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IS IT WISE TO INVEST IN REAL ESTATE AMIDST COVID-19?-Edric Maguan

Updated: Jul 24, 2020

The developments in the property industry during the Covid-19 pandemic have been rapid. At the forefront of the headlines early into the lockdown was that Colliers sees a 15% drop in residential real estate prices in 2020. But quickly, we are seeing the resiliency of the real estate industry because as early as now, we see some of the country’s developers, ranging from affordable to upscale, such as DMCI, Avida and Alveo, just to name a few, are already announcing huge price increases.

Having said that, if your income remains to be stable despite the pandemic and you have more than enough cash as an emergency fund, this is a great time to take advantage of opportunities to purchase real estate, whether for end-use or investment. Those who understand our historical context and future outlook will be able to take advantage of the short-term opportunities for huge long-term gains.


#1 Continued strong GDP Growth is forecasted and real estate industry to follow suit

A continuous growth in GDP is one of the best indicators of increasing real estate prices. Our rapid GDP growth in the past decade has shown this. According to the World Bank, our GDP has grown by an average of 6.4% over the past decade, and real estate prices has matched this trend, growing every year since the GFC and by double digits in majority of the years since then.


While GDP Growth for 2020 may take a hit due to the pandemic, the Philippines is expected to bounce back due to our rosy business prospects and highly productive workforce. The International Monetary Fund (IMF) is forecasting a 7.6% growth in 2021, while the Asian Development Bank projects this to be 6.5%.

With our strong fundamentals as a country and all the new opportunities that will open up for us post-pandemic, we are in a good position to make a quick recovery and continue our long-term real estate growth.


#2 Our large and productive workforce remains to be a strong driving force of the residential market and the economy

The Philippines has just entered the Demographic Window of Opportunity during the mid-2010s. The Demographic Window is defined to be that period of time when the proportion of population of working age group forms a large portion of the population. With an estimated median age of 25.7 years old and 62% of our population of working age, we are just in the early stages of our Demographic Window, which means that we have a highly productive workforce that will continue our rapid financial growth for decades to come.


In addition, the median age also shows that a significant percentage of our population is at the age where they are ready to start investing and thus a real need for residential properties.

#3 IT/BPO sector and foreign workers in the country are seen to continuously grow as more countries look to cut costs

David Leechiu, founder and CEO of Leechiu Property Consultants, sees a huge opportunity for the IT/BPO sector as more countries will look to cut costs. Leechiu also sees the boom of the POGO industry in recent years to be just a precursor. In the international stage, the Philippines has shown its capability to accept foreign nationals to work in our country. These two opportunities will increase the need for residential spaces as a whole and all of these developments makes us primed for a recovery in 2021.


#4 Major infrastructure projects in and around NCR are set to be completed and to boost real estate value

This year and next year will see a wave of completion of infrastructure projects, which will further make real estate more valuable. Those still scheduled to complete this year are the Ortigas-BGC Link, Metro Manila Skyway Stage 3 and the Clark International Airport Terminal 2, while next year we will see the completion of the Estrella-Pantaleon Bridge, Binondo-Intramuros Bridge, Unified Grand Central Station in Arca South and the NLEX-SLEX Connector. All these promise to have a great positive effect not only on accessibility, but also on the prices of real estate.


#5 PH real estate industry is set for a quick recovery as demonstrated during Asian Financial Crisis (AFC) of 1997 and Global Financial Crisis (GFC) of 2008

During the AFC, prices of real estate dropped by 9% to 14% in 1998 to 1999, and recovered in 2000 with prices going up by 24%. During the more recent GFC, prices of real estate went down by only 1.5% but also turned it around quickly with an increase of 2.1% in 2010. One of the key reasons for a relatively quick recovery on our real estate prices during the AFC and GFC can be attributed to our conservative collateral valuation of real estate by banks at 70-80% compared to 80-100% of neighboring countries such as Malaysia and Thailand. This means that our financial institutions are providing high-quality loans, mitigating risks of slow recoveries in the real estate sector.


This is clearly seen with our low non-performing housing loans of only 1.7% as reported by KMC Savills. With the combination of our country’s financial performance over the past decade and implementing what we have learned from the past and our conservative financial systems, we are in an even better position to bounce back now than in the past two financial crises.

Now is a great time to take advantage of the most generous promo terms offered by the top developers to help better manage your cash flows. These promo terms are for a limited time only that include one or a combination of the following: (1) lower monthly payment terms; (2) lower reservation and spot cash down payment; (3) extended payment terms.

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Sources: Colliers quarterly report 2020Q1; Covid-19 Impact to Property Sector by KMC Savills, May 4, 2020; RIM March 1999, No.43; Philippines Age Structure

ABOUT THE AUTHOR

Edric Maguan is an avid real estate investor, Licensed and Accredited Real Estate Broker by the most trusted developers, and a Certified Public Accountant from University of the Philippines - Diliman. He found his passion in inspiring and empowering people to make the most out of their hard-earned money through real estate investment. Read full biography here.