Manila building boom to add record number of flats.

Manila building boom to add record number of flats.

Analysts fear new units flooding market will hold down asset value, returns.

MANILA - Philippine developers are on a tear. The capital Manila is in the grip of a building boom that will add a record number of apartments over the next two years, but also threatens to lead to a glut that will weigh on returns for investors.

An estimated 55,000 residential units will come onto the market in Metro Manila this year, slowing growth in lease rates, according to broker CBRE Group.

Spending by property companies is also expected to rise 18 per cent to more than 300 billion pesos (S$9.4 billion) in 2015 from last year, according to broker Savills.

Philippine developers have been on a building spree as the nation's biggest economic boom since the 1950s and rising remittances from Filipinos working abroad spur home purchases.

However, the market may need more time to absorb the expected record supply of new units, according to Macquarie Group.

"Some developers may have to slow down in starting new projects because there is a risk of overbuilding," said Mr R. J. Aguirre, an analyst at Macquarie in Manila. "If developers don't slow down and sales won't move, we will see a build-up in inventory and receivables that will hurt earnings."

He added that the number of residential units already on the market is equivalent to about two years of sales.

As inventories increase, investors may find themselves holding assets that are yielding less, said Mr Romeo Arahan, a Manila-based analyst with broker Colliers International UK.

Rental yields will be 3 per cent to 4 per cent this year, said Mr Antton Nordberg, research manager with KMC MAG Group, the local associate of Savills. Yields had averaged more than 5 per cent since 2011, he said.

Policy makers last year introduced measures to curb parts of the property market amid concerns that prices were rising too fast. They ordered banks to cap the collateral value of real estate mortgages at 60 per cent. Lenders were tested to see if they had enough buffers against an asset-price crash.

The central bank has held its benchmark interest rate at 4 per cent since raising it by 25 basis points each in September and July last year.

The Straits Times / World                Published on Tuesday, 17 March 2015

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