Outlook mixed amid perceived construction boom

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By Mark T. Amoguis, Researcher

REAL ESTATE players are less bullish about the sector’s performance and the economy in the first quarter and the next than they were in the final quarter of 2017, results of the central bank’s survey on business confidence showed.

Outlook mixed amid perceived construction boomThe Bangko Sentral ng Pilipinas’ (BSP) latest Business Expectations Survey, released last March 2, showed real estate sector confidence in the Philippine economy slipped in the first three months of 2018 to 44.8% from the 57.1% logged in the fourth quarter last year, but higher than the 38.1% recorded in the January-March period of 2017.

Separately, the construction sector bared optimism in the first quarter of this year with confidence reading of 29.8% during the period from 22.3% from the October-December period last year. This, however, was lower than the first three months of 2017’s 35.7%.

The confidence index is computed as a percentage of respondents who answered in the affirmative less those who responded in the negative when asked about specific indicators.

“The more upbeat outlook of construction firms for Q1 2018 was due mainly to expectations of new construction projects (both public and private) to be awarded in 2018,” the report read.

“Ongoing construction activities are expected to continue into Q2 2018, as the next quarter CI (confidence index) remained high although lower than that a quarter ago.”

Data last week showed infrastructure spending surging 15.4% to P568.8 billion last year, surpassing the P549.4 billion programmed under the 2017 budget according to the Department of Budget and Management.

The construction sector’s optimism reflected that as its outlook on its own operations improved to 35.1% against 20.1% in the last three months of 2017 and 34.2% in the first quarter last year.

But real estate players were more reserved with a 42.6% reading during the period, lower than 50.1% in 2017’s fourth quarter although higher than the 40.3% recorded in the first quarter of 2017.

Overall results of the survey pointed to business sectors, while optimistic in the first quarter, less confident about the economy on account of the “usual slowdown in business activity” following the holiday season as well as the “transitory impact” on prices brought by the Tax Reform for Acceleration and Inclusion (TRAIN) law.

Business sentiment in the second quarter of 2018 was more favorable with companies citing, among others, the expected increase in government infrastructure projects from its “Build, Build, Build” initiative and the increase in business activity due to the upcoming summer season.

Sentiment among construction firms was 49.1% next quarter, higher than 39.2% in the first quarter of 2017 albeit down from 59.7% in the October-December period of 2017.

Real estate, on the other hand, was less upbeat in its outlook with 42.4% compared to 43.7% and 46.6% in the fourth quarter and first quarter of 2017, respectively.

David T. Leechiu, chief executive officer of Leechiu Property Consultants, said the results had a lot to do with the risks that the country faced last year, citing the extrajudicial killings, the Marawi crisis, anti-Western sentiments, and the TRAIN law as factors.

“But this is temporary,” Mr. Leechiu said in a phone interview.

He said that many of the business process outsourcing companies are coming back to the Philippines, translating into pent-up demand in office space.

“In 2018, year to date, we have 420,000 square meters of office space already pre-committed and pre-leased. It is the highest we’ve seen in history,” Mr. Leechiu said.

“We forecast that 2018 will be a strong year with around 900,000 square meters of office space take-up for this year.”