Silver lining in Cebu’s real estate sector

By Invictus “Tuts” Paradela
Cebu Daily News, Inquirer.Net
May 26, 2009

The global financial crisis, no doubt, has affected the Philippines. Estimates of various groups of the country's gross domestic product (GDP) growth range from 0.5 percent to zero for 2009 and a modest increase is expected for next year.

Several local jobs have been cut especially in the export sector and in economic zones. Many overseas Filipino workers (OFWs), who are significant drivers of the economy, lost their jobs. Countless others have to accept lower wages just to be able to keep their jobs.

This development is felt by various developers in Cebu, whose target clients included the OFWs. These developers however refrained from declaring how much a negative impact the financial crisis have affected their sales. Many, however, have employed cost-cutting measures and offered significant discounts and promos for buyers.

A gauge of serious trouble in the real estate sector would be falling prices of properties. However, none of the local developers have outrightly lowered their prices. This is because in the last quarter of last year, the number of OFW buyers, who are classified as the middle market in the real estate industry, went down, but local businessmen during that period preferred to buy properties from well established developers rather than put their money in the banks.

Perhaps fearing the impact of western banks which have brought about the crisis on our local banks, the businessmen avoided putting all their resources in one basket. They invested in real estate, hoping for higher and safer returns over a longer period while waiting for the effects of the crisis to taper off.

Since the last quarter of 2008 until the present, developers of low-cost housing have all consistently claimed that the global economic crisis has only slightly affected their sales. But their prices are so low that local employees can afford their housing units. The low interest rate of Pag-ibig has also boosted developers' sales allowing them to grant loan payables of as low as P3,000 to P5,000 a month for a modest house and lot.

The end of the first quarter of the year showed another story in the middle market. Apparently, OFW buyers are on the rebound. A decline in growth of remittances from OFWs was reported, but there was still a three percent to four percent growth. And there are some signs that the market is picking up. In fact, one developer noted a P50 million sale in just one investors' night this April.

In the meantime, the global economy has showed signs of recovery. Cautious optimism is replacing the gloom and doom mood after announcements of record profits by the biggest banks in the US. The stock market has reacted positively. There are reports of companies abroad starting to rehire. However, no one is ready to say that recovery is inevitable. The positive signs are welcomed by all sectors all over the world.

Amid these developments, is this the right time to buy properties in Cebu?

Risk aversion may dictate some to refrain from investing at this point because there's still no official declaration of recovery. There are even debates of whether the crisis has reached the bottom.

Interestingly, one American client pointed out the silver lining in Cebu's real estate industry - location, property prices and western amenities.

David (not his real name) is an investor from Las Vegas. He knows the ins and outs of buying properties, especially in the United States and, at one time, bought properties there. Some of them were even valued at US$2,000 per square foot. He, however, lost most of them because of the credit crunch in the US.

David has spent vacations in the Philippines for years, but only visited Cebu recently. He usually stayed in Manila and the Luzon area.

David said he was amazed at how the Philippines had been shielded from the global crisis, especially the real estate sector. He noted the start of building constructions prior to the start of the crisis.

David said Cebu is ideal because it has all the amenities of a modern society. He cited the kind of malls here as different referring to Ayala Center in particular. He also preferred cable channels in Cebu compared to Thailand, which only has a few English speaking channels. Since most Cebuanos speak English, it made it easier for him to live here.

David also cited Cebu's location near Bohol and other provinces with popular tourist sites, where tourist like him would like to visit but could not actually live in because of lack of the usual Western comforts.

David said the cost of living in Cebu is just a fraction of what he would need in the US. A P100,000 per square meter for well-located condominium is reasonable for him. In Las Vegas a condominium is priced at US $2,000 per square foot or almost P600,000 per square meter.

David said he sees Cebu as a developed city in five to ten years, making it a good place to invest. He later signed up for a condotel.

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