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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This September, overseas Filipino workers and UAE residents who want to invest in the growing real estate market in the Philippines will have the opportunity to attend free investment seminars in Dubai. They will also have the chance to make business transactions directly with representatives from top real estate developers at the First Philippine Property Show in the Middle East on September 26 and 27 at the Crowne Plaza Hotel in Sheikh Zayed Road, Dubai.

Now is the best time to buy a house and lot or a residential condominium in the Philippines while the prices are lower compared to other Asian countries. Unlike other markets in Asia, which are driven by speculators, the growth in the Philippine real estate industry is due to a real demand from residential and commercial end-users. This stable investment environment is attractive to long-term investors from abroad, and Filipinos are committed investors who do not easily retract their investment in case of global crisis.

Some of the exhibitors in the real estate show include top developers like SM Development and Hamilo Coast of SM Group; Megaworld of Alliance Global; Alveo, Avida, and Ayala Premier of Ayala Land; and Aboitizland of Aboitiz Group, Cebu.

Besides Filipinos, foreigners are allowed by the law to buy and own residential condominium units covered by a Condominium Certificate of Title registered with Registry of deeds from the local government unit.

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Overseas Filipino workers are the biggest market for real estate, and it looks like their tastes are changing. According to the Officials of the Chamber of Real Estate and Builders’ Associations, buyers are now going for either midrange properties or socialized (cheaper than low-cost) housing.

Low-cost properties used to be the bestsellers in the OFW market but now, they don’t even look at properties worth 2 million. Instead, OFWs prefer midrange residences, house-and-lot packages (usually townhouses) or condominium units that cost between Php 3 million and Php 7 million. This might seem a little surprising, considering the global financial crisis but on second thought, buying midrange housing is more practical in the long run. They are constructed better than low-cost housing, have more convenient locations, and have a higher resale or rental value. The OFW community is also no longer made up of manual workers – professionals like nurses, IT consultants, and doctors have joined the diaspora.

Despite the OFWs’ changing tastes, low-cost housing is still a major driving force of the Philippine real estate industry. Socialized housing offers house and lot packages worth Php 300,000 each and are located in industrial estates and economic zones. The buyers of socialized housing are usually employees and their families. To make the houses more affordable, value-added tax exemptions are included in the payment packages and no down payment is required.

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