Cebu’s real estate industry thrives despite crisis in US

By Invictus “Tuts” Paradela
Cebu Daily News, Inquirer.net
March 04, 2008

CEBU CITY, Philippines – Real estate developers remain bullish about their prospects in Cebu despite the touted subprime lending problem in the US affecting economies as far as Asia. Subprime loans are those which are given to persons with poor credit ratings. These make them high-risk borrowers since most have poor paying habits or have existing financial problems before they secured their loans.

But not all subprime borrowers have poor credit histories. Some may just be unwilling to declare formally their income and are classified under subprime loan or mortgages where interest rates are higher.

The Crisis

Subprime lending in the US was boosted by promises of low monthly amortizations by banks giving out these loans. This brought about a boom in the sale of houses, especially to first-time owners, mostly immigrants buying new homes.

But what the lenders failed to explain to the borrowers was that interest rates for these loans would be readjusted after two years.

The adjustments two years later turned out to be beyond the reach of the borrowers, causing a wave of defaults on these loans. Because of sheer amount of money involved in subprime lending, which is estimated to be in the trillions, panic has swept the banking industry and affected the US economy.

Consequently, investors in subprime loans worldwide have been affected. Some have declared bankruptcy. To some extent, this panic can be felt in markets as far as Asia.

Other Factors

Events and conditions may have developed in the past year which would have put a strain on the local real estate industry. These include the continued rise of the peso against the dollar, continued soaring of world crude oil prices to record heights, and even the political noise in the national scene with various sectors asking for President Macapagal-Arroyo’s resignation.

Despite the foreign exchange, the remittances from abroad have been continuously increasing although at a slower rate because more Filipinos are working abroad.

Bullish

Developers said they don't have anything to fear from the present situation. Compared with the previous crisis in the late 90s, the boom now is not based on speculation. The rising number of overseas Filipino workers (OFWs) who want to set up their homes in Cebu instead of their hometowns in the Visayas and Mindanao have made the real estate client base here more stable.

The decreasing value of the dollar has slightly affected the buyers' purchasing power but these have not hindered their desire to fulfill their dreams of owning a house.

According to real estate developers, the Philippines in general and Cebu in particular is experiencing the five- to seven-year boom cycle.

Jun Garing, a sales trainer, said in a seminar for real estate sellers last week that the boom in Cebu has yet to peak in two years.

Several developers have used various strategies to ensure a steady market.

Monterrazas de Cebu targets a niche market – ultra high-end clients, who are known to continue spending even during the global financial crisis.

Other developers offer low monthly amortizations over a stretched period.

However, the management of the Ultima Residences may experience negative repercussions from the subprime crisis because their funding is not from loans but cash from its principal owner.

Many developers are also investing on condotels, which are very popular these days.

Investors see condotels as long-term income earners and have attracted OFWs who want to see their money grow rather than to spend them on non performing assets.

(Tuts Paradela is a licensed real estate broker, who helps a non-government organization in livelihood development. His website is www.ceburealestates.com.)