With the current situation of the country and abroad, the global markets have been affected with the COVID 19 pandemic effects to the World Economy. There are current job losses, missed opportunities and money being lost brought about by such health crisis. All industries are dependent on Real Estate Market and are heavily connected with the national economy. In our recent post last February on the Philippine economic outlook for 2020, The Philippines had slowed down and has dipped to -7.3 % based from reports from Asian Development Bank. Contractions have been seen and felt all throughout the closure of the archipelago since March 16, 2020 to June 30, 2020 (Enhanced Community Quarantine) and the post lifting of ECQ to Modified General Community Quarantine in July 2020. A lot of businesses were affected with closures particularly the Micro, Small and Medium Enterprises (MSME) sector, hotel / tourism sector, airline and travel sector. Other sectors have were also affected with this great pandemic which contributed to the negative dip of the world economy in general. These industries are co-existing and reliant with each other and the real estate sector at the same time. In a recent reports from PSA released last month, says "The Philippines records a GDP growth rate of -11.5 percent in the third quarter of 2020".
Real Estate Industry’s Contribution
The real estate sector has a great contributory factor to the the national economy. Most establishments in brick and mortar settings are reliant and tied to real estate. Examples of these are the malls with retail shops, restaurants and entertainment areas we visit almost daily. Although online selling and online shops are now trending today they still heavily rely in real estate for infrastructure like telecommunication facilities and towers being built to satisfy the needs of clienteles who are now working from home or communicating via Video Teleconferencing (VTC) to prevent the transmission of COVID 19 in the work place is another example. Furthermore, an example of these are the logistics companies reliant in warehousing facilities for storage of goods and garage of vehicles. Food production may have been slowed recently but Agriculture reigns is in the top list of necessities needed by the population to consumed for their daily sustenance. These are just a few examples and in my opinion that are interconnected with each other and in the Philippine Economy and the "New Normal".
The Real Estate Cycle Charts
The real estate cycle is similar to the business cycle. It comprises of four (4) phases namely:
Recovery Phase (I) - A market area in revitalization is recognizing the need for monetary input. This is the time for restoration and remodeling. Some structures are torn down to the framing and redeveloped into new structures. The latter is very common in historic districts where large sums of money will be spent to make a property like new.
Expansion Phase (II) - In a growing area, improvements are newer, there is new construction, and the prices of improved real property tend to approximate the cost of new construction less depreciation. A market area in the growth stage is competing well with other market areas. For example, new home buyers are active.
Peak Phase (III) - Also known as "Hypersupply". A stable market area is holding its own, and property values are stable or increasing slightly, depending on maintenance levels. Stable market areas are well placed, and the prices of real estate are very dependent on maintenance levels. Potential buyers are no longer looking for new construction but do not really want to rehabilitate old homes yet because prices are high.
Contraction Phase (IV) - Also known as "Recession". Property values in declining areas are stable or
decreasing, and sellers outnumber buyers so prices must fall to attract more demand. At this stage, vacancies are increasing and some building improvements are deteriorated or my even be razed. Deferred maintenance becomes more apparent as the market declines. Most properties need some work but not enough to make them unusable.
End of COVID 19 in Sight and the Future Philippine Real Estate Outlook?
A few weeks, scientists from different pharmaceutical companies like Pfizer, Moderna and AstraZeneca – Oxford University collaboration have already released their findings for a vaccine with 90% efficacy in combating COVID 19. Other manufacturers like Sinovac (People's Republic of China) and Gamaleya (Russia) have already submitted their proposals to the Philippine Government. However, the Department of Science and Technology (DOST) have mentioned that these vaccine should be studied first before approval by Food and Drug Administration by 2021. This good news has brought great joy and good tidings with the coming holiday season with the possible release of Phase 4 by early 2021 or so. Still, precautionary measures and basic health safety protocols should be strictly followed and implemented in combating this pandemic while there are no available vaccines yet in the market and with our national government's plan to purchase 60 million doses of Anti-Covid 19 vaccines in the next fiver years and develop herd immunity among the local populace.
The real estate sector was highly affected with this pandemic. The positive economic outlook of Asian Development Bank's recent report for 2021 is at 6.5%. Although, we are still reeling from the pandemic and still looking on what will happen in the coming months. I am hopeful that total economic recovery would be felt in the next three to five years in my conservative estimates.
- Philippine Economy to Decline Further in 2020 Amid COVID-19, With Recovery in 2021
- Book: Residential Market Analysis & Highest And Best Use, 3rd Edition by Dan Tosh & George Miller
- Photo Credits No. 1 from
- Photo Credits No. 2: Rental Property Investing / Kidder Matthew
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