PHILIPPINE developers are expected to sustain double-digit growth in pre-sales and profit this year, according to the research arm of Morgan Stanley.

“We forecast industry-wide residential pre-sales to sustain 10% growth in 2020 on tight levels of supply amid a conducive macroeconomic backdrop,” Morgan Stanley Research said in a report on the Philippine property sector titled “2020 Outlook: Another Year of Growth.”

Morgan Stanley Research estimated that pre-sales growth slowed to 10% in 2019, from 22% in 2018.

Based on company data from the largest 10 developers, it said actual pre-sales grew by 8% year on year in the first nine months of 2019.

Unsold inventory has continued to drop from 2016 to September 2019, with sales outpacing launches, it said. Developers are also planning to launch more projects to meet the “still-rising demand.”

“We also see developer earnings, on aggregate, sustaining double-digit growth on revenue recognition from previous years’ home sales and still-growing commercial rents,” Morgan Stanley said.

The Philippine property sector’s growth will be backed by favorable macroeconomic conditions, with gross domestic product (GDP) expected to grow from 5.8% last year to 6% in 2020.

“We think the economic growth recovery and falling interest rates will boost home-buyer sentiment and keep home purchase demand buoyant,” Morgan Stanley said, noting its economists see Philippine GDP growth as one of the fastest in ASEAN from 2019 to 2021.

The central bank is expected to further cut policy rates by as much as 50 basis points (bps) in the first quarter. In 2019, the Bangko Sentral ng Pilipinas reduced policy rates by 75 bps.

Meanwhile, Colliers International Philippines Research Manager Joey Roi H. Bondoc said they expect more residential projects to be launched in Metro Manila this year.

“After posting a record-high take-up 57,000 units in 2018, we see full year 2019 take up hovering between 40,000 to 50,000 units due to slower launches. However, we see launches in Metro Manila picking up over the next 12 months,” he said in an e-mail.

With surging land values and lack of developable space in key areas such as the Makati and Ortigas central business districts, developers are pushed to launch residential projects in the fringes to meet demand.

Areas that will account for most of the take-up include the Bay Area, Quezon City, Ortigas Center and fringe areas.

This year, Mr. Bondoc said Colliers is projecting the delivery of 15,610 units in Metro Manila, “outpacing the annual completion of 7,700 units annually in 2012 and 2014 and even higher than the 10,700 units delivered from 2016 to 2018.”

“Colliers encourages developers to constantly look for fringe areas ripe for construction of new condominium projects,” he noted, and added that developers should further look into the north and south areas of Quezon City, fringe of Ortigas Center, Pasig City, and areas in downtown Manila.

Meanwhile, speculative activity in the property market fueled by the growth of the Philippine offshore gaming operator (POGO) industry is likely to continue this year.

“Siyempre risk ’yun. Binabantayan naman ng Bangko Sentral (Of course it is a risk. But it is monitored by the Bangko Sentral ng Pilipinas),” Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri, Jr. said in an interview with BusinessWorld on the sidelines of an event of the Rotary Club of Manila.

Mr. Neri said both the property sector and the POGO industry should be taken into consideration in monetary policies as POGOs continue to expand in the country.

“Looks like it [risks] will continue…That’s why hindi na dapat i-aggravate ng (it should not be aggravated by) additional stimulus. Like for example, that has to be factored in the deliberations of the monetary policies.” he said.

Fitch Ratings last week said the property price surge fueled by the POGO industry could “affect market stability if unchecked.”

“To the extent that the increase in prices has been driven by a boom in the Philippine online gaming operator sector, it may also expose banks and the property industry to greater policy risk,” the rating agency said in a note sent to reporters on Wednesday.

Fitch said condominium prices in Metro Manila surged by an “unsustainable” 34% year-on-year, while the residential property prices jumped by an annual 10%, making it among the strongest growth prints in any major real estate market since 2010.

POGO workers have pushed up demand for residential spaces, particularly in Makati, Alabang, Quezon City, and the so-called Bay Area in Pasay.

Fitch noted a prolonged period of “rapid house price inflation” may cause increased borrowing, especially if the rise in prices is “speculative.”

“Aside from the property company themselves, direct exposure of the company to the POGOs, tinitignan din ng mga bangko ’yan [banks are also checking that]. There should be certain limits to the entire portfolio,” BPI’s Mr. Neri said.

Since 2015, Philippine banks’ real estate exposure remained “broadly stable” at about 20% of total loans.

Latest data from the central bank showed that credit for real estate activities inched up by 19.3% year on year to P1.631 trillion as of November 2019 from P1.354 trillion in the previous year. — Vincent Mariel P. Galang and Luz Wendy T. Noble