Mitigating the effects of peso appreciation in the Philippine real estate industryMarch 12, 2013 / By
The continued appreciation of the Philippine peso, which has been led in part by a surge of “hot money” from foreign investors seeking higher returns, has raised concerns about the stability of the country’s economic growth path and subsequently, the continued expansion of the real estate industry over the medium term.
The ill effects of infusing “hot money” into the economy can easily be remembered from the situation in 1997, which triggered the collapse of the stock market and consequently caused investors to be less confident about the economy. Subsequently, crucial economic sectors were negatively affected by the situation, especially the real estate industry. Recently, the Bangko Sentral ng Pilipinas implied that due to the depressed global economic conditions, “hot money” was being pumped into the system by speculative foreign investors scouting for markets with higher returns.
The recent appreciation of the Philippine peso is anticipated to affect the local real estate industry. The strong local currency is likely to have an effect on the major sources of demand – the foremost of which are offshoring and outsourcing (O&O) companies and the remittances of overseas Filipinos (OFs). The continued appreciation of the currency may cause operating costs to rise, which could be an additional burden on O&O companies. OFs must continually send money home to support their families (education, sustenance and housing costs). Given this, the strong Philippine peso is likely to adversely affect OFs and their families.
However, by examining recent trends, the adverse effects of the continued appreciation of the local currency could be minimised or stopped over the long term. Upon looking at the basic reasons why O&O companies establish operations in the Philippines and how Filipino labourers are regarded overseas, it seems that the appreciation of the Philippine peso can only affect the industry to a certain extent. Aside from fixed operating expenses, the quality of an area’s labourers – namely, highly skilled, English-speaking workers that reduce training and retention costs – drive O&O operations to relocate. On the other hand, the remittances of OFs managed to grow strongly by 6.3% to USD 20.1 billion in 2012 and are expected to continue increasing over the medium-term due to the rising demand for skilled Filipino workers abroad. As the global economy recovers, it is highly probable that both the O&O sector (as companies intend to further outsource non-core services) and the remittances of OFs (as the demand for highly skilled labourers continues to increase) will continue to exhibit a trend of further growth.
The best way to fend off the adverse effects of the currency appreciation is to ensure that the basic competitive advantage of the country’s economy – the highly skilled Filipino labour force – is sustained and constantly developed. Strategy and significant monetary and fiscal policies should be coupled together to create a well-balanced market that can curb speculative growth, properly channel the inflow of investments into the economic system and ensure lasting economic development and real estate growth.