Philippine Daily Inquirer: OFW remittances seen boosting property sector

Prudent Investor says: I have said in numerous occassions in my outlook that foreigners have viewed that a domestic spending boom is likely to occur in the Philippines most especially in the environment where Asian economies would allow their currencies to rise against the US dollar. For now it is the Overseas remittances that has prompted for growth in the real estate estate sector. Most importantly I would like to emphasize that these positive prospects are today slowly being covered by mainstream media and would eventually filter into the mindsets of the investing public. So what are you waiting for?

OFW remittances seen boosting property sector
Posted: 8:23 PM | Jan. 09, 2005
Doris C. Dumlao
Inquirer News Service

INVESTMENT Bank Credit Suisse First Boston is bullish on investment spending in the Philippines this year as inflows from overseas Filipino workers start to perk up the property sector.

In its December country report, CSFB projected that the growth of investment spending would remain robust at 8-10 percent, fueled by a rebound in the construction sector.

The report, titled "Philippines: Fiscal Dynamics Unlike Other Emerging Market Debt Defaults, While Economy Likely To Be Robust In 2005," noted that unlike the earlier business cycles when OFW remittances were used for consumption spending, the funds were now fueling investments.

It noted that domestic investment spending expanded by 13-15 percent last year.

"We believe that part of the strong surge in overseas foreign worker remittances is being invested in housing," CSFB said.

"We expect these dynamics to continue in 2005, further fueling the pickup in low- to middle-end residential property where supply constraints are now emerging and pushing aggregate prices up," it said.

In 2004, it said about 20-25 percent of residential sales in Metro Manila had been from overseas buyers, a majority of whom are Filipino professionals working abroad.

"Around 30 percent of overseas workers hold professional jobs who are now contemplating on setting up businesses in their home towns, have a vacation home, or simply coming home to retire after many years of working abroad. This has led to a pickup in the construction sector," CSFB said.

The bank's favorable outlook on the property sector was anchored on a benign interest rate environment as it projected that the benchmark 91-day treasury bill rate would rise by only 40 basis points this year.

"We believe interest rates have to rise by more than 150 basis points in 2005 in order to dampen the demand for residential property," CSFB said.

Outside of the property sector, CSFB has not seen a significant pickup in investment in plant and equipment or machinery.

"However, anecdotally we do see signs of capacity expansion by existing IT hardware firms, some influx of Japanese foreign direct investment in the auto parts and components and pickup in medical transcription activities," it said.

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