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.
About 70 percent of the country's estimated 90 million population do not have their own homes, he said.
"It's end-user demand driven. It is not investor driven, that's the difference with the property boom before the Asian crisis," said Victor Asuncion, director at property services firm CB Richard Ellis Philippines.
"It is not speculative. There is a specific demand being addressed."
Construction is booming across much of the country, especially in Manila, a mostly low-rise city where dozens of residential towers are beginning to dot the skyline.
At least 38,000 new apartments will be available by 2013 in the Makati financial district alone and in nearby Bonifacio Global City, property firms say. There is no let-up in demand.
In just four days last month, market leader Ayala Land Inc sold about a third of the 3.3 billion pesos value of a new residential tower at Bonifacio Global City.
"They say the property market is slowing. But despite the slower U.S. sales for our premier product, we really can't feel it yet because the local market is still strong," said Rex Mendoza, head of residential and corporate sales at ALI.
Take-up rates or reservations for all its residential projects are up 39 percent in the first two months of the year, the same pace as the whole of 2007.
But the surge in real estate prices seems to be a thing of the past. Pomento said he saw prices rising about 6 percent in 2008 and next year.
"The days of aggressive growth appear to be behind us," he said. "We expect price hikes to be capped by the more competitive environment."
At least partly because of that, local property firms have sustained heavy falls on the stock market, with ALI down nearly 25 percent and mass housing leader Vista Land and Lifescapes falling 50 percent in the first quarter against a 17.6 percent drop in the main index in the same period.
"On a 12-month view, the negatives cannot be disregarded and the market is already trying to price in the concerns ahead of any negative news from property companies," CLSA said in a recent study on the Philippine property market.
Real estate firms say the fall is more because of depressed sentiment overall and that while local demand for housing is strong, they haven't given up on the overseas market.
In the first two months of this year, ALI says its sales to Filipinos abroad were down to 22 percent of total housing revenues against 35 percent for all of 2007.
To offset falling demand from the United States and Hong Kong where the local currency is pegged against the U.S. dollar and where many OFWs work, property firms are now aggressively selling their residential projects to OFWs in the Middle East and Europe.
"I think our growth potential will continue so I'm hoping the market will recognize that," said ALI President Jaime Ayala, adding the share price was "very much driven by global sentiment."
Editing by Raju Gopalakrishnan and Megan Goldin