"What the economy needs is a sector that will act as a catalyst and lead the way to recovery."
(First of two parts)
In February this year, the Philippine government prohibited inward and outward airline flights, and on March 15 President Rodrigo Duterte ordered the lockdown of Metro Manila and a number of immediately surrounding provinces. Under the Enhanced Community Quarantine (ECQ), land transportation was severely curtailed, movement without quarantine passes was prohibited and only business establishments producing essential goods and services were allowed to operate, but on a reduced-capacity basis. In July the lockdown status of Metro Manila and its immediate provincial neighbors was lightened to Modified Enhanced Community Quarantine (MECQ) and subsequently to the even lighter general community quarantine (GCQ).
Metro Manila has been under lockdown longer than any other country or territory.
Considering that Metro Manila and the immediately surrounding Calabarzon (Cavite, Laguna, Batangas, Rizan and Quezon) provinces account for an estimated 25 percent of this country’s gross domestic product (GDP), the very long lockdown’s negative impact was bound to be severe. Proving all estimates of second-quarter production decline grossly wrong, Philippine GDP contracted during the April 1-June 30 quarter by 16.3% -- the largest contraction since the system of GDP accounting was established. With the easing of the lockdown, the decline of GDP was reduced to 11.5 percent in the third quarter.
With all airline flights either banned or curtailed, service establishments and manufacturers of non-essential goods prohibited from operating and the land transportation sector subjected to sharply reduced schedules, most of the nation’s business establishments either adapted to the harsh IATF guidelines or stopped operating completely. Millions of employees, especially employees of MSMEs (medium, small and micro enterprises) – the Department of Labor and Employment estimates of newly jobless workers is 7 million – are no longer receiving incomes. National Economic and Development Authority (NEDA) and the Department of Social Welfare and Development (DSWD) determined that 18 million families were in need of government fiscal support. To alleviate the plight of the unemployed workers and the small businesses, Congress has enacted two laws – Bayanihan I and Bayanihan II – to provide Social Amelioration Program (SAP) payments totaling close to P400 billion. Given the extent of the damage that the Philippine economy has sustained, most knowledgeable observers believe that the amount, which is the lowest among the Association of Southeast Asian Nations (ASEAN) countries, is not nearly adequate for the intended purpose.
As in other coronavirus-hit countries, there is an increasingly tense debate as to whether it is now sage to terminate the lockdown and start reopening the economy. And as in other countries where such a debate is on-going, it is the business community and political groups that are leading the clamor for a move from lockdown and toward economic reopening.
A crisis does not impact sectors of an economy in the same manner and to the same degree. Most sectors are either severely or substantially damaged, but a few manage to get away with only modest damage. A handful of sectors even thrive. Needless to say, the merit of economic sectors as good instrument options is being tested as to ability to cope with the pandemic that is ravaging the economy of this country. The better a sector has been able to cope, the better it is as an investment option.
A sector that has fared comparatively well during the current pandemic is the real estate sector. There have been declines in sales and some staff cuts, it is true, but no real estate developer has been in any danger of closing. Leechiu Property Consultants estimates around P66 billion reservation sales among the top 15 real estate developers during the ECQ period, with SM Development Corporation (SMDC) leading the pack with estimated sales of P32B, followed by Ayala Land with P11 billion.
SMDC managed to buck the tide by posting revenues totalling P23.7 billion in the first half of 2020, a figure 11 percent higher than the P21.4 billion of the same period last year. The property giant has been launching projects continuously since July: Gem Residences in C5 Pasig, Gold Residences in Parañaque City, South 2 Residences in Las Piñas City and, very recently, Mint Residences in Chino Roces Avenue, Makati City.
The Philippine economy has been hammered by the coronavirus pandemic. Anxious to see the start of a recovery, the government has been gradually easing the conditions of the quarantine. There is agreement that 2020 can largely be written off but disagreement as to when the economy’s recovery can really begin. There is wide support for the belief that the earliest that the recovery can start to take place is the second quarter of 2021. What the economy needs is a sector that will act as a catalyst and lead the way to recovery. With the numerous major industries that land development involves – cement, steel, timber, paint, furniture and plastics – the real estate sector is ideal for that catalytic role.
And SMDC has proven this by aggressively launching projects. Fittingly, it has just been given the Best Developer Award at the recent 8th PropertyGuru Philippines Awards Ceremony.