Will PHL real estate products remain affordable?

DEVELOPERS enjoyed brisk sales take-up of residential projects at the start of the year, sustaining the recovery seen in 2016, but regulatory threats cast a dark cloud over the affordability of real estate products moving forward.

Robert S. Lao, residential business group head at Ayala Land, Inc., said in an interview sales take-up grew by an annual 10% on average in the first quarter across its five residential brands.

“For Ayala Land, it continues to grow. Last year, we cleaned up our inventory, but this year we will launch more,” Mr. Lao said.

Ayala Land is bringing P100 billion worth of new residential supply to the market, higher than last year’s P61 billion worth of launches.

For its part, SM Prime Holdings, Inc. saw a 54% year-on-year jump in reservation sales to P12.9 billion in the three-month period on the strength of its existing projects in the Mall of Asia complex in Pasay City, Quezon City and Makati City.

“We’ve also launched the MRBs (medium-rise buildings), that is showing a lot of promise,” said Jose Mari H. Banzon, SM Prime business unit head for primary residential.

The property holding firm of the country’s richest man Henry Sy is starting to diversify its product offering. SM Prime is venturing into high-end and house-and-lot development alongside a plan to launch 15,000-18,000 units this year.

Property firms have deliberately held back on launches to wipe out their inventory as a way of self-regulation since take-up peaked in 2012, according to data from Colliers.

Developers finally experienced a rebound last year after four consecutive years of decline, selling 38,800 residential units in Metro Manila through preselling, up 25% from the previous year, Colliers data showed.

“The biggest source of appetite is the housing backlog. It continues to grow. You also have rising affluence supporting the growth,” First Metro Investment Corp. (FMIC) Assistant Vice-President and Head of Research Cristina S. Ulang said of the strong take-up in the January to March period.

Rising interest rates and the removal of incentives for low-cost and socialized housing, however, threaten to affect the affordability of residential products despite strong demand.

“There is value-added tax ( VAT) exemption so if you remove the tax mas mahal ang financing and interest rates are rising. The Federal Reserve may hike two more times this year, but we don’t know how the BSP (Bangko Sentral ng Pilipinas) will respond. Will it move or not move,” Ms. Ulang said.

Fed Chairperson Janet L. Yellen has hinted that the Fed is on track with plans for two more rate increases this year and three by 2018, with the Philippine central bank widely expected to follow suit on the back of faster inflation and robust economic growth.

The BSP has kept its policy stance unchanged for 20 straight meetings since a 25-basis-point hike in September 2014, except for procedural cuts for the shift to an interest rate corridor in June. The policy rates now range between 2.5% and 3.5%.

The government is likewise contemplating on repealing VAT exemptions in special laws, including for low-cost and socialized housing, to offset revenues to be foregone from tax cuts elsewhere.

“Labor cost and land prices are also rising so affordability issue is the focus now. In terms of demand, we have all the factors but the question now is affordability,” she said.