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Manila Market Intelligence: September 16, 2020

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Bangko Sentral seen keeping rates steady until 2021

NEWS

ING Philippines Economist Nicholas Mapa said the Bangko Sentral ng Pilipinas (BSP) or central bank will likely keep rates steady until 2021 given that real policy rates turned negative. The central bank has slashed key interest rates by a total of 175 basis points in 2020. ING Philippines projects that the inflation rate in 2020 will likely be on the lower end of the agency’s inflation target of 2% to 4%. In August 2020, the inflation rate further eased to 2.4% from 2.7% in July, bringing year-to-date inflation to 2.5%. The August 2020 figure is lower than the 2.7% consensus forecast for the month. BSP Governor Benjamin Diokno noted that monetary policy settings will likely be steady for at least two quarters. Diokno added that the agency may also hold back on decreasing the reserve requirement.

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RESEARCH VIEW

Colliers believes that the impacts of the pandemic on the residential sector may likely lead to softening of prices in the secondary residential market, which covers ready-for-occupancy (RFO) units. The price correction will likely be felt in the mid-income segment (PHP3.2 million to PHP5.9 million or USD65,300 to USD120,400 per unit) which accounted for 39% (17,600 units) of the total unsold inventory of 44,800 units  in Metro Manila as of the end of Q1 2020. We recommend that investors take advantage of the potential decrease in prices and the lower interest rates offered by the central bank.  The decrease in interest rates should in turn result in lower mortgage rates. Investors planning to buy units should also consider units located within integrated townships with easy access to offices and stores offering essential goods and services.

MM subway project to generate thousands of jobs

NEWS

Department of Transportation (DOTr) Secretary Arthur Tugade said that the arrival of the tunnel boring machines (TBMs) for the Metro Manila Subway Project (MMSP) will likely generate more jobs in the construction sector once actual work starts in 2021. Secretary Tugade added that this project will likely create about 59,000 jobs (direct and indirect employment). The subway project, which features advanced technologies such as flood resiliency, is also expected to serve about 1.5 million passengers daily once completed. The PHP357 billion (USD7.3 billion) MMSP is scheduled for partial opening by the end of 2021 and full operations by 2026.

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RESEARCH VIEW

In our opinion, the government’s infrastructure implementation should help temper the rise in unemployment rate as well as foster economic recovery. Data from the Philippine Statistics Authority (PSA) showed that unemployment rate reached 10% in July 2020, which translates to about 4.1 million unemployed Filipinos. Meanwhile, employment in the construction sector reached 4 million from only 2.8 million in April 2020 due to the resumption of public infrastructure projects . Despite the impact of the pandemic on property, we see developers building their own infrastructure projects such as roads and bridges which will likely complement the development of their own integrated communities in Metro Manila. Moving forward, we see other infrastructure projects such as the MRT-7, LRT-1 Cavite Extension, Skyway Stage 3 and the LRT-MRT common station playing a role in raising property prices, unlocking land values and boosting the attractiveness of integrated communities within and outside Metro Manila.

Pandemic now seen destroying jobs of 700k migrant workers

NEWS

The Department of Labor and Employment (DOLE) said that about 700,000 Overseas Filipino Workers (OFW) are likely to lose their jobs due to the COVID-19 pandemic. DOLE added that about 500,000 OFWs have lost their jobs as of the end of August, and about 200,000 more if the pandemic persists for the remainder of the year. About 180,532 OFWs have been repatriated and assisted by the government since May 15.

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RESEARCH VIEW

Data from the Bangko Sentral ng Pilipinas (BSP) or the central bank showed that remittances sent in by OFWs as of the end of H1 2020 reached USD15.6 billion (PHP758 billion), down 4.2% as compared to the USD16.2 billion (PHP787 billion) recorded in H1 2019. Colliers believes that this drop in remittances will likely have an impact on the residential sector. Anecdotally, remittances partially drive the demand for affordable to mid-income (PHP1.7 million to PHP6 million or USD35,000 to USD123,500) residential units. Colliers encourages developers to offer flexible payment terms as well as monitor COVID-19 developments in the United States, Saudi Arabia and Singapore as remittances from these countries account for 52% of total inflows. During the Asian Financial Crisis (AFC) in 1999, remittances plunged by 18.3% while prices of condominiums in the secondary market dropped by 9%. Meanwhile, the central bank expects remittances to decline by 5% in 2020 before recovering by 4% per annum in 2021 and 2022.

 

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Joey Bondoc

Associate Director

Research

Manila

Prior to joining Colliers in March 2016, Joey worked as a Research Manager for a research and consutancy firm where he handled business, political, and macroeconomic analysis. He took part in a number of consultancy projects with multilateral agencies and provided research support and policy recommendations to key government officials and top executives of MNCs in the Philippines.

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