CEBU, Philippines — While pre-planned development projects were halted following the entry of COVID-19 to the Philippines in March of 2020, real estate sector stakeholders remained bullish all throughout the quarantine months, giving them more reasons to anticipate a good and fast rebound post pandemic times.
What came out as the real estate’s “bread and butter” while economic movement was at an all-time low in almost the entire year of 2020, is the residential sector, which noted a shift of high interest from people putting their money on residential investments, aside from health insurance and other essentials.
In Cebu, developers continue to announce expansion and continuation of small to big ticket real estate projects, except for tourism related projects like hospitality or hotels, which may take a backseat for a while.
Developers
“Nothing is stopping us [real estate sector]. In fact, our residential segment has been doing pretty good. We are on track of our [projects] schedule,” said Be Group president and chief executive officer Grand Benedicto.
While the company had to adjust a lot of things to conform to the new normal environment and health protocol, Benedicto said operations, especially in leasing and residential developments continue to move on. In fact, it has remained business as usual for them amid the pandemic.
Construction of its BE Residences in Lahug is on track, while its Mabuhay Tower building at Cebu Business Park continues to attract tenants’ interest for leasing.
Meanwhile, Cebu Landmasters Inc. (CLI) is preparing to launch 13 to 15 projects by 2021, as real estate market continues to show positive performance amid the pandemic.
CLI chief financial officer Beauregard Grant L. Cheng revealed that despite the unprecedented hurdles encountered during pandemic, the company intends to pursue planned projects for next year, including the ongoing construction of its hotel projects.
Before the end of this year, CLI is set to launch six more projects.
According to Cheng, the decision to launch more projects in 2021 is fueled by the encouraging sales turned out in last nine months of 2020. In fact, residential inventory is 92 percent to 100 percent sold out.
Manila-based real estate developer Vanderbuilt Properties International launched its first residential project in Cebu in October 2020 in the middle of pandemic struggles, through the introduction of The Preston, situated in a 2.3 hectare property in San Vicente, Liloan, Cebu.
The company’s founder and president Ricky Sy, expressed high hopes on Cebu’s real estate industry, stressing that with or without COVID-19, “we are on track of our project target completion in the fourth quarter of 2022.”
The Preston by Vanderbuilt, is one of the very few companies in real estate development that decided to pursue residential projects while COVID-19 threat is still here.
According to an expert at American commercial real estate services firm, Jones Lang LaSalle Incorporated (JLL), Janlo de los Reyes, Cebu-based developers’ stance in offering attractive offers on properties under the pandemic era made Cebu the most resilient market particularly for residential products amid the COVID-19 induced slowdown, explaining that among other property markets in the Philippines, Cebu soared high in terms of sustained sales during the COVID-19 season.
De Los Reyes said while Metro Manila and Davao suffered sales decline in real estate products, Cebu on the other hand registered uptick in sales performance.
Based on their assessment, Cebu’s encouraging story is influenced by developers’ attractive offering, such as generous flexible payment terms, and discounts.
Real estate performance in general suffered a profound decline across the country, Cebu however, maintained sustained position.
JLL’s market overview, assured that while the market is taking a downward spiral, there are pockets of bright spots moving forward, such as the government’s continuous spending on infrastructure, among other promising indicators.
However, delayed completion of projects in both commercial and residential segments could affect the delivery of units in the next few months or even up to next year, depending on the development of home quarantine rules.
Office Leasing
While the residential segment is considered as the lifeblood of the real estate sector during the pandemic as sales continued to soar with promising outlook ahead, the office development or commercial leasing on the other hand, is one of the weakest links in the broad real estate sector
Property consultancy and services company, Colliers International Philippines experts noted that while office and commercial leasing have suffered the brunt of home quarantine measures leading to the adaption of work-from-home (WFH) arrangements, Cebu office leasing sector on the other hand survived due to landlords’ flexible lease terms offers and rental discounts and escalation-free periods.
Some landlords, for instance, have been willing to provide discounts ranging between 13% and 25%.
Meanwhile, the exit of POGOs in Mactan and Mandaue should also put downward pressure on rents. Hence, Colliers sees lease rates in Cebu dropping by about 5% in 2020 as the office sector shifts to a tenants’ market and as landlords prioritizing building tenancy over revenue. “We project the downward pressure on rents to continue up to 202.”
“In our view, rates in key business districts such as Cebu IT and Business parks and their fringe areas are likely to post the fastest pace of recovery as we see occupants, particularly outsourcing firms, gravitating towards these business hubs,” stated the firm’s forecast.
Be Group, which is also operating and building office buildings in both Cebu Business Park and Cebu IT Park, is seeing improvement in office rental demand, saying most Business Process Outsourcing (BPOs) are requiring their people to go back to the office from long months of WFH.
“People are coming back. We are monitoring daily traffic of our building,” said Benedicto, whose company operates the Mabuhay Tower at the Cebu IT Park. From the low of almost zero daily foot traffic at the height of the quarantine, now the building’s traffic could reach to 1,500 a day.
Bright Spot
While the Philippine’s office segment in the property sector is slowly gaining grip following the easing of quarantine rules, it is seen to get a boost following approval of the revised guidelines on Real Estate Investment Trust (REIT) in the Philippines. According to JLL Philippines, the office segment is the most attractive asset class going forward.
“Philippine Real Estate Investment Trust: A Bright Spot in the Next Normal”, JLL says the commencement of the REIT market in the country was well-timed and a much-needed development,” JLL states in its latest property market study in the Philippines.
“We believe REITs are one of the country’s future bright spots and will play an important role in jumpstarting the economy from the adverse effects of the pandemic and will promote growth in the real estate sector,” it added.
“This will provide a cheap funding source for developers, raising fresh capital for finance future projects, which in turn will ramp up construction activities and employment,” said Janlo de los Reyes, JLL Philippines’ head of research and consultancy.
Among the asset classes, the office segment is the most attractive due to its relatively stable outlook and resilient rental growth rates moving forward, he explained.
The office segment’s substantial growth over the years due to the demand from outsourcing firms and the online gaming sector, as well as the possible future office space demand from foreign investments, will make it an attractive asset class for REITs.
‘As the government targets to reopen the economy and increase the operational capacity of businesses, we expect demand to improve in 2021 and potentially normalise in 2022,” added Luis Zarcal, Assistant Manager for Research and Consultancy.
“We remain confident that traditional offices and O&O firms will spearhead demand post-lockdown. We may also see increased demand for office spaces outside Metro Manila, such as Cebu and Davao, for potential business continuity plan site locations,” Zarcal continued.
Furthermore, foreign investments diversifying manufacturing operations outside China could drive demand for office space, as these companies would need to set up headquarters for backend support, noted Zarcal.
The under-penetrated industrial/logistics space is another attractive segment for REITs.
The regional lockdown caused by the pandemic forced the country to tap the online/e-commerce platform to access basic goods and services, which pushed businesses to fast track digitalization efforts. This could scale up the demand for quality warehousing spaces to cater to the growing market of e-commerce, JLL said.
Better Real Estate
As the prospects for real estate continue to soar, big groups in the real estate brokerage sector joined also by developers are calling the government to amend from laws that are not applicable to the “ new world” or new normal way of life.
Property brokers led by the “A Better Real Estate Philippines” (ABREP) movement called the government to amend some provisions of the Real Estate Service Act of 2009 (RESA) Law.
ABREP legal counsel Estrella Elamparo, who is also the senior partner of Divina Law, revealed that the group will submit the proposed bill before the end of 2020, which stresses the importance of digitalization of real estate marketing and others.
The movement to push for amendments of RESA Law has gained strong support as some of the country’s largest real estate organizations join the call for changes in the law, which hopes to address the growing 6.5 million housing backlog.
Experts say the backlog is expected to balloon to 22 million by 2040 and leave millions of Filipino families without formal housing if left unaddressed. This worries the real estate product sellers (brokers) and developers as they current RESA Law provisions are now friendly to online selling promotion, and digital marketing.
ABREP, a movement that seeks to increase livelihood opportunities for Filipinos, promote the use of technology in real estate, and bolster the salesforce so that the backlog can be addressed, is currently engaging industry stakeholders, including practitioners, developers, and even the regulatory bodies.
According to Elamparo, there are a number of regulations in the current RESA Law that are outdated and need to be amended in order to catch up with the changing landscape and work lifestyle.
The movement is now joined by big real estate stakeholder groups such as the Chamber of Real Estate Builders Associations (CREBA), the National Real Estate Association (NREA), the Real Estate Brokers Association of the Philippines (REBAP), the Organization of Socialized and Economic Housing Developers of the Philippines (OSHDP), the Subdivision and Housing Developers Association (SHDA), have their own specific positions on proposed amendments to RESA, and have united in the push for legislative change.
Overall, the entire real estate industry, including industry experts attributed the development of technology as the lifeline of the property sector over the pandemic times, as both sellers and developers immediately shifted online to sell and close deals, regardless of distance and borders.
Property developers—big and small – have put up virtual sight tours allowing clients here and abroad to see the actual property on site virtually. (FREEMAN)