Manila Standard Today, 12 December 2014
By MST News
Philippine construction shows steady growth
Erlinda Tanuan does not mind the 30km commute to work that takes 90 minutes each way, She does not regret building a 160 square meter house on Better Living Parañaque, a suburb south of Manila.
“My husband and I can now enjoy complete privacy,” says the 40-year old call center manager, who, until recently, had no choice but to live with her mother in an overcrowded ancestral home in the capital.
Tanuan is not alone. With a housing shortfall expected to rise to 5.8m homes by 2016, from 3.6m in 2010, according to government estimates, overcrowding is common. But thanks to record low interest rates and lower downpayment requirements, thousands have for the first time found themselves able to afford their own homes.
The phenomenon is helping to fuel a construction boom that is helping boost the Philippine economy – one of Asia’s fastest growing in the past two years.
Despite the devastation of Typhoon Yolanda in November, 2013 and Typhoon Hagupit last week (which as of press time killed 30 people and destroyed over a thousand homes), industry data is pointing to a full year economic growth in 2014. This follows a 7.2 per cent rise in 2013, and a 6.8 per cent spurt in 2012, the first time in over 20 years that the Philippines posted growth above 6 per cent for three consecutive years. By value, construction and real estate sectors accounted for almost a fifth of the economy – almost as much as manufacturing.
Increased infrastructure spending
Underlining the speed of development, David Young, managing director of Colliers International, a real estate consultancy in Manila, estimates that up to 25,000 residential condominium units will be built in the city’s main business districts in the two-year period to 2016. That is almost half the stock of 58,000 units built in the last 40 years.
Demand is coming from Filipinos working overseas as well as a growing middle class. Millet Liberato, a 32-year-old public relations executive, said: “I like living in my condominium here at Bonifacio Global City despite being a little small because it signifies an independent lifestyle.”
In a business forum organized recently by Punongbayan and Araullo, an audit and outsourcing services firm, Young calculated that between 2014 and 2016, 1.5m sq m of new offices will be constructed – a quarter as much again as the 6.2m sq m existing at the end of 2013, he said. Most is being built in anticipation of the continued growth in call centres and other business outsourcing services, a sector expected to double its workforce to 1.3m by 2016.
Largely helped by significant public spending in infrastructure, the construction sector saw robust growth in 2013 and the second half of 2014. An improved investment climate, which saw a steady flow of remittances and inward investments directed at the property sector, also played a part in spurring construction activity. Investment-rate upgrades from Fitch Ratings and Standard & Poor’s continue to make the country an attractive investment destination. Earlier this year, the Asian Development Bank declared that the outlook for construction remained “bright.”
Real growth for the construction sector is forecast to average an annual growth of 7.9 percent between 2014 and 2017. The boom in construction, especially in the residential subsector, is in turn pushing demand for power. Therefore demand for utilities-related construction projects (power stations, transmission lines, water treatment facilities) is expected to increase going forward.
Challenges ahead
But most foreign participation in this growth is limited to equity and technical partners for local firms bidding for Public Private Partnership (PPP) projects. The playing field in the construction sector still remains tilted in favour of domestic firms.
A lack of transparency hurts the sector’s competitiveness. There have been conflicts over contractual rights, such as legal wrangling over the privatization of Ninoy Aquino International Airport 3 and the South Luzon Expressway toll bridge.
True, the infrastructure sector presents numerous potential opportunities, but its relative small size compared to bigger neighbors means the country’s risk-reward trade-off for large investors is not as attractive as some other Asian countries.
Possible risks to growth might be expected from a slower recovery of the global market, delays in rolling out large-scale PPP projects, and possible asset price bubbles in the real estate sector.
Optimism abounds
Still, local stakeholders including architects, engineers, real estate firms have expressed strong optimism about the construction sector and its allied industries. “The construction business will definitely enjoy a banner year in 2014,” said Young, as he pointed to the government’s launching of a massive infrastructure development program with nine major projects nationwide costing P62.3 billion. The National Economic and Development Authority said a million homes are in various stages of construction in typhoon-hit areas. Building activities outside of Yolanda and Hagupit-affected areas, are also expected to contribute to the growth next year, such as preparations for the Asia-Pacific Economic Cooperation meeting in Manila in 2015.
