Remittances Slipped by 0.8% in 2020

​Personal remittances from Overseas Filipinos (OFs) fell slightly by 0.3 percent year-on-year to US$3.205 billion in December 2020 from US$3.216 billion in December 2019.

The slight decrease was attributed to the 0.7 percent decrease in remittances from land-based workers with work contracts of one year or more to US$2.494 billion from US$2.512 billion recorded in December 2019.

Meanwhile, remittances from sea-based workers and land-based workers with work contracts of less than one year rose slightly by 0.8 percent to US$647 million in December 2020 from US$642 million in December 2019.

The full-year 2020 personal remittances from OFs reached US$33.194 billion, lower by 0.8 percent than the US$33.467 billion recorded in 2019.

Nonetheless, personal remittances remained a major source of the country’s foreign exchange inflows, with the 2020 level representing 9.2 percent of the gross domestic product (GDP) and 8.5 percent of the gross national income (GNI).

Similarly, OFs’ cash remittances coursed through the banks fell slightly by 0.4 percent to US$2.89 billion in December 2020 from US$2.902 billion in December 2019.

In particular, cash remittances from land-based workers fell by 0.7 percent to US$2.297 billion, while that of sea-based workers increased by 0.8 percent to US$593.2 million.

The full-year OFs’ cash remittances amounted to US$29.903 billion, lower by 0.8 percent than the US$30.133 billion registered in 2019.

The actual annual decline in 2020 was, however, lower than the earlier forecast contraction of 2 percent for the year.

By country source, cash remittances from Saudi Arabia, Japan, the United Kingdom (UK), the United Arab Emirates (UAE), Germany, and Kuwait declined, while those from the United States (US), Singapore, Canada, Hong Kong, Qatar, South Korea, and Taiwan increased.

The US posted the highest share of the total remittances at 39.9 percent, followed by Singapore, Saudi Arabia, Japan, the UK, the UAE, Canada, Hong Kong, Qatar, and South Korea. The combined remittances from these countries accounted for 78.6 percent of the total cash remittances.

Understanding the Real Estate Cycle

Content:

Importance of the real estate cycle

How long is the real estate cycle?

Factors that affect the real estate cycle

Phases of the real estate cycle

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As a real estate investor, it’s essential that you keep a pulse on the real estate cycle, both on the macroeconomic and microeconomic scales, and knowing where we are in said cycle. The housing market cycle is closely tied to the general economy. Still, you also can’t assume that just because the general economy is doing well, the housing market is doing well, or that the commercial property market has remained strong.

Real estate cycles are highly nuanced. However, the great news is that it’s possible to realize success as an investor no matter what phase of the real estate market cycle we’re in — there are strategies to help you make the most of each. Keep reading to understand how the real estate cycle works, what the different phases are, and how to best strategize in each phase.

Importance Of The Real Estate Cycle

The real estate cycle can provide reliable information about the possible returns of an investment property. As an investor, you should determine if your property is in the recovery, expansion, hyper supply, or recession phase of the real estate cycle. Doing so will allow you to make a more accurate assumption for the length of time the property must be held and the proper exit strategy to take. Additionally, the real estate cycle can predict the income and appreciation performance of an investment property. This will allow you to better decide when to make capital improvements.

How Long is the Average Real Estate Cycle?

Researchers have found that the average real estate cycle spans 18 years. However, the word “average” in this case is loose – real estate cycles are unpredictable, and some can last much longer than others. We are currently in roughly the tenth year of what experts call a bull market, where prices continue to increase. Over the last couple of years, many have predicted once and again that the bull market would slow, but we have yet to witness the slowdown.

The real estate market is also evolving right now in light of the coronavirus pandemic.

Factors Affecting the Real Estate Cycle

Several factors affect the real estate cycle, so much so that it’s nearly impossible to provide a concrete list. However, experts can collectively agree that the following factors are some of the main contributors:

• Demographics: The makeup of the population, and major shifts in this population makeup, can drive a market significantly. For example, the baby boomer generation’s retirement is expected to cause major shifts in the housing market, as many choose to downsize or move to vacation areas.

• Interest rates: Interest rates greatly influence potential homebuyers’ buying power. When interest rates are high, it could serve as a deterrent for many would-be buyers from buying. Conversely, when interest rates are low, it could encourage a spurt in home buying activity, as the long-term cost of financing a home is cheaper.

• General economy: The overall health of the economy is also a heavy-hitter when it comes to predicting the housing market cycle. Generally, when the economy is doing well or is in an upward trend, consumers feel more encouraged to buy residential real estate. They feel that their personal wealth will improve while placing a bet that their property’s value would continue to increase. Generally, if the general economy is doing well, the real estate market is also doing well. If the economy is sluggish, the real estate market also tends to follow suit.

• Government policies: The government will occasionally intervene with policies to help boost a market that is particularly sluggish or in a prolonged recession. Policymakers have the ability to implement tax deductions, subsidies, tax credits, and different homebuyer programs to incentivize consumers to purchase real estate. These types of governance mechanisms can greatly influence the housing market cycle.

The Four Phases of the Real Estate Cycle

The real estate cycle is composed of four main phases: recovery, expansion, hyper supply, and recession. This implies that historically, there has never been a sustained expansion or hyper supply period without an eventual recession, followed by recovery. This may induce some anxiety for you as a real estate investor, but fear not! The great news here is that investment strategies make it possible to invest successfully across each of these cycles.

1. Recovery

Identifying the recovery phase of the cycle can be tricky, as most of the nation will still be feeling the effects of a recession and have a bleak outlook. Rental growth will remain stagnant, with no signs of new construction. However, this is where real estate investors must keep a close watch and act quickly at any signs of recovery. This is a great time to pounce on below-market value properties that are in various states of financial or physical distress. You can wait out the rest of the recovery period by adding value to these properties so that they are ready to sell or rent outright as the economy shifts into the expansion phase. Timing is the key.

2. Expansion

The general economy is improving, job growth is strong, and there is an increased demand for space and housing. The expansion phase is when the general public will start regaining their confidence in the economy. Thus, the real estate market and individual renters and homebuyers will start generating demand once again. While the market is on an upswing, it’s advantageous to invest your efforts into developing or redeveloping properties that cater to the current market’s tastes and sell for more than market value.

3. Hyper Supply

During the expansion phase, investors and developers alike get into a frenzy to ensure that supply meets a growing demand. Inevitably, there will come a tipping point at which supply begins to exceed demand — either from too much inventory on the market or because of a sudden shift in the economy through which demand pulls back. As an investor, this is a time to hold strong. Property owners will often liquidate their inventory out of fear that their properties will go vacant or unsold. This is a great time to take an opportunistic approach; identify properties that you feel confident will perform well in the next real estate cycle. This is a great time to enlist the buy and hold strategy so that you have promising properties already in stock when it becomes an ideal time to sell again.

4. Recession

The recession phase is one we’re unfortunately all too familiar with. The great financial crisis of the early 2000s, followed by a sustained recession, left the entire nation reeling for many years. During the recession phase, supply exceeds demand by a wide margin, and property owners suffer from high vacancy rates. Also, not only is rent growth not present, some landlords are forced to offer reduced rental rates to attract renters who are also suffering from the economic downturn. As an investor, it’s a great idea to save up a rainy day fund for the next recession – this is not the time to sit back and feel sorry about the economy’s state. A recession provides the opportunity to purchase distressed properties at a deep discount. There will be an increase in real-estate owned properties, which are properties that have been foreclosed upon and repossessed by lenders. This is your opportunity to buy great properties with great savings. You can hold these properties (or add value if you see fit) so that they are ready to hit the market just as the economy begins to recover.

Summary

The real estate cycle is a concept that any real estate investor must understand if they strive for long-term success. All four phases of the cycle – recovery, expansion, hyper supply, and recession – cause the real estate market to shift significantly, so investors must stay on top of their toes if they hope to find opportunities in each. The great news is that there are strategies to remain vibrant and successful throughout the real estate market cycle, even if the economy feels sluggish.

source: www.fortunebuilders.com

PH property sector seen to start recovery by 2022

A slow recovery in property prices will likely begin in 2022, as capital values last year fell more sharply than the decline seen during the Global Financial Crisis, Colliers Philippines said.

In a report released by Colliers Philippines said the pandemic dragged prices and rents in the secondary market lower by 13.2% and 7.8%, respectively in 2020. However, it noted this was still less steeper than the 14.5% and 15.4% drop in prices and rents, respectively, during the Asian Financial Crisis.

“Prices and rents corrected in 2020 due to dampened demand and we do not see a recovery in the next 12 months,” the company said.

Colliers said property prices and rents are expected to rise by 1.5% and 1.7% year on year in 2022, but this would depend on “a rebound in local and foreign investor sentiment and a recovery in office space absorption.”

A precarious office leasing market in Metro Manila hobbled recovery in both the pre-sale and secondary residential markets, it said.

“A lot of disruption and vacancies definitely have been rising across all major business districts in the capital region, and that of course has been having an adverse impact on the residential market, whether it’s pre-selling or secondary condominium market in Metro Manila,” Joey Roi H. Bondoc, senior research manager at Colliers Philippines, said at an online event.

“Prices and rent, of course these two indicators were severely affected in 2020, and we will probably see a slow recovery starting 2022 when the office segment finally recovers.”

Pre-terminations last year contributed to the rent decline in Metro Manila. Condominium leasing pre-terminations doubled in 2020 after overseas Filipino workers were repatriated and employees took on early retirement packages.

“We also observed owners offloading properties at near pre-sale prices and through loan assumptions,” Colliers said, observing re-sales at discounts in Quezon City, Mandaluyong, Muntinlupa, and Parañaque.

New Supply

While take-up in pre-sale and secondary markets went down in the fourth quarter last year due to the pandemic, Colliers expects higher demand in 2021, which will be driven by mid-income to luxury projects.

“In 2021, we expect a rebound in completion with the delivery of 10,600 units, higher than our initial estimate of 7,910 units,” it said.

Colliers projected Metro Manila residential stock to rise 20.5% to 160,840 units by end-2023, from 133,460 units as of end-2020.

“From 2021 to 2024, we expect the annual delivery of 8,600 units, an increase from 6,700 units we projected at the start of 2020,” Colliers said.

Most of the new supply will be in the Bay Area, Fort Bonifacio, Rockwell Center, Alabang, Ortigas Center and Makati central business district.

Supply decreased last year, with project completions falling 70% compared with 2019 as the industry experienced supply chain issues and limited manpower during the lockdown.

Meanwhile, Colliers said that vacancy in the secondary market will likely further rise to 16.9% this year, even after vacancy spiked to a record-high 15.6% in the fourth quarter of 2020.

“This is due to the amount of new completions, as we expect the delivery of 10,600 units, a big uptick from only 3,370 delivered in 2020. We expect vacancy rates to recede starting in H2 2022, given our projected rebound in office leasing and take-up from investors and end users,” it said.

In its recommendations, Colliers said developers should explore creative leasing models and consider fringe areas for their upcoming projects.

“Monitor attractive locations and price segments for pre-selling residential developments,” it said.

Colliers Manila full report Q4 2020 v1

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Colliers APAC Real Estate Outlook Proper

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Source: Colliers + BusinessWorld.com