Philippine Christian University

College of Business Administration & Accounting

BS REAL ESTATE MANAGEMENT

CASE STUDY:
PROPERTY BUBBLE DUE TO COVID-19 PANDEMIC,
FACT OR MYTH

BY:

ADOR A. PEREZ
Student

AS PARTIAL FULFILLMENT

IN

PROPERTY MANAGEMENT SYSTEM

SUBMITTED TO:

REV. DARWIN ADLAWAN

Date: December 26, 2020

Cover Page
Table of Contents 1

I. Abstract 2

II. Introduction 3-4

III. Hypothesis 5

IV. Methodology 6

V. Results 7 - 13

VI. Analysis 14 -15

VII. Conclusions 16 - 17

VIII. References 18

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 ABSTRACT

Covid-19, the most recent and still ongoing worldwide pandemic, has created

tremendous disruption for nearly a year now. Not only across business industries &

organizations but most of all, with the way people adjust to a new socio-economic

way of life. People are now beginning to live & breathe with the new normal, as

nations race to the development of a vaccine.

In our country, the safety of the Filipino constituents has become a primordial

concern as various branches of government agency, together with its strong

economic team skillfully balances both safety of its people and the economy;

strategizing effectively, as everyone struggle, to help the economy bounce back by

way of sustained government services & uninterrupted build, build, build projects that

help create jobs in managing the health pandemic.

All industries are affected not only locally, but worldwide as this economic

downtrend continues. The Philippines Real Estate industry is no exception.

This study will try to determine whether the Real Estate Industry, due to the

prolonged pandemic will experience a market crash or burst its bubble after long

decade of being a sunshine industry. To do so, this author intent to identify why an

industry’s bubble burst; and interspersed the same with actual developments in the

economy & real estate industry using secondary information from a content scan &

conduct of online searches, newspaper clippings & articles, and real estate industry

reports & analysis, including those of business and economic institutions to help

determine probability, or even a basis for the Philippine’s real estate industry’s

bubble burst. Or alternatively, the real estate industry like all others, is just in for

some rough sailing moving forward.

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 INTRODUCTION

The outbreak of coronavirus disease 2019 (COVID-19) has created a global health

crisis that created a deep impact on the way we perceive the world and our everyday

lives. Not only the rate of contagion and patterns of transmission threatens our sense

of faculty, safety measures put in place to contain the spread of the virus also require

a strong discipline as we find solace among family members more than the company

of others. Within this context of physical threat, social and physical distancing, as

well as public alarm, what has been (and can be) the impact of the pandemic in

business & economy, more specifically for the real estate industry in the Philippines.

Will the “sunshine industry” tag finally come to an end? Will the real estate bubble

burst make the glorious real estate industry collapse or call it a night instead of “good

morning”? Or are all these talks about the bubble burst only a myth, created out of

the unknown?

What do we mean by bubble burst to begin with? What are its causes? What

and how does our economic experts prevent this burst from happening? What does

industry players & stakeholders say about this possibility given the extent of damage

by this pandemic?

According to Investopedia, a real estate bubble (or housing bubble) is “a run-

up in housing prices fueled by demand, speculation, and exuberant spending to the

point of collapse. Housing bubbles usually start with an increase in demand, in the

face of limited supply, which takes a relatively extended period to replenish and

increase. Speculators pour money into the market, further driving up demand. At

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some point, demand decreases or stagnates at the same time supply increases,

resulting in a sharp drop in prices—and the bubble bursts”. [1]

Clearly, a “bubble burst” is driven by the law of supply and demand. The real

estate prices are also subject to either an increase or decrease of supply & demand.

When demand increases or supply decreases, prices go up. So, with the presence of

this natural pandemic Covid-19, will there be a decrease or increase of supply of

homes causing prices rise or fall when demand tends to outpace supply trends, and

vice-versa?

However, in these days of Covid-19, we need to determine the level of

demand, if there is demand at all during the period. We need to revisit factors that

steer demand such as the country’s general economic activity, low or general level of

interest rates, innovative mortgage offerings, and ease of access to credit.

There is also the need to determine how the country’s real estate industry

perform during this pandemic. Is there excessive risk-taking that prices no longer

reflect fundamentals that can force a burst of the bubble? Are there loses triggered

by economic variables suffered by homeowners, mortgage lenders, mortgage

investors, and property investors? What are these triggers? Increase in interest

rates? Downturn in general economic activity? Exhausted demand that slows down

real estate price appreciation and stagnates investments?

As a student of real estate management, it is an opportune time to look deeply

into the possible implications of this pandemic to the country’s real estate industry as

we perform an industry scan that includes sources from industry stakeholders,

government agencies, and real estate service practitioners.

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 HYPOTHESIS

The Philippine Real Estate Industry, like other industries, I believe faces a

slowdown, not a burst of the bubble during this period of Covid-19. If so, being more

strategic in reinventing and repositioning business plans, becomes the norm.

Thinking beyond normal activities has now become more necessary.

A bubble bursting happens. It is not a myth neither. Countries like China,

Japan, New Zealand, Argentina, Spain Lebanon, Poland, Ireland, France, and others

experienced pre-covid19 bubble burst from 1990- 2007. A lot other countries are

facing the risks to date that may or may not be due to the pandemic.

Fortunately, not the Philippines. As least, as of this writing, if not effectively

managed and prices of real estate properties controlled.

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 METHODOLOGY

A qualitative analysis using secondary information will be the primary method

in conducting this study aimed at producing contextual real-world knowledge about

the behaviors, social structures, and shared beliefs of among real estate industry

players & stakeholders. specific group of people.

The method to select secondary information will be from real estate

practitioners who have direct knowledge and are known industry players.

Government policy departments that have impact on general economy of the country

shall also be analyzed.

Among some of these, are as follow:

a) RE Players & Stakeholders

• Collier’s International Philippines / Santos Frank Knight, Philippines /

Asia Property HQ, Philippines / Lobien Realty Group / Leechiu Property

Consultants Inc / Lamudi / Hoppler / Property 24 / Plus Others

b) Government Agencies

• Central Bank of the Philippines / Department of Finance / NEDA / PRC

/ DHSUD

c) Leading Business Newspapers & Industry Publications

• Business World / Inquirer / Manila Standard / Philippine Star

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 RESULTS

A content analysis relative to subject case on hand reveals information that

are highly relevant to answer stated hypothesis. These information are as follow:

1. General Economic Activity

a). Despite the economic decline in the Philippines 2020, the projections of

the World Bank expect the economy of the Philippines to bounce back

in the next two years due to gradual easing of more business activities.

The WB economic growth forecast at 5.3% in 2020 has been revised to

5.9% growth indicative of gradual uptick in 2021. It is further projected

that momentum will be sustained till 2022 with a growth forecast of

6.0%/

“The World Bank expects Philippine economic growth to bounce back

in the next two years after a worse-than-projected decline in output in

2020, as the country gradually eases coronavirus curbs to allow for

more business activity. The economy is forecast to grow 5.9% next

year, stronger that its earlier forecast of 5.3%, and gain more

momentum in 2022, with growth projected at 6.0%.” [2].

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b). The Bangko Sentral ng Pilipinas (BSP) proclaims that there is no fear of

a property bubble in the Philippines. While there is some persistent

demand in some condominium sector, prices of these properties

remain controlled and within market fundamentals.

“We see both developments in both equities and real estate sector as

mainly driven by market fundamentals,” Diokno noted. “We see the

price movements in both areas is within the long-run trend. Per the

latest staff analysis, house prices do not indicate overvaluation now.

Even with the COVID-19 pandemic dragging on the economy, the

housing market continues to perform well. Some experts had been

predicting a major price correction, but many developers recorded

significant sales in the first half of 2020 with prices remaining stable.”

[3].

c). During its year-end economic briefing, the National Economic

Development Authority (NEDA) presented that strong start in

2020, however, due to the unexpected event of the pandemic almost

aspect of our economy and our very own lives were affected.

Thanks to timely implementation & congress approval of crucial

reforms like the rice tariffication, tax reform, universal healthcare, and

national ID, (and soon CREATE). The country would have been in a

more difficult fiscal position.

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 “Despite this whirlwind of a year, we started 2020 with a strong

foundation and the country was likely to become an upper-middle

income country this year if not for COVID-19. Between 2015 and 2018,

poverty rate fell from 23.5% of the population to 16.7% of the

population in 2018. This means we have lifted some six million Filipinos

from poverty. This was our target for 2022 but we achieved it in 2018,

four years in advance.

Over the past four years, GDP growth averaged 6.6 percent, placing

the country among the fastest growing economies in the world. We

recorded low and stable inflation, which averaged 3 percent from 2016

to 2019, well within the government’s target range of 2 to 4 percent.

This was supported by the passage of foundational reforms such as

the Rice Tariffication law (RTL). In 2019, we had the highest revenue-

to-GDP ratio in decades at 16.1 percent and the lowest debt-to-GDP

ratio at 39.6 percent- enabled by the comprehensive tax reform

program and other fiscal measures”. [4].

2. Bank Interest Rates

a). In keeping the economy afloat and implement monetary policy at the

time of pandemic, the Bangko Sentral ng Pilipinas lowered its interest

rates from 2.75% to an annual rate of 2.25%.

This reduction in interest rates counters a weakening of prices, or a

possible deflationary situation. It also revitalizes the economy and

helps to increase exports.

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 Armed with more fiscal and monetary space to manage the impact of

the pandemic, the BSP has reduced interest rates to support an

economy struggling with the coronavirus pandemic.

“The Philippine banking system is strong. The average nonperforming

loans ratio was 2.31% in April and rose slightly to 2.43% in May, data

from the BSP showed. Still, to mitigate any potential rise in

nonperforming loans, the BSP is supporting the establishment of asset

management corporations, the BSP said. The proposed new asset

management companies could be government- or privately owned will

be given fiscal incentives.

The Local banks are also well-capitalized due to the central bank's

strict capital requirements. The BSP has adopted Basel III

requirements in full, requiring banks to meet 10% total capital

adequacy ratio with a 6% common equity Tier 1 ratio”. [5].

3. Real Estate Landscape & Performance

Generally, the majority, if not all, of the real estate professionals are bullish

about the industry bouncing back due to its resiliency. To most, the global

economic crisis in 2008 -2009 was even more disastrous to the economy.

But due to the strong economic fundamentals the country maintains to

date, the industry can bounce back sooner than later.

a). Collier’s International projected a slowdown in condominium completion

due the imposed quarantines. Together with this is also a slowdown in

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 business opportunities including drop in unemployment and

remittances. However, Colliers also believe that the “bank’s low interest

rates can help stoke condominium market in 2021. Low-interest rates

should keep mortgage rates low, and this should enable developers to

offer flexible lease terms to buyers”. [6]

b). A great number of the country’s real-estate developers believe there

will be continuing challenges caused by the Covid-19 pandemic. These

developers remain less optimistic on the short-term towards yearend

2020 but are optimistic of a big rebound in the medium terms as the

fundamentals for the Philippine real-estate market remain

extraordinarily strong.

“expressed optimism in the medium term as the market will show early

signs of recovery along with moderate growth in capital values and

rental rates. “Market vulnerability, however, is seen to persist up to the

mid-term. In the long term or a period of two to three years, the

developers are very optimistic of the full recovery of the property

market and expect that the market will again buildup momentum

through a strong rebound of both supply and demand growth drivers”.

[7].

c). “The Philippines will recover due to the outsourcing industry and the

government’s Build, Build, Build initiative that will jumpstart the

economy. These two sectors open job opportunities for many and spike

up demand for more office spaces to be taken and used.

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 “The real estate is always a safe place to invest in because real estate

is part of the basic human need, whether it is shelter, food, or work.

While COVID-19 has affected the office, tourism, and warehousing

sector, the people’s need to work, find temporary residences, and

transact online has ushered in windows of opportunity for the property

market to continue thriving and adapt to the changes of the new

normal.” [8]

4. Future Trends & Industry Direction

a). A report published by Santos Knight Frank recently revealed that

various industry drivers will fast track rebound of the real estate

industry. Among them is the rollout of Real Estate Investment Trusts

(REITS). The latest real estate investment instrument that can further

steer the market. This presents additional investment opportunities in

real estate investments.

“More property companies have expressed interest in Real Estate

Investment Trusts (REITs) after regulators unveiled the revised rules in

January. Property giant Ayala Land recently filed its application for its

own REIT subsidiary, AREIT, while Double Dragon Properties Corp is

looking at raising PHP 11 billion annually over a six-year period via

REITs. Companies such as Megaworld, SM Prime Holdings Inc.,

Robinsons Land, and Ortigas & Co. have also expressed interests on

REITs. [9]

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b). Condominium supply continues to rise.

“The total condominium stock in Metro Manila’s CBDs reached

130,090 units in 2019, up 9.4% from a year earlier, following an 11% y-

o-y increase in 2018. In 2019 11,200 units were completed, slightly

down from 11,800 units completed in 2018 but still up from an annual

average of 7,500 units in the past ten years.

Overall, Metro Manila’s condominium stock is expected to reach

around 158,300 units by end-2022, an increase of about 22% from last

year.” [10]

c). Asia Property HQ concluded that there are several reasons why the

real estate market continues to grow in the Philippines.

“Having one of the fastest-growing economies in Asia. Some of the

main drivers are the following: Business Process Outsourcing,

Continuous Supply of Flexible Workspace, Increased Number of

Chinese Buyers, High Remittances from Overseas Filipinos”.[11]

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 ANALYSIS

There is quite a voluminous reference written and reported about the real

estate industry at this time of the pandemic. Property consultants conduct studies

and analysis that can serve as lamppost to guide industry players in coming up with

informed and scientific decisions in moving business forward.

The information I used, while only a representative of the various studies can

already lead to a conclusion on the hypothesis. As mentioned, there is a lot more -

write-ups, meeting briefers, property segment performance analysis, government

statistics that will likewise prove the hypothesis correct. Only that all points lead to

the following:

• Monetary policy makers, the BSP, have allowed certain degree of

flexibility in terms of lowering interest rates to help steer business

activity

• Economic planners, NEDA, have drawn up aggressive & pro-active

economic plans that is projected to uplift unemployment, sustain

government infrastructure developments, and propose laws that offer

incentives to traders & businesses including property owners

• Government Health planners are on the ball in easing up and

managing effects of the pandemic while opening the economic as we

wait for Covid-19 vaccine to arrive

• Industry stakeholders & players are holding fort while optimistically

looking forward to a strong rebound of the industry

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• The market of real estate has not completely loss its appetite in

consuming property investments. New form of real estate investments

is coming to fore. Adopting a ‘wait and see’ approach is safest way

given unknowns of the pandemic

• Lastly, the real estate industry will be prepared to meet a strong

rebound anchored on strong fundamentals and extremely optimistic

real estate practitioners, players, and stakeholders & shareholders

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 CONCLUSIONS.

There is no doubt that the Philippines’ general economic activity is on a

downtrend brought about by this health crisis, Covid-19. Our economy experienced

the longest lockdown with different levels of community quarantines meant largely to

address public safety. The economy slowed down. Some even say that we have

entered a period of recession, like the rest of the world.

Yet despite this struggling circumstances, the country’s real estate industry

like most other industries has remained resilient and flexible to adjust quickly in

making businesses live with the new normal. For sure, the industry has slowed down

but it has not tilted even close to a burst of its bubble.

Information presented in this case study showed expert handling of all

segments that play crucial roles in keeping the industry, more so the economy,

survive this pandemic. Every segment from government financial institutions,

industry regulators, developers, practitioners, consultants, and other industry experts

putting heads together to help provide insights and recommendations to better

manage the industry’s strong rebound.

This astute management that includes timely monetary policy, continued

infrastructure developments, fiscal innovation and incentives, and deeply penetrating

research studies by various real estate firms help alleviate a worsening economic

condition, if remain unattended.

It was mentioned earlier that bursting bubbles in not a myth either. There were

already bubble burst in earlier years brought about by different market conditions

that even include the Asian and Global economic crisis. But then again, the country’s

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real estate industry is not there yet. It should never reach the burst at all because of

strong fundamentals supported by industry’s key drivers - New Investment

Opportunity, Business Process Outsourcing, Continuous Supply of Flexible

Workspace, Increased Number of Chinese Buyers, High Remittances from Overseas

Filipinos.

The day will soon rise and greet the real estate industry ‘Good Morning’ once again!

Note:

It would be good to include research data & charts to further support all that are

stated above. Time in securing permission and authority to utilize same data in a

case study such as this is limited. It also may require proper school representation

stating purpose in gaining access. – Thank you.

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 REFERENCES

[1] https://www.investopedia.com/articles/07/housing_bubble.asp
[2] Dec 8, 2020, Reuters, https://www.reuters.com/article/worldbank-philippnes-
economy
[3] Aug 11, 2020, Cheyenne Hollis, https://www.dotproperty.com.ph/blog/bsp-
confident-no-property-bubble-forming-philippines#:
[4] https://www.neda.gov.ph/2020-year-end-statement-of-acting-socioeconomic-
planning-secretary-karl-kendrick-t-chua/
[5] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-
headlines/philippines-to-keep-rates-on-hold-with-lenders-well-placed-to-handle-
covid-19-59419646
[6] https://www2.colliers.com/en-ph/news/outlook-for-philippine-property-recovery-
amid-a-lethargic-q1-gdp
[7] https://businessmirror.com.ph/2020/09/22/developers-maintain-a-bullish-outlook-
in-the-next-2-to-3-years/
[8] https://www.lamudi.com.ph/journal/sheila-lobien-commercial-real-estate/
[9] Santos Knight Frank Research Reports are available at
santosknightfrank.com/market-reports
[10] The Philippines’ housing market is now two-tiered, Lalaine C. Delmendo
https://www.globalpropertyguide.com/Asia/Philippines/Price-History
[11] Philippines Real Estate Market Outlook 2021: A Complete Overview
Posted on December 6, 2020 by Marcus Sohlberg
https://www.asiapropertyhq.com/philippines-real-estate-market/

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