total exposure of commercial and thrift banks to the real estate sector is now 470 billion these developments indicate that the Philippine real estate industry is on a growth trajectory that many expect to be sustained in the short-to-medium term.
Many are hopeful, and I count myself among them, that our country will emerge from all this frenetic building as a better place to live in. I personally hope that in this way, manila will reclaim its old eminence as one of the great cities the world.
Prospects of other urban centers
As I was extolling the dynamic changes in Metro Manila today, some you no doubt wondered whether the property boom will reach the other urban centers and regions of the country as well.
If the growth momentum is sustained, there is no question that it will spread and be sustained. But it’s a very big if – because as you know the growth figures from the first year of the Aquino administration have not impressive.
Under spending and parsimony have been the hallmark of the administration’s economic policy and philosophy. This has resulted in the contraction of the Gross Domestic Product (GDP) to just a little over 3 percent. Infrastructure, from lack of projects was starved of funds. And this lack of government spending swelled the ranks of the unemployed among us.
The much-touted Public-Private Partnership program of the government has not taken off. Not a single project has been approved or bided out so far. And yet the country is looking to the PPP as the vehicle for modernizing the nation’s infrastructure.
As with other industries, infrastructure modernization is indispensable for the growth of the real estate industry. Property projects mushroom in tandem with good infrastructure, because people want their homes to be near their workplaces. And shopping malls would be meaningless without good infrastructure.
The latest word from Malacanang palace is that the government is now accelerating the release of funds in the second semester of the year. This is good. But economists say that it is probably already too late to change the full picture of GDP for this year.
The housing shortage
Although I remarked earlier on the growth of the residential sector of the real estate industry, the fact is that the boom is mainly occurring in the middle-class and high-income segment of the market.
The larger reality is that there is a huge housing shortage in our country. The housing backlog is estimated to reach 5.8million housing units by 2016. In metro manila alone, the total backlog has been projected to number about half a million housing units the housing problem is manifested by the proliferation of slums and informal settlements in our urban areas. Recent government estimates project that a third of our urban populations are slum dwellers.
Government allocates less than 1 percent of the total national budget for the housing sector – which is less than one-tenth of a percent of GDP on the average. This makes Philippine public spending on housing one of the lowest in Asia.
The government has identified housing as a key part of its new Philippine development plan. It sets the following as key objectives:
– Provision of housing infrastructure,
– Integration of basic services, and
– Implementation of appropriate housing/construction standards.
Development of a financing framework for relocation and resettlement of slum dwellers.
The dream of most national leaders is to turn their country into “a nation of homeowners.” But the gap between the dream and its realization is colossal. Even President George W. Bush could not realize it in America. The housing problem resulted in th us government abolishin fanie mae and freddie mac – which is the equivalent of out Pag ibig fund.
At the root of our housing shortage is this basic reality: the majority of Filipino households cannot pay the cost of their housing needs. The minimum housing cost of p150,000 per unit is 3.8 times the yearly wages of an unskilled laborer. A p250,000per unit housing cost would be 3.1 times the annual income of an employee earning p6,700 per month.
The average housing price appreciation in the Philippines is 32 percent per year – the highest in the major cities of Asia.
Compounding the problem is the high cost of land in our urban centers where slum dwellers proliferate.
Likewise, we have failed to develop coherently a strong rental housing market.
Socialized housing is the principal policy and program of the government for meeting the huge housing backlog in our country.
Our efforts to develop long-term financing for housing – in order to offset the high unit cost of housing relative to income – are still not successful. Long-term funds for housing are constrained and highly dependent on government social security systems.
Government housing finance programs have been unsustainable. Sadly, graft has marked the approval and release of loans to the low-income sector.
Creation of Housing Department
The need to address the huge housing shortage, and the perennial inability of our low-income households to pay for the cost of housing is the principal reason why we are discussing in congress today the proposal for the establishment of a new department of housing and urban development. It was tagged as the top priority in the Ledac meeting called by President Aquino several months ago.
The creation of such a department will naturally call to mind for many the ministry of human settlements, which sought to creates with a holistic approach to housing and urban development. Along with addressing the need for shelter, it envisioned the provision of basic services.
As everyone will recall. The Human Settlements Department was among the first national agencies abolished in 1986. In its place was created the Housing and Urban Development Coordinating Council (HUDCC), which became a mere coordinating agency, without executive powers and no implementing responsibilities.
I wish we could say that the housing agency, strategy and program of the government progressively became better and more effective in the last two decades.
But it has not. The core agencies are weaker and less effective. While Pag-ibig has commendably survived and become a veritable social-security system for housing, it is today not lending very much for housing. Many developers and prospective homeowners turn to the commercial and thrift banks for financing socialized housing projects.
Comprehensive Housing Policy
In deliberating on the creation of the new housing department, I believe congress and the nation should see this as an opportunity to develop a comprehensive policy and strategy for meeting the housing needs of our people.
The end result should be a housing department that can tackle the housing challenge head on, and make a significant dent on the problem.
We should shape a housing policy that is realistic, implementable and sustainable. Declaring that we want our country to become a “a nation of homeowners” may sound very enticing. But it’s an unrealistic and unaffordable dream – for now.
The equally huge need for rented housing – which is the best option for millions of our countrymen. We should aim to build a strong housing sector which offers homes at affordable rents and decent rights for tenants.
Finally, our housing policy and strategy must address the improvement of our slum communities and the problem of homelessness in our society. Our collective vision of a better country to live in will be empty if it did not include within its scope the slum dweller and the homeless.
I started my remarks by saying that we are witnessing today strong recovery and growth in the real estate industry in our country.
Key sectors of your industry are experiencing a boon with Metro Manila in the lead. Slowly, this boon is spreading toward other urban centers across the archipelago.
The boon has not banished the huge housing backlog from our society. The shortage still runs into the millions, and it will take many years before the gap can be fully filled.
Socialized housing as the principal government response to the housing needs of low-income groups is still not quite successful. It cannot measure up to the demand.
The creation of a new department of housing and urban development is a priority goal of the Aquino administration today
Problems and challenges underpin the positive developments in the property sector today. They pose an additional challenge to the creativity and enterprise of policymakers and serious men of industry.
The prospects for the future are bright, alongside the better prospects of the nation today.
Let me in closing leave with you these words from the theologian and author Peter Kuzmic, who defined hope and faith in this way.
“hope is the ability to hear the music of the future.
Faith is the courage to dance to it today.”
Ladies and gentlemen, I suggest to you that in your industry, this is the time to listen and to dance.
Thank you and good day.