News & Updates

COVID-19 is different from the 1997 Asian Crisis

1,237 April 30, 2020

By Alejandro Mañalac, chairman, Havitas Developments

Since the lockdown last March, I have done several webinars and accommodated some interviews about my outlook on the industry after the lockdown or after the COVID-19 crisis.

First of all, just like everybody else, I do not have an idea of how long this pandemic will last especially whenever I see the video clips of crowds completely ignoring the social distancing instructions of the government, and totally oblivious to the consequences of contracting the disease. Only God knows when this will end. However, in all these talks, I have tried to be as realistically as optimistic as possible.

Having had the chance to experience and survive the crises in 1989 and 1997, learning from these challenges has not only made me stronger but also trained me in being resilient and find opportunities amidst the challenges.

 I’d like to share these ideas so our friends can prepare because this global pandemic is something that no one has experienced before.

Total lockdown, a plethora of bad news

This is the first time in the country’s entire history that the whole country was placed on total lockdown for more than a month. I don’t think any government was prepared for this scenario.

The government has to spend more than what it has and which was not included in the original budget.

No tax collections as originally scheduled this month to supposedly replenish the funds.

No money in circulation because almost all businesses has stopped except for the essentials.

This is also the first time that almost the whole world is practically on a lockdown, gravely affecting international trade and the supply chain. During the Asian crisis, the world was doing business as usual.

In 1997, our market for real estate was still mostly local since we were still in the very early stages of free International online communications.

Another very important thing to consider is that in 1997, the pre-selling payment terms were just cash or deferred cash wherein the full amount is paid within the construction period of either 24 or 36 months. Almost no one was availing of bank financing. 

Now, most of the buyers acquired their units by financing up to 90% of the total price. Because of these highly financed purchases and possible massive layoffs, If this crisis extends for more than 3 months, there will be an increase in the volume of sales cancellations, forfeitures, and foreclosures that we have never seen before.

Most of the tenants occupying the units now owned by investors relying on the rental income for the amortizations are Chinese POGO employees who are still facing the uncertainty of staying or leaving. Some are doing short term rental business like Airbnb. 

There will always be the risk of these POGO workers either being sent back to their countries or moved to less expensive cities outside Metro Manila. Either way, this will cause high vacancy rates and investors may not be able to sustain their monthly amortizations.

Lastly, we may not have had fast Internet in 1997 but we can still move around and still close transactions in person. Now, we have faster online access. Unfortunately, it is very difficult to consummate transactions.

Bouncing back

Given all of these, I am confident that we can bounce back stronger from this crisis. Our economy is much stronger than what we had in 1997. We didn’t have BPOs with young single workers making more than the minimum wage that most head of families were receiving.

Our OFWs were still just settling down in their respective countries in 1997,  and there were very few foreign investors in real estate since we didn’t have the online tools that we have now. 

The Filipinos are not new to challenging calamities and disaster, and we learned valuable lessons from every crisis. This is how we got our reputation for being a resilient nation.

SOURCE:Manila Standard