Real estate industry fears ‘consumer finance crisis’

While dollar earning Filipinos have caused the dynamic economy in the Philippines, the continued strengthening of the peso to the US dollar may cause a “consumer finance crisis” especially for real estate and retail.

In an economic briefing organized by China Trust (Philippines) Commercial Bank Corporation,  Rolando Avante, the bank’s executive vice president and treasurer, warned that a growing concern on the declining of consumer demand, as OFWs are now keeping their money, instead of spending, due to the lesser value of their dollars.

Avante warned that in the middle-range real estate industry, wherein growth is fueled by the OFW market, a decline of demand in this particular segment is seen as dollar dominated income of Filipinos working abroad is now getting smaller, while they (OFWs) don’t get increases in the salaries.

Significantly, he said amortization of the real estate products does not change, and value of their income has declined, “it is worrisome, because OFW don’t get increases,” he warned.

Economic observers have seen a “red light” in the consumer demand for the Philippines, while the Philippine peso is seen to take stronger hold against the greenback.

He hopes that small and medium real estate developers have already taken their preparatory measures, in case consumer shock will happen.

For bigger developers on the other hand, he said these companies have already put in place preparatory shields if ever OFW market will take a slower movement.

The Philippine peso had already appreciated by 20 percent from P56 last year up to P45 levels these days. He said there is possibility that peso will continue to climb breaking P44 if the entry of dollar will not be well defended.

Aside from the growing entry of dollar remittances to the Philippines, there are also foreign bond investors, like the Japanese who are taking advantage of the strong peso, selling their yen to dollar dominated bonds, and invest it in the Philippines. This has pushed further the dollar reserves in the country.

Avante reported that in his own bank, they have three to four real estate developer clients, which have developments in middle-range housing projects, from P500,000 to P1 million, expressed observation of slower consumer demand from the OFW market.

The Philippine real estate industry, which has been affected heavily in the 1997 regional economic crisis, has experienced a rebound in the recent years, primarily because of the dollar-earning Filipino market.

He reiterated that the strong peso, although an indication of a good economic landscape in the Philippines in the macro level, could also triggered a slight fall down in the consumer demand—in the dollar-earning consumer based.

Generally, he said the Philippines is slowly building a good impression in the outside investors, because it has successfully taken out the “political risk” factor, meaning the environment much better, although it’s not yet the “ideal”.