April remittance contraction hits 19-year record
In April 2020, cash remittances from Overseas Filipino Workers (OFWs) reached USD2.05 billion (PHP100.5 billion), down by 16.2% YoY. The Bangko Sentral ng Pilipinas (BSP) or central bank highlighted that the drop was the deepest contraction recorded since the 33.5% decline in January 2001. Cash remittances for the first four months of 2020 also fell by 3% annually to USD9.5 billion (PHP465.5 billion). According to the central bank, the decline was likely caused by the repatriation of OFWs due to the pandemic. The agency expects remittance inflows to decline by 5% in 2020. BSP Governor Benjamin Diokno said that recovery will likely start by 2021, depending on the recovery of host countries.
Colliers sees residential demand softening in 2020 given the uncertainty in the market and the drop in OFW remittances. The decline in remittances will likely affect projects under the affordable to mid-income segment (PHP1.7 million to PHP5.9 million or USD34,700 to USD120,400) as remittances are among the factors that fuel the demand for these projects. Assuming that the pandemic is contained within H2 2020, we project residential demand to recover starting 2021 and recapture the pent up demand. In preparation for the recovery, we recommend that developers highlight their property management and sanitation capabilities. In our opinion, developers that enforce strict health protocols and have an effective disaster preparedness plan will likely attract potential buyers.
P63-B MRT-7 now 60% complete
The Department of Transportation (DOTr) said that the PHP63 billion (USD1.3 billion) MRT-7 railway project is close to 60% complete. The 22 kilometre (13 mi) rail line will likely reduce travel time from North Avenue in Quezon City to San Jose del Monte, Bulacan to 34 minutes from 2 hours. MRT-7 is expected to serve 300,000 to 850,000 passengers daily once fully operational by 2022.
In our opinion, railway projects such as the MRT-7 will likely contribute in decongesting Metro Manila and raise the attractiveness of adjacent cities for property development. Colliers believes that developers should explore the viability of land surrounding the project for the development of integrated communities which highlight office towers, residential buildings and other establishments such as hospitals and supermarkets that cater to residents’ essential needs. Colliers believes that infrastructure projects including MRT-7 should provide ample opportunities for office and residential investors and developers given these projects’ positive impact on land value and property price appreciation.
Tourism recovery to be gradual; small firms struggling to survive
The International Institute of Finance (IIF) noted that the gradual recovery of the tourism industry will likely depend on how governments handle the spread of the virus. The group added that tourism-dependent emerging markets may find it challenging to recover given that the industry is reliant on small and medium-sized enterprises. The IIF believes that a number of countries will likely face a 60% reduction in arrivals in 2020, even under the assumption of a 75% recovery by the end of the year. John Paolo Rivera, Associate Director of the Dr. Andrew L. Tan Center for Tourism at Asian Institute of Management, highlighted that the country needs a comprehensive plan to recover from the pandemic. Necessary protocols should be put in place as the primary concern of tourists is their safety.
Data from the Department of Tourism (DOT) showed that foreign arrivals in H1 2020 dropped by 68% compared to the same period in 2019. The decline in foreign tourist arrivals due to strict travel restrictions will likely lead to a decline in hotel occupancy rates across Metro Manila. The drop already started in Q1 2020 when occupancy rates plunged to as low as 35%, from 71% in 2019. We also see this resulting in lower rates across the capital region. Given the decline in foreign arrivals, we recommend that hotel operators target local tourists as the government prepares to gradually re-open domestic tourism. Other potential guests include returning OFWs and professionals looking for halfway housing facilities. Accredited hotels that were allowed to re-open should also highlight their health and safety protocols.