Decline in home pre-sales seen to go on until 2021

PRE-SALES of residential homes will be down until next year as the pandemic’s impact on households is likely to persist before showing some signs of growth in 2022, an analyst at J.P. Morgan Securities Philippines, Inc. said.

Secular demand and a low interest rate environment will drive growth, said Jeanette G. Yutan, head of the broker-dealer’s Philippine equity research department, in an online interview.

She said J.P. Morgan expects residential pre-sales — or homes sold before they are fully built — to fall by 37% this year before posting a softer 12% contraction in 2021 on the back of sluggish economic activity.

“Residential demand is primarily a tangible consumer item that people buy and are predominantly affected by the economic backdrop, and given that the pandemic has led to a serious knock-on impact on household income, we think residential sales will be affected by the impact of the pandemic (until next year)” Ms. Yutan said.

She said the sector might rise again starting in 2022 as the impact of the pandemic subsides while secular demand drives growth and strong liquidity in the market cushions risks.

The Philippines’ relatively young population, a big portion of which are under 30 years old, makes it one of the most favorable demographics for the property sector as more will eventually require homes regardless of the pandemic.

“Even during the pandemic, we have actually seen end-user demand in affordable segments still going. Also, we estimate about 60% of those new unemployed are primarily lower skilled workers and they typically won’t be the target market of property developers,” Ms. Yutan said.

“While our numbers suggest a decline in pre-sales, we are incrementally more positive on the sector. We think the downside risk from a collapse in property prices or a sharp correction in physical property prices and risk of rising sales cancellation because of people losing jobs etc., will all be mitigated by the abundant liquidity in the system,”

The central bank has unleashed P1.9 trillion of liquidity into the financial system so far this year through the monetary policies rolled out to cushion the pandemic.

Ms. Yutan said she does not expect physical property prices to collapse like what happened during the Asian financial crisis in 1997-1998.

However, residential sales may still not be able to go back to their pre-pandemic level in the next two years because the previous growth was primarily driven by higher prices and not a surge in volume.

“Our expectation is that property residential sales won’t be able to reach the 2019 level even in 2022 primarily because in 2017-2018, the demand was really driven by prices,” she said. “When you look at the volume, it is actually declining in those two years. It was price-driven growth in the last three years and the sector needs to digest that, but we don’t think prices will collapse.”

Property prices jumped to record highs between 2017 and 2018 after an influx of mainland Chinese nationals into the country, most of whom were involved in offshore gaming operations, and took up huge portions of properties in Metro Manila.

The recent exit of Philippine offshore gaming operators (POGOs) will have a negative, albeit not too big of an impact on office space as they account for 12% of the total, which may cause occupancy to fall by 6-7%, Ms. Yutan said.

The Chinese government said early last year that it would continue with its crackdown on cross-border gambling. At the same time, the Philippine government has been going after the unpaid taxes of POGOs and has been imposing stringent rules that forced some operators to end their businesses in the country. — Beatrice M. Laforga