Crisis sets sour tone for home sales

CERTAIN SEGMENTS of the residential market may be vulnerable to a slowdown, a real estate advisory firm said, as plunging oil prices and brewing tensions in the Middle East threaten to hurt one of the key drivers of home sales: remittances.

Developers, however, see “minimal impact” should the crisis escalate given their diverse customer base and revenue streams.

With estimates that around 60% of the residential inventory is either directly bought or being financed by money coming from overseas Filipino workers (OFWs), demand for new projects may be affected by a “major disruption in [their] source and level of income,” Claro dG. Cordero Jr., head of research and valuation at Jones Lang LaSalle, said in a mobile phone message.

“With the news of possible displacement of a number of Filipinos working in the Middle East, the adverse impact is likely to manifest in the growth of demand for low-mid to middlemid residential condominium developments. Dependence of a number of projects in demand coming from overseas Filipinos is the likely reason for this,” Mr. Cordero added.

Low- mid developments are priced between P1.5 million and P3 million per unit and middlemid developments are priced between P3 million and P7 million per unit, he said.

As a result, demand for property and appreciation of capital values will see slower- thanexpected growth in the coming months if the crisis persists in the near term, Mr. Cordero said.

Mass housing developer 8990 Holdings, Inc. President January Jesus Gregorio B. Atencio III was the first to acknowledge that the unfolding events in the Middle

East could spell trouble for the housing industry.

MORTGAGE DEFAULT

Mr. Atencio warned that should OFWs in the petroleum industry and seafarers manning the oil tankers be repatriated, debt defaults are likely. The company sources a fifth of its sales from OFWs.

“I am most afraid of the contagion effect. If the problems in the oil industry will hurt the cash flow generated by KSA (Kingdom of Saudi Arabia), they will start doing budget cuts, meaning less nurses, doctors and engineers will be employed,” Mr. Atencio said.

SM Prime Holdings, Inc. Executive Vice-President Jeffrey C. Lim, in a separate message, said the property conglomerate has yet to feel the impact of the brewing crisis.

“No impact so far, but we are monitoring closely,” Mr. Lim said, noting that the Henry Sy-led firm sources 20% of its sales from the Middle East, but most of its buyers are not working in the oil industry.

“There may be an impact, but we don’t know yet. We won’t see it until it happens,” Brian N. Edang, head for investor relations at Vista Land & Lifescapes, Inc., said in a telephone interview.

Known as the country’s largest homebuilder, Vista Land generates bulk or 55%-60% of its sales from Filipinos working abroad. The property company of the Villar family has been working to increase the share of sales from United States, riding on the recovery of the world’s largest economy.

“There are 10 million overseas Filipinos abroad officially. You just need to be to be able to tap them where they are,” Mr. Edang said.

While the worst case scenario is OFWs will defer their purchases, they may also opt to buy a lower priced property instead of a more expensive unit, Mr. Edang said.

“Residential sales might be hurt but for property developers, a lot of them have rental income. We think any impact may be offset or the impact may not be as significant compared to somebody who has 100% residential business,” COL Financial Vice President and Head of Research April Lynn L. Tan said in a telephone interview.

BUFFERS READY

Most real estate developers have been focusing on increasing the share of their recurring income to diversify their revenue stream, providing better cushion in case the property cycle turns less favorable.

The crisis may prove to underscore the importance of the township concept, which has been adopted by most of the country’s real estate developers, with the business process outsourcing (BPO) sector likely to absorb the repatriated OFWs, Megaworld Corp. Senior Vice President Jericho P. Go said in a telephone interview.

“Those that do come back are either absorbed in BPO market, employed in enterprising business or start their own business,” Mr. Go said.

These townships, located in the country’s key urban centers, are now home to BPO companies, which are getting more bang for their buck due to the weaker peso, Mr. Go said. “Because of the strengthening dollar, I either pay more or hire more. Chances are, I hire more,” he said.