Understanding past crises before investing in real estate

The coronavirus disease 2019 (COVID-19) pandemic hit the Philippines hard, forcing the national government to impose lockdowns and other measures to curb the spread of the virus. Apart from causing stress and anxiety to people, the disease also caused worry about what woud happen to them during and after the pandemic as normal activities like going to the office were suspended.

The virus has cost the Philippine economy P2.2 trillion in losses, making Filipinos wonder how this will affect them, their investments or plans of investing in real estate, and other concerns in this uncertain time.

To shed some light, Rex Mendoza, president and CEO of Rampver Financials and a former SVP and chief marketing and sales officer of Ayala Land, Inc. (ALI), gave a webinar presentation on understanding real estate investment amid a pandemic for Avida’s Homepossible Live Conversations. For Mendoza, it was important to understand the past experiences of the country — political and economic — when it comes to local and global crises.

Rex Mendoza, president and CEO of Rampver Financials

“Understanding the (present) crisis means really knowing deep within, what are the expectations that we might have coming out of it, how does it affect our country, do we have what it takes to weather the storm, or more importantly how does it compare to other crises in the past?” he said.


Mendoza started by using the Philippine Stock Exchange Index (PSEi) chart as a barometer for his presentation as “this reflects the sentiments of business, the sentiments of the people about the country, the economy of the country, about investments in general. The feelings and sentiments are captured with the way prices in the market would go.”

The PSEi graph used by Rex Mendoza on his webinar illustrates the V-shaped recovery and the U-shaped recovery of the local market during a crisis.

The PSEi chart shows that since 2018, the biggest drop the country has experienced so far is at 39 percent. In the 2008 global financial crisis, the market dropped by 51 percent but quickly recovered in the following year, in a V-shaped recovery. This was a fast recovery compared to the 1997 Asian financial crisis that made a U-shaped recovery, hitting as low as a 71 percent drop before slowly recovering in the next five years. With the Asian financial crisis, the entire Asian region was beset with this. It was a financial meltdown: market structure issues, real estate prices plunged, people could not pay their loans. “The banks were hit badly…because there was no risk management procedure at that time,” he said. “Banks needed help, bailouts and then structural reform.” It also didn’t help that the Philippines elected President Joseph Estrada, who didn’t have a good reputation within the global financial circles. “They felt that he was not going to be a good leader and many of them divested from the country,” Mendoza shared. The political issues the country faced during this time also contributed to its slow economic recovery.

The 2008 global financial crisis affected the US, Europe and the Middle East. The reason why the Philippines recovered faster that them was because we learned our lesson back in 1997. We went through the same problem that those countries underwent. But the country’s banks “were way capitalized and had very good risk management procedures. So structurally, we were strong and that’s the reason why we were able to recover fast.” It was also the time when President Ninoy Aquino was elected and brought with him his branding of “tuwid na daan.” This “branding” reassured foreign fund managers into having confidence in the country, which contributed to our fast economic recovery.

Going back further, in 1989 the country went through a political crisis — political instability and numerous coup attempts after the 1986 EDSA revolution. Mendoza explained that since this was a local event, it didn’t affect our neighboring countries.  However, “international fund managers are spooked by political crises, (so) they avoided us.” And it took them “a bit more time for that confidence to come back and for structural reforms to happen.”

The crises that shaped the Philippine market, including the coup attempts in 1989, the Asian Financial crisis in 1997, and the 2008 Global Financial crisis.


Fast forward to 2020, the world is facing a new crisis caused by COVID-19. The last time the world experienced such a pandemic was in 1918. “What we’re exposed to today is unprecedented,” said Mendoza. “We’re not even talking financial, we’re not even talking economics. We’re talking health — lockdowns and shutdowns. In fact, the whole economy is put on hold…People might be losing jobs, remittances will go down because overseas Filipino Workers (OFWs) will be hit hard (as) many of them will be getting pay cuts, some of them (will be) going home.”

Present day crisis: The COVID-19 pandemic and how it has affected the market.

“When people ask me when this will end, I (can’t) give you a timeline but I will give you factors that will lead to it. One, the lifting of ECQ. Naturally, our economy is not going to move unless we start going out. Two, we’re waiting for the reports of earnings from companies, which will tell a more accurate prediction of where stock prices will go. The predictions they gave earlier were based on earnings of last year. Nobody predicted that COVID would happen this year. Now, we are waiting for the earnings report from the first and (more importantly) the second quarter to really see the impact on the prices of stocks. Three, we need to see the impact of the stimulus package. Are they good enough and will they work? And lastly, vaccine availability. Once a vaccine is available, the more freely we will move.”


COVID-19 also continues to affect the fixed incomes of many people and in turn affect the prices of real estate and rental rates. When it comes to real estate, reports from property consultants show that the market will go down by 15 percent in terms of pricing, and in terms of leases it will go down by five percent. Mendoza agrees to this on a generalized basis, but wants people to be more analytical about it.

“When people say pricing will go down by 15 percent, will you agree with me if I say that some portions of the market will go down by that much while some won’t? This is key…because it depends on the developer and the location,” Mendoza said.  He continued to show factors that will affect real estate, both the positives and the negatives.

On the negative side:

  • Gross Domestic Product (GDP) contraction — when the economy is down or in recession, people will not be quick when it comes to their economic decisions including real estate properties;
  • Economic pillars at risk — the main economic pillars of the country today are OFW remittances, BPOs and tourism and because of the COVID-19 pandemic, these will be challenged. OFW remittances and tourism are going to be (or are already) hard hit, while BPOs are still doing well as of now;
  • MSMEs to be hit the hardest — micro, small and medium-scale enterprises will also be hit by the economic impact brought by the COVID-19 pandemic “because this hits at the ground level, because this is an issue of consumption and because its small business, the bigger the impact on unemployment. And this is why the government is granting wage subsidies to small businesses through the SSS and DOLE;”
  • Decrease in value across asset classes — this meaning that when people do not feel “wealthy,” they will postpone what they will buy or the urge to buy things.
  • Volatility in stock — people feel secure when the stock markets are up, because it means that their net worth is also up. “Stock markets give you a feel or sentiment and if that sentiment is negative, that volatility brings in more negative sentiment…Once we don’t see those confidence levels rising, dampened demand will also be an issue,” explained Mendoza.
  • Banks lower appetite for risk — banks will now think twice before lending money to loaners because many may not be able to pay these loans back.

On the positive side:

  • Lower interest rates — Lower interest rates is a plus for real estate because lower mortgage rates mean it will be very affordable for people to invest in real estate. Capital or hurdle rates will also go down.
  • Supply side controls — Most developers have announced that they will be cutting back or no longer do launches. The housing backlog in the Philippines is still high compared to other countries, so when developers say that they will no longer do launches, this will halt the supply side rise, which makes it a balancing act to the lower propensity to buy;
  • Demographic variable — the Philippines’ advantage compared to other countries is its young population and presence of domestic market with an average age of 24, capable to work and can be financially productive;
  • Net oil user and importer
  • Low leveraged position
  • Companies move to diversify beyond China
  • Global stimulus packages (infinite)


According to Mendoza, volatility can be your friend if you know what you are doing. “The factors that we have to acknowledge and consider are not external factors. They are internal factors. In a crisis like this, we get too engulfed with all that’s bad and that’s why we forget about the opportunities,” he said.

“The most important factors to consider are within you: your goals, your portfolio, your time horizon, your risk appetite,” he added. “These are the best investment considerations in any investment that you are going to make. You are going to be more important than what is going to happen out there.”

Mendoza went on to define strategic investing. Strategic investing aims to remove of lessen the effects of unwarranted, negative risk on long-term financial future. It is an active, continuous discipline where investors’ decisions are based on specific goals, risk tolerance and future needs for funds or capital.

He further showed resons why property can compete with other forms of investments:

  • Dual yield proposition — Real estate has dual propensity for earnings in the form of lease or rental which will give regular cash flow or yield, and capital appreciation;
  • Security – Managed properties and communities are more secured compared to raw lands, as these have the tendency to be squatted which could lead to legal battles and disputes and other expenses;
  • Creative use of leverage — Real estate has the capacity to hold value. In real estate, the leverage or payment scheme can be used to earn more. It can also be used to get to owning the full property without the full commitment.
  • Long term historical valuation
  • Convenience and handling

At the end of his presentation, Mendoza reminded the attendees that with every crisis, there are also recoveries.