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The world financial crisis is expected to affect the Philippines in 2009 but despite the recession, luxury housing remains a strong market in the Philippines. The demand for high-end properties within Metro Manila, its suburbs, and the provinces stays strong and resilient. This is because property values in the luxury segment of real estate are very limited. Although there have been new projects launched in 2008 to take advantage of the market, the supply is still not enough to satisfy demand.

One of the newer projects is the Raffles Residences in Makati. This development by Kingdom Hotel Investments is worth US $153 million and includes a 30-suite Raffles Hotel, a 300-room Fairmont Hotel, and 200 luxury apartments. It’s still in pre-construction, but already the Raffles Residences reached a record high for sales.

Now is the best time to invest in luxury housing in the Philippines because the property values will start leveling mid-2009. Remember that property transactions take a lot of time to pull through, and it would be a good idea to start doing research on great buys in the market.

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It’s no big surprise that the global finance crisis is going to make things hard for the Philippine real estate industry, but even Ayala Land Inc. and SM Prime Holdings, the country’s biggest real estate moguls, aren’t too optimistic about the year 2009.

According to Ayala Land president Jaime Ayala, the company’s sales of low and middle-income residential properties are still strong for the third quarter of 2008, but the impact of the US crisis might be felt by the Philippines next year. Right now, sales from the United States represent only 25% of the company’s total foreign sales, whereas it used to account for almost 50% of their sales in the previous years. Because of the instability of the US economy, Ayala Land is now looking for markets in other regions such as the Middle East, where sales increased by 70% from January to September of this year. The first half of the year earned them a higher net income from Php 2.13 B to Php 2.91 B on strong residential sales.

As for what will happen in the year 2009, Jaime Ayala says there’s nothing to do but wait and see how the economic crisis will play out. Despite the uncertainty, however, Ayala Land will not slow down on ongoing developments nor reduce their capital for next year.

SM Prime Executive Vice President Jeffrey Lim also says that 2009 looks to be a difficult year for the real estate industry. The country’s largest commercial center developer received a growth in their net income for the first six months of 2008 – from Php 2.9 B to Php 3.17 B – because of the company’s consolidation of three China malls. While revenues increased by 8%, SM Prime is still wary about the market. Like Ayala Land Inc, they are going to expand their shopping centers in 2009 as planned, but they’re watching the market carefully to see how the economy and the real estate industry will be affected.

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Despite the current global financial crisis, the Philippine government is still planning to push through with introducing Real Estate Investment Trust (REITs) into the local equities market. REITs are legal entities whose functions are to allow small and large investors to participate in owning income-producing real estate properties and other similar assets. REIT shares are traded like stocks, which means they are affecting by the ups and downs of the local and global stock market.

President of the Philippine Stock Exchange Francis Lim told the press at the REIT Forum in Makati that regardless of the external shocks going on right now, our market has to keep on moving. The government and the private sector must keep on creating an environment where investments can flourish, and this includes implementing measures to insulate the local stock market from external shocks and making it easier for investments to push through.

Lim also added that the Philippines is behind most countries in getting into the REIT bandwagon. The REIT bill was filed in 2006 and is already pending in both the House of Representatives and the Senate. It is likely that the bill will be put into place by July 2009. As of now the government is ironing out the details of the REIT scheme such as the 25% tax incentives for potential investors.

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Two new real estate investment laws are expected to encourage Filipinos and OFWs to explore investment opportunities or retirement options in the Philippines. According to the Asia Pacific Association of Fiduciary Studies (APAFS), the Personal Equity Retirement Account (PERA) that was signed into a law last month, and the pending bill Real Estate Investment Trust (REIT), will help develop Philippine real estate markets. The PERA law allows individuals to transform their contributions from their income into a dependable retirement plan that they can use when they retire. The REIT bill allows Filipinos to invest in the real estate market without actually buying or selling properties directly, giving investors more areas to diversify.

APAFS will be discussing real estate investment trends, opportunities, and challenges in their Annual Pacific Region Investment Conference on October 9 and 10 at the Renaissance Hotel.

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Today’s real estate developers are switching from building high-rise condominiums to medium-rise condominiums, mainly for economic reasons. Going higher will obviously result in higher construction costs as this will need more concrete, steel, wiring, workers, and other construction materials. For developers who are trying to cut costs, the advantages of making medium-rise condominiums are far greater.

Lower construction costs means lower selling prices, thereby making the units more affordable to more people. Medium rise condominiums are usually constructed at sites where building detached houses are no longer practical because of increasing land costs. Thus, medium-rise condominiums fill the gap between high-rise condominium buildings and detached houses. Medium-rise condominiums are also better at complementing the lifestyles of the residents, since it provides them simple luxury and all the modern day conveniences they need.

For high-density commercial areas such as Makati and Ortigas, however, medium rise buildings are not so practical because the developer has to recover the land cost from the number of sold units, which can only be accomplished if the building goes higher. However, there will be more medium-rise buildings in the outlying areas of the main business centers.

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