A Rookie Broker's Analysis on Real Estate Bubbles

“Your belief defines your reality. People who need homes will get homes. There are now 100 million Filipinos - a majority of which is comprised of a young, educated and skilled workforce" 

Flowers sprung forth in the foot path of a subdivision development I was visiting somewhere in Batangas City. Outside, a gaggle of real estate brokers and salespersons were chatting gregariously with each other. They were “manning” or standing under a huge umbrella or canopy waiting for the proverbial manna from heaven. In their case, those would come in the form of drop by inquiries.

The Flowers of AvidaAvida Settings in Batangas, PhilippinesI found these in the gardens of the houses I'm trying to...
Posted by Free Pictures of Flowers on Thursday, 8 October 2015

On the other hand, some loose talk on real estate bubbles has got some investors worried.

Perhaps the tension may have also rubbed off on some potential buyers. With the economic situation in Australia, Canada and China playing a key role in this, the disparity in ‘beliefs’ and in ‘potentials’ vary across the board. Whether it exists or not, depends solely on how you interpret the numbers and how you act on them. 

Industry insiders are quick to downplay these talks. With demand projection of over 5 million housing units for the next 5 years and production tagged at 500,000 yearly, there’s plenty of room to interpret.

I’m not Hari Seldon from Asimov's The Foundation, and have only passed the PRC licensure exam for brokers this year. But I believe that my degree in Social Sciences and the strength of statistics will prove to be handy in analyzing this scenario even to a miniscule standard.

1. The BPO sector is growing

There are no indications of that tapering down. As Rick Santos of CBRE Philippines mentioned in an Oct. 6, 2015 interview on ANC, “The Philippines along with India are unique economies that have young and highly skilled work forces.” What this means is that, foreign companies will continue to set up outsourcing centers here and hire local talent. Needless to say, the effect of this is manifold.

Let’s call it the BPO multiplier effect.

• They’ll need large commercial spaces for their BPO operations. This is one among many factors that’s currently fueling the construction boom. This creates construction related jobs, real estate activity, tax revenue for the government, more income floating around especially for the food and transportation sector - ad infinitum. 
• They’ll continue to hire more entry level to middle management positions to be filled by the local skilled populace. These positions are often paid better wages compared with employees in local businesses. With higher pay, comes higher purchasing power and disposable income. With higher disposable income comes the possibility for spending on convenient and affordable housing.
• The highest managerial positions of these BPOs are often filled by expats who directly report to their home companies abroad. They either rent or buy condos since these are often near the BPOs they work in - which is in the Central Business District.

2. OFW Remittances Continue to Grow (Source BSP: Data Shows Only Bank to Bank Remittances)

• The numbers speak for themselves. There are varying accounts and records of how many OFWs are abroad now. 
• 2014 data from the Philippine Statistics Authority pegged the number at 2.3 million
• As is often the case with migrant workers, they tend to send remittances to their families which in turn gets circulated in the economy benefiting small and medium scale entrepreneurs. Of course, there is a standing debate among various sectors concerning the implications of these. Some argue that this growth is "exclusive" or benefits big businesses more than it does the average worker. But that's for another blog post.

Talk of 'bubbles' at this juncture, boils down to subjective perception

Yes, in my own personal perception as I traverse SLEX or the Southern Luzon Expressway, there are indeed many new developments sprouting left and right. A lot of these come from new players in the real estate ball game. Note that this doesn't mean that there's a bubble.

I see it more as the natural reaction of the market responding to their perception of high demand in the 5 previous years.

Could there be an oversupply of housing units? As I've said before, I am not Seldon Hari but think about it this way.

In 2010, there are 93,444,322 Filipinos 
In 2014, there are 100,096,496 Filipinos
In 2015, preliminary reports point to 101,802,706 Filipinos

Source

What can I say?

"We love our bread, we love our butter, but most of all we love each other."