By Inquirer

MANILA, Philippines–The construction sector in three to five years will experience a boom, helped by low inflation levels and an expanding real estate sector, according to property consultant CB Richard Ellis Philippines Inc.

Inflation, or the rise in prices of goods and services, greatly affects the material and labor costs. Inflation has fallen to single digit-levels, with the lowest rate recorded at 2.2 percent in March 2007.

A real estate boom usually precedes a construction boom, ensuring that demand will sustain the latter.

The real estate boom was perceived to have started in 2005, largely due to a growing outsourcing industry that has spurred demand for office spaces, very low interest rates on housing loans, and an increasing appetite for homes among overseas Filipino workers.

The continuous rise in office space take-up, 70 percent of which come from business process outsourcing (BPO) firms, have spurred office developers to start building again since 2006, albeit at a more cautious manner, such as by pre-leasing the space before projects are completed, said Victor Asuncion, CBRE director for Global Research and Consultancy Services.

“The macroeconomic fundamentals are strong, and so is BPO demand,” added Rick Santos, CBRE chairman.

The property consultant said office building supply this year will reach 232,180 square meters, and will grow to 330,425 square meters in 2008 based on commitments by certain firms.

In 2009, commitments to build office space have reached a total of 105,909 square meters.

On the other hand, demand for office space is seen at 220,000 square meters in 2007, almost matching the projected office supply, and will grow 10 to 15 percent a year, CBRE director Paul Ryan Isip said.

The construction boom is also underscored by the estimated 21-percent growth in construction sales in the first semester, as measured by gross value added (GVA).

GVA is a key performance indicator of the construction sector, and is derived by deducting the intermediate goods used in production, such as raw materials, fuel, advertising and other non-industrial overhead costs, from the total value of output or construction sales using 1985 prices as the base year, CBRE noted.

GVA grew almost 21 percent to P29.87 billion in the first half, from P24.76 billion in the same period in 2006, data from the National Statistical Coordination Board showed.

With high-rise residential condominiums, supply is expected to reach nearly 4,500 units in 2008, from over 4,000 in 2007. Asuncion estimates demand right now is for half of the projected supply 4,500 units, with demand mostly coming from BPO workers and middle-class families.

“Most developers nowadays are pre-selling their projects before they break ground to eliminate the risk of speculative demand,” Asuncion said. “Moreover, [developers were] able to increase project profitability with the inflow of installment payments from buyers.”

CBRE also said the voluntary freeze on major construction work is starting to melt, with activities from both the public and private sectors flourishing.

For the public sector, the Arroyo administration has lined up infrastructure projects for completion by 2010. In the private sector, construction projects are ongoing in Metro Baguio, Metro Cebu and Metro Davao.