With the easing of community quarantine measures, the economy is slowly reopening, making financial analysts optimistic that recovery in 2021 is within reach. Generally speaking, this points to a positive direction for the real estate industry, which experienced a slump since the pandemic hit.
Zooming in on what this specifically entails for real estate investments, Lamudi’s new webinar series will explore the opportunities waiting for those who would take a leap now instead of waiting for a more stable state of affairs.
In the first episode, Mark Bailey, Lamudi’s Corporate Accounts Lead, facilitates the discussion with David Leechiu, Co-Founder and CEO of Leechiu Property Consultants, Inc. The episode is sponsored by Robinsons Land Corporation.
Here are some of the highlights of the webinar:
Better Position to Weather Current Crisis
“The biggest difference between the last two crises from [the one] today is that the Philippines is in the best shape it’s ever been in all of its history,” Leechiu said.
“That has allowed us to recover and go through this crisis a lot more gracefully than ever,” he added. Leechiu recalled that in the Asian financial crisis, the US dollar doubled against peso and companies suffered overwhelming debts and higher interest rates. The country took eight to nine years to recover.
Meanwhile, in the global financial crisis, the Philippines experienced minimal disruption since the country didn’t participate in anything that went on in the region or the world in terms of investments, according to Leechiu. The crisis only made a significant effect on the luxury market.
The year 2008, however, was a significant year for the country’s business sector, as that marked the beginning of the business process outsourcing (BPO) industry. During that time, over 400,000 people were working in the sector. Fast forward to today, about 1.3 million people are in the industry, Leechiu shared.
“That was driven by the global financial crisis in 2008,” he added.
In the same way, Leechiu believes that the COVID crisis is going to create more jobs in the country. He reported that over 300,000 square meters of office space has been taken up in the Philippines during the lockdown period. In addition, a BPO company has announced recently that they will be employing another 10,000 professionals.
“The BPO industry is probably going to have another 50,000 to 100,000 new jobs in the Philippines,” Leechiu said. “Because of the industry, the Philippines is the only market in the world growing in terms of office space demand,” he added.
Favorable Economic Factors
Meanwhile, Leechiu pointed out that Filipinos have one of the highest savings rates in the world, reaching about 18 to 20 percent. “The public has a balance of earning money and spending a bit, and still saving,” he mentioned.
Asserting that every economic metric has dramatically improved, Leechiu alluded to the positive status of current job creation, foreign direct investments, visible arrivals, and ease of doing business. He also mentioned the higher credit rating the country received in June, as well as a pending collapse in lending interest rates brought about by the government’s significant borrowings.
Talking about the government’s efforts to increase liquidity, Leechiu said, “Eighteen months ago, they started this program to bring down the reserve requirement ratio from the banks. They’re going to bring it down from 18 percent to eight percent. That delta from 18 percent to eight percent is going to release $150 billion into the economy.”
Leechiu added that he’s optimistic that the pending CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) bill will be passed soon, bringing down corporate income tax from 30 percent to 25 percent within this year, and from 25 percent to 20 percent by 2024.
Investment Opportunities Amid Crises
In the Asian financial crisis, people suffered the decline of the peso. Most people converted their money to dollars for better returns, according to Leechiu. The scenario turned different after the crisis, as the peso currency went into an upward trend.
“From 2008 to 2013, the US dollar went from 56 to 41. That time was the best time to invest in peso, in Philippine real estate.” The investors who seized that period were able to experience capital appreciation of about 50 to 60 percent in their properties, and a 20 percent kicker on the currency.
Taking this into account, he urged investors to hit the property market and maximize the significant discounts to real estate prices. “This is something that Robinsons Land has been doing, promoting their promos, low downpayments, reservation payments, monthly payments, very generous financing with lump sum payment terms,” Leechiu mentioned.
He encouraged buying pre-selling units, as investors can pay 30 to 50 percent of the product during the construction period. “You don’t have to worry about the balance of the unit until it’s handed over to you,” he assured.
Turning to other investment opportunities, Leechiu raised the idea of buying stocks. “One of the best buys out there is Robinsons Land Corp. because the stock is still heavily discounted,” he said.
Lessons from Past Crises
“Number one, save money. Number two, keep your debt levels low,” Leechiu said, sharing advice he learned from previous economic disasters.
Reiterating investments, he promoted getting into real estate, finding assets that will yield cash. He explained, “It’s a lot better to buy a condominium unit that you can rent out, whether it’s an office condominium unit or a residential apartment. With the proceeds of the rent, you can borrow money and buy a second unit because the first unit and the second unit work hand in hand to pay for the amortization.”
Leechiu assured that there’s rental yield despite the crisis. Many of his clients continue to pay rent even though the majority of the workforce is working from home. Moreover, the expats running such companies, leasing in these office spaces, live in rental condominiums or houses.
“The expat housing market has become very resilient. The office has been very resilient. In fact, it’s the only asset class that’s generating cash in the world today,” he asserted.
Extending the advice, Leechiu urged, “As you learn to invest your money in real estate, the one discipline you have to learn is how to become an active landlord.” With tenants well taken care of, vacancies can be avoided, ensuring a stable passive income source for investors.
Resurgence of Market Demand
The office sector will see more real estate appetite in the coming months as the BPO sector grows. The emergence of mixed-use developments will likewise attract businesses. “One of the biggest differentiators Robinsons Land is doing is this whole mixed-use concept where you have residential towers, hotels, malls, and office buildings all within one compound so you don’t have to leave your township.” Such developments bring business and work opportunities to remote areas.
While there’s great promise in the BPO sector, Leechiu talked about the status of other market segments. “The POGO sector is still very quiet up to today, especially after last week when [the government] passed the Bayanihan Act 2, which impaired them with more taxes,” he said. Leechiu foresees that a compromise between the government and the industry will be the key in prompting recovery in this sector.
Another factor that he foresees driving real estate industry recovery is the infrastructure projects that will soon see completion. Naming 12 projects that will connect key regional cities, Clark, Cavite, Laguna, Antipolo, and Cainta, Leechiu said that the developments will cut travel significantly, giving people more time for meaningful activities.
Moreover, it will draw people to areas outside Metro Manila. He pointed out, “It will make living in the outskirts more viable.” In Sierra Valley at Cainta, a condominium project by Robinsons Land Corporation, the four hours of travel to and from the capital region will be reduced.
Towards a More Positive Future
While acknowledging the upward trend of the number of coronavirus cases, Leechiu expects “a meaningful volume of vaccines will be available out in the world in the next four to six months.” This, he believes, will have a positive impact on the business sector.
“If you’re a risk taker, the next four to six months is a time when you should be investing meaningfully,” he advised. Leechiu encouraged seizing the moment when promos from developers are available.
He also pointed out that there’s opportunity in refinancing after the crisis when the banks are less strict in lending money. “By refinancing, it allows [people] to save meaningfully from interest payments and that’s another source of investable income,” Leechiu shared.
In terms of the things to look for in an investment, he had three L’s in mind: location, liquidity, and landlord. Location entails greater accessibility, safety, and quality, while liquidity means being able to sell a property in a reasonable amount of time. Landlord involves finding a supportive, fair developer through and through.
The country is in a far better position to weather the current crisis than the ones we’ve gone through in the past. For the real estate industry, it’s safe to say that there’s a positive tomorrow that awaits, especially for those who would seize the opportunities now.