OFW remittances fueling growth in real estate

Boom seen lasting five years

By Daxim Lucas
Inquirer
May 20, 2007

MANILA, Philippines -- UP TO A third of the record-high foreign remittances sent home by expatriate Filipino workers is spent on real estate, making the current property market boom more durable than previous episodes, according to industry players and market watchers.

In an interview, Century Properties managing director John Victor Antonio said his firm noticed this trend as early as two years ago when dollar remittances sent by overseas Filipino workers (OFWs) started to pick up.

"Our rule of thumb is that 30 percent of all remittances end up in spending for the real estate sector, whether it is used to buy or property or spent on housing improvement," he said.

More importantly, the trend marks a significant departure from the pattern established in previous decades where the bulk of OFW remittances was spent on consumer goods, with little left for savings and investments.

In 2006, OFWs sent back to their local beneficiaries $12.6 billion through the banking system alone. The central bank estimates that this amount is even understated by an average of 30 percent because of funds sent home through informal channels.

At the low end, this means that as much as $4.2 billion in OFW funds were spent on the real estate sector last year--a figure that will rise further, given the central bank's expectations of as much as $14 billion in remittances for 2007.

"OFWs are really the main factor driving up this market," said Antonio, whose firm has launched several projects aimed at this cash-rich sector. "In our case, at least 50 percent of our sales come from OFW [buyers]."

For other firms, this level could go to as high as 60 percent of all sales, he said.

The trend has not gone unnoticed.

Large and small real estate developers are now investing heavily in wooing expatriate Filipino buyers. These include property blue-chip Ayala Land Inc., Megaworld Corp. and Robinsons Land Corp.

These firms embark on periodic sales tours in Europe and the US aimed at attracting Filipino buyers, some even setting up permanent sales offices in areas with high concentration of potential clients.

Indeed, the latest data from the National Statistical Coordination Board revealed that the property sector had recorded the fastest growth rate among various monitored industries in recent months.

In the fourth quarter of 2006, for example, gross revenues of the real estate sector grew by 40 percent compared the same period in the previous year.

This marks the 15th consecutive quarter of double-digit growth for the sector since 2003

In contrast, the financial sector grew by only 17.3 percent, the trade sector by 12.3 percent and private services by 10.6 percent.

The manufacturing and the transportation and communication sector--the previous darling of the economy--grew by 8.5 percent and 8.4 percent, respectively.

According to Unicapital Securities analyst Ron Rodrigo, all these indicators point to a real estate boom that will last longer than the one experienced in the mid-1990s.

"This will last for some time," he said in an interview. "This could go [on] for another five to seven years."

He stressed, however, that the boom will be skewed in favor of firms which cater to the lower end of the property sector, in particular, those which invest heavily in affordable or mid-market developments.

"These are the properties that go from P500,000 to P1.5 million and from P1.5 million to P2.5 million or P3 million per unit," he said.

Rodrigo is confident that the present boom would sidestep the pitfalls of its 1990s version, mainly because present-day buyers acquire property for their actual use.

This contrasts with the white-hot speculation that contributed to the 1997 East Asian financial crisis, where buyers would acquire two or three units at a time as "investments" meant to be sold off at a better price.

Rodrigo said that strong market conditions are also supported by the profile of workers going abroad, many of whom are now highly paid professionals, compared to laborers and domestic helpers that were prevalent up to the late 1990s.

"Nowadays, you have high-earning professionals like nurses and information technology people who are highly valued by their employers abroad," he said. "As long as deployment numbers keep rising, this market will stay strong."

It is a fact that Century Properties' Antonio is counting on.

The firm will embark on an international roadshow in the next months for showcase its high-rise and subdivision projects to Filipinos abroad in the hopes of capturing a bigger slice of the pie.

"Up to 70 percent of all our online inquiries come from abroad," he said. "There are from overseas Filipinos with large investing capacities. They want to stretch the value of their dollar, so they buy properties here."

Despite the bullishness, Antonio keeps a close eye on indicators that may point to a repeat of the previous decade's property market crash.

"What we have now is different from 1997," he said, echoing Rodrigo's confidence.

Around the world, OFWs eager to buy homes are hoping they are right.