Philippine property firms look closer to home for sales

By Rosemarie Francisco

MANILA (Reuters) - Merly Paz, a Filipina domestic worker in Hong Kong, has stopped sending money for the construction of her home in southern Iriga City because the peso value of her U.S. dollar-pegged salary has fallen sharply.

"My salary is limited so I placed the house on hold," said 31-year-old Paz who has been working in Hong Kong for nearly 8 years. "But the longer I'm putting it on hold, the more that prices of construction materials are rising."

A real estate boom in the Philippines has been powered by demand from overseas Filipino workers (OFWs) such as Paz who send home salaries to fund purchases and construction of family homes.

But many OFWs have had to cut back on property purchases recently as the peso value of their salaries dropped by 19 percent in the past year due to the weak U.S. dollar. A majority of the Philippines' 8 million OFWs work in the United States.

This drop in demand should have had a chilling effect on the Philippine property sector, where real estate prices surged 18 percent in 2007 and 38 percent in 2006 largely because of demand from OFWs.

Indeed, share prices of property firms have plunged over a slowdown in overseas sales and worries of mortgage defaults.

But domestic sales are being kept buoyant by a huge housing backlog, low interest rates and friendly payment terms, higher incomes of workers in the growing outsourcing industry, and a rising expatriate population.

The slowdown in construction of new housing after the Asian financial crisis of 1997-98 has led to a housing backlog of 3.8 million units in the Philippines, said Alex Pomento, strategist and head of research at Macquarie Securities.