Demand seen as limitless

DEMAND for residential and commercial property in the Philippine market should far outstrip supply in the foreseeable future, so investment opportunities look 'exceptionally bright', Matthew Sutherland, research director with Asia Equity, says.

Describing the Philippine economy as one of the best performing and managed in the region, with an overall growth rate of 6.5 per cent, Mr Sutherland said foreign investors were arriving 'in droves' to take advantage of the favourable economic climate.

He said property was one of the best performing sectors in the economy.

A couple of years ago, some luxury residential properties in metro Manila had sold for 557 pesos (about HK$164) per square foot.

Recently the price had jumped to 1,486 pesos per sq ft, and there even were some deals at 1,600-1,850 pesos per sq ft, he said.

Three years ago, in the financial district of Makati, lots were selling for 60,000 pesos. In the last couple of years, prices had skyrocketed to 80,000 and 120,000 pesos.

Today, similar plots of land were fetching from 160,000 to 200,000 pesos for sea front properties, said Mr Sutherland, The main factor was the lack of quality housing, particularly in condominiums, he said.

Some of that need was being met by domestically-listed developers, who often included luxury residential units with golf course developments.

However, according to Asia Equity figures, there could be an oversupply within two years.

Asia Equity says condominium supply is expected to be 48.5 million sq ft this year, with an anticipated vacancy rate of 12.5 per cent.

By 1997, space will have reached almost 69.9 million sq ft with estimated vacancy at 20 per cent.

The markets for low and medium cost housing, according to Mr Sutherland would 'appear to be almost infinite'.

According to Asia Equity's figures, the biggest single income group in the country (68 per cent of the population) earn only enough to afford the socialised form of housing that costs 150,000 pesos or less.

Six per cent can afford low-cost type housing (at 350,000 pesos) and only 4.3 per cent can afford housing above at 500,000 pesos.

Assuming these figures hold true (people generally don't spend more than one-third of their income on housing), there is another 20 per cent of the population which cannot afford any housing at all.

Asia Equity calls this 'quite scary.' Private investment in the Philippine property market was given a further boost, said the analyst, because the government was hoping to supply 1.2 million housing units during the next four years.

So far the government has only been able to supply 150,000 units a year, leaving private developers with a huge opportunity to fill the gap.

With demand said to be 3.5 million units, and increasing by 500,000 units per year, 'the government's plan to build 1.2 million units leaves a lot of development work for the private sector,' says Asian Equity in its review of the property market.

Turning to the office sector, Asian Equity said that despite significant new capacity coming on the market, there was less than a 10 per cent vacancy rate, and the situation was not expected to improve in the near future.

Developers keen on becoming involved in the Grade A office market will also find that most businesses are keen to move out of their antiquated and inefficient buildings.

Asia Equity said: 'The construction costs, land prices relative to sale prices as well as rental yields, make this an easy game for developers.

'We are forecasting that land prices will continue to grow at between 25 and 50 per cent per annum for the next couple of years, and that rentals will continue to grow at 15 per cent per annum.' But it says there is a strong chance of over-development with the second phase of Makati and the Fort Bonifacio projects adding substantially to the office supply.