The recovery in the construction sector should continue

PHILIPPINE STAR/ MIGUEL DE GUZMAN

By Arjay L. Balinbin, Senior Reporter

The construction industry in the PHILIPPINES will continue to recover in the coming quarters as pandemic-related restrictions are eased, but rising fuel prices, which are driving up construction costs, will remain the main challenge , according to analysts.

“We can expect the performance of construction companies to recover further in the coming quarters as more economic activity is allowed. Nevertheless, the main challenge is the period of hyperinflation due to rising fuel prices and rising construction costs,” said Claro dG. Cordero, Jr., director and chief research officer at Cushman & Wakefield, said Business world in an email response to questions on May 26.

“As the cost of construction rises further, it will also lead to higher property prices, which could eventually discourage retail buyers (due to an affordability issue) and, if it remains uncontrollable , may be the reason new owners and developers are postponing new construction for the long term,” he added.

As of May 24, year-to-date oil price adjustments show a net increase of 25.55 pesos per liter of gasoline and 29.10 pesos per liter of diesel.

Listed construction companies posted mixed results in the first quarter, but are optimistic that their recovery will continue. Revenues from the construction segment of Megawide Construction Corp. reached 3.79 billion pesos, 11% or 371 million pesos more than a year ago.

“The construction segment maintained momentum delivering projects on time despite quarantine measures at the start of the year,” the company said in its first quarter report.

Meanwhile, revenues from EEI Corp. from its domestic construction business fell 17% to 2.8 billion pesos due to delays in the company’s infrastructure projects.

EEI said it continues to secure new contracts and work on its existing project pipeline.

“The unworked share of the group’s existing contracts at the end of the first quarter of 2022 amounted to 52.9 billion pesos. This amount is at a healthy level and should occupy the group and its employees for the next three years”, the company said in its first quarter report.

“EEI is also well positioned to win more contracts as it continues to bid on industrial and construction projects, as well as mega infrastructure projects through the government’s Build, Build, Build programme.

Megawide said in a statement to Business world on May 27 that there has been a “consistent contribution from the construction segment since the easing of restrictions” in the fourth quarter of 2020.

“Barring any major resurgence of the coronavirus which will further restrict mobility, we expect the segment to maintain momentum,” a company representative said.

According to the chief economist of Rizal Commercial Banking Corp. Michael L. Ricafort, some of the key economic drivers for the remainder of 2022 that could support the further increase in construction activity include measures to further reopen the economy to greater normalcy, but in a gradual manner, increasing public spending, especially in infrastructure, and the Business Recovery and Tax Incentives for Businesses Act, or CREATE Act.

“Reform measures that would relax foreign ownership limits would help attract/encourage the entry of more foreign investment, such as amendments to the Utilities Act, the Retail Trade Liberalization Act, the foreign investment law, among others, would thus lead to the creation of more jobs and other business/economic opportunities which would also help the economy recover from the pandemic and lead to more construction activity” , he said in an email response to questions.

In a separate email, Joey Roi H. Bondoc, Associate Director of Research at Colliers Philippines, said, “[We are] foresee a recovery in the construction sector. The pandemic has caused disruptions in the construction sector and we have seen delays in the delivery of office and residential towers. A number of developers have also delayed launching new projects as they have taken a wait-and-see stance months before the national elections on May 9.

“In the office market, we expect the completion of approximately 1.94 million square meters of new office space from 2022 to 2024, or approximately 647,400 square meters per year. In 2020, we only recorded about 428,000 square meters delivered to the market,” he added.

He said that Colliers Philippines sees the same trend for the residential market. In the Metro Manila condominium market, Colliers recorded the delivery of 3,370 units in 2020 and 8,730 units in 2021. “We expect a huge rebound this year as we expect 10,500 units to be completed. “

In key markets outside of Metro Manila, Colliers expects approximately 201,200 square meters of office space to be completed in Cebu from 2022 to 2024, with much of the upcoming supply coming from Cebu’s retail and IT parks. Cebu.

“In Pampanga, national developers are also continuing to build office buildings in Clark and San Fernando and we are seeing the delivery of 152,900 square meters of office space over the same period,” Mr Bondoc said.

When it comes to the horizontal market, Colliers sees strong adoption of house and land units and land-only units outside of Metro Manila. “We expect developers to capture demand over the next 12 months and expect completion to ramp up beyond 2022,” Mr. Bondoc said.

“In our view, the recovery of the construction sector will also depend on the implementation of pro-ownership reforms, such as the provision of infrastructure and decentralization, which should lead to the creation of more economic centers in outside of Metro Manila. We are also seeing sustained economic growth supporting the rebound in the construction sector.

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