Taal Volcano's main crater lake during quiet times.

Natural disasters are generally unpredictable. Extreme weather conditions like drought, blizzards, typhoons, hurricanes, lightning strikes, heat waves, and non-meteorological events like volcanic eruptions, earthquakes, tsunamis, floods, landslides, and wildfires cause serious damage to lives, businesses, and properties. Risks, although completely unavoidable, should be mitigated to minimize their negative impact. Investments like property, infrastructures, and other tangible assets are affected, ranging from immediate, short-term effects, to devastating, long-terms ones. Local economies are those most directly impacted by said natural disasters, but if the event covers a larger geographical area, the impact may be felt at a national or even global scale.

The real estate market is dependent on four factors: demographics, ongoing interest rates, the local and national economy, and government policies and support. To minimize the effect of a natural disaster to these factors, the community has to be robust in its efforts to bounce back the soonest possible time from a calamity. Let us look deeper into a recent phenomenon that might have a long-lasting impact on the real estate market in the bustling city of Tagaytay and its neighboring municipalities.

The Case of Taal

Taal Lake and Volcano is one of the many reasons that Tagaytay is a popular local tourist destination. Located just 62.7 kilometers south of Metro Manila, its proximity to the capital makes it undoubtedly a destination of choice for those wanting short breaks without having to travel too far.

In fact, the Department of Tourism (DOT) has consistently tagged Tagaytay as the top destination in the CALABARZON Region. Data shows that there are 39 DOT-accredited facilities (hotels, resorts, Mabuhay accommodations, etc.) in the province of Cavite, 22 of which are in Tagaytay. In an interview with the Manila Bulletin, Tourism and Cultural Development Officer Jelanne R. Mendoza stated that there city welcomed 2,641,447 visitors in the first half of 2019 alone.

It can be surmised that tourism is a major driver in Tagaytay’s local economy that, in just a few years, there has been a steady rise in condominium developments, malls, restaurants, commercial spaces, amusement parks, and short-term stay accommodations like AirBnB, OYO, and Reddoorz to accommodate the city’s bustling leisure industry.

On the afternoon of January 12, 2020, a seemingly quiet Taal Volcano erupted from its main crater. It spewed plumes of ash up to 15 kilometers in the atmosphere and caused volcanic ash fall in many parts of the CALABARZON Region, Metro Manila, and as far north as Central Luzon and the Ilocos Region. This prompted thousands of people within the volcano’s 14-kilometer danger zone, which covers the entire Volcano Island and the towns and cities that surround Taal Lake, to evacuate to safety. Air traffic operations of the Ninoy Aquino International Airport (NAIA) and several other government and private offices in Batangas, Laguna, Cavite, and Metro Manila were also temporarily suspended.

The Department of Science & Technology (DOST) and the Philippine Institute of Volcanology and Seismology (Phivolcs), plus the National Disaster Risk Reduction and Management Council (NDRRMC), monitored volcanic activity and disaster mitigation. Taal Volcano has been on heightened Alert Level 4, the second highest alert level—meaning an eruption is imminent in the next few days or even hours—for almost 2 weeks. There is continued unrest underneath the surface, with reports that Taal is siphoning magma from a larger, deeper magma chamber. Indicative of the continued volcanic activity are the over 700+ recorded earthquakes and tremors felt, as well as the sulfur dioxide reading in the air surrounding volcano island. It has since been lowered to Alert Level 3, which indicates decreased tendency of a hazardous eruption, and lockdown being lifted in almost all towns, except for the towns of Agoncillo and Laurel. Residents also started returning to their homes to assess damage to their livelihood and property.

Economic Impact

When these natural disasters occur, people’s health and homes are the first and most affected. In the case of Taal Volcano, evacuation has been swift for the 259,000 people affected by the eruption. According to Phivolcs, 146,992 have taken temporary shelter in over 400 evacuation centers, while another 70,216 opted to stay with their relatives or friends elsewhere. Although no direct casualty has initially been reported, Philvolcs advises residents to be vigilant and that there is still a possibility of an eruption.

Some of the damage caused by the eruption may be light enough that people can pick up from where they left off. Damage to property that are not as extensive can be remedied in a matter of days or weeks. But as the assessment of the damages continue, it would also extend to infrastructure, machineries, agricultural produce, and other tangible assets. Intangible consequences would include low morale and trauma, and decreased economic activity during and after the disaster.

In the event that effects are widespread—for example, a large region is affected or the event spans weeks or months—the national economy may take a hit in terms of inflation, higher costs of goods due to imbalance in supply and demand and logistical challenges, and possible decrease in economic activity. Business operations may temporarily be suspended for extended periods of time, or may even shut down.

CNN Philippines reported just 5 days after the initial eruption that agricultural losses hit Php3.06 billion, with the fisheries around Taal Lake taking the heaviest toll. Livestock farming in the towns and cities surrounding Taal Lake also took a hit, and approximately 15,790 hectares of farm lands (mostly planted with cacao, pineapple, coffee, coconut, rice, and other high-value produce) was severely affected.

Real Estate Market Impact

Given that Tagaytay and most of the cities and municipalities that surround Taal Lake are still recovering from the impact of the eruption, businesses have slowed down since the event and will take time before they make progress. According to geophysicist Jacques Zlotnicki in an interview with Nature Research Journal, this period of silence does not mean that activity has completely ceased. In fact, it is more dangerous for locals to return and maintain a business-as-usual status while earthquakes and land fissures continue to plague the region. He continues to state that things may not deescalate any time soon, and that Taal is up for a major eruption. Reports from Philvolcs also mentioned changes in the landscape, including swelling of nearby dents, draining of waters in the main lake, and increasing levels of sulfur dioxide in the atmosphere surrounding Taal.

We are reminded of Taal’s 1754 eruption which lasted almost 7 months. In a 2015 report by Rappler, as documented by Augustinian priest, Father Buencochillo, the event lasted almost 7 months from May 15 to December 5. It has been dubbed as the largest eruption of Taal due to its long-lasting effects. It started out similar to what we have seen so far– by manner of a phreatic eruption that saw devastating ash, volcanic debris, fire, and mud shot up in the air. There was a violent eruption sometime in November, when the volcano spewed out boulders and stones, burying several towns in its vicinity, and drowning the area in almost 7 feet of ash. It forever altered the topography of Taal and its neighboring towns, closing up rivers, moving out settlements, and submerging these towns in ash and debris.

If such were to happen today, demand for properties in said high risk areas may decrease. Interest in the properties in Tagaytay and neighboring municipalities may decrease, as the pricing for real estate may also drop due to the risks involved in such hazardous conditions. Interest rates may also increase as the risk increases in such areas (though this may only be temporary), but the greatest factor would be how local and national government respond to keep things afloat in the region.

How Can We Mitigate the Impact of a Natural Disaster?

According to World Bank’s 2015 report, “The Indirect Cost of Natural Disasters and an Economic Definition of Macroeconomic Resilience,” the best way to minimize disaster impact would be through higher resilience. We will soon see the real estate market, tourism, and the local economies of Tagaytay and towns and cities that surround Taal Lake to get back to normal once experts deem the area safe. But how do we mitigate the impact of future events? How must we build this resilience? Recommendations from the report state three major points: (i) increase in public expenditures, (ii) increase in reconstruction capacity, and (iii) insurance benefits.

1. Increase in public expenditures
Increase in public expenditures would be at the discretion of the local and national government. As outlined in a document from the Ombudsman, the budgeting process is headed by the Department of Budget Management (DBM) and the Department of Finance (DoF), with involvement of the National Economic Development Authority (NEDA) and several other government agencies. It is also overseen by the Office of the President, and presented to Congress through hearings and deliberations. It can be seen as a highly technical and complex process, but essentially, all these government offices have a hand in allocating certain portions of the national budget to different sectors, including disaster preparedness and relief. Requests and proposals may also come from local government units directly affected and agencies involved.

Public and transport infrastructure, including highways and bridges, airports and railways, power grids and stations, public hospitals, and many others, must be built to last. High costs do not necessarily mean quality work, but measures are put in place to ensure that government-funded projects are built at the highest possible quality. If a taxpayer-funded construction is marred with corruption, not only is the government endangering lives, it is also doubling the cost to maintain them. In the long run, these costs will pile up and the projects will eventually would cost more to keep rebuilding or repairing them, not to mention the amount of time required to put them back together.

2. Increase in reconstruction capacity
From the same World Bank report, increase in reconstruction capacity means that the local (and national) government is ready to rebuild the locality from the disaster experienced. Enough manpower and resources should be allocated to provide disaster relief and to rebuild the community as quickly and efficiently as possible. Deployment of (skilled) people on the ground is at the forefront of this initiative, as it enables the locality to return to business as usual. This being said, manpower should be available to relocate and stay in the affected area as long as necessary until the community has bounced back. Comings and goings of aide, including those from the private sector, would only prove short-term and detrimental to reconstruction, as it does not guarantee that the locality will regain normalcy the soonest time possible. We are also to note that public and private relief efforts die down after a certain period due to sustainability.

3. Insurance benefits
Losses will be minimized if properties and other tangible assets are insured. It serves as a cushion for the cost of having the property rebuilt, renovated, or repaired. Although not all, there are some insurance policies that allow coverage for “Acts of God” (or “perils”)—events that occur through natural causes and could not be avoided. It is important to discuss these provisions prior to getting a policy. Property valuation also comes into play to identify the best price a property can go. Subsequently, current or future property owners should do their due diligence in risk assessment for the property they will be getting.

The website hazardhunter.georisk.gov.ph/ developed by DOST and Phivolcs and monitored by the Philippine Council for Industry, Energy, and Emerging Technology Research & Development (DOST-PCIEERD) can be accessed to get a good overview of risks in certain locations. As this only serves as a reference and an overview of risk and hazards in a certain location, it is always best to refer to the involved government agency.

A potential property owner or investor may also reach out to reputable brokerage firm and coordinate with a trusted real estate professional who can do the necessary due diligence, as well as discuss both risks and yields involved in acquiring or selling properties across the entire country.

The Philippines may be a high-risk location in terms of natural disasters, the country ranks highly in terms of strategic location, affordability, and investment opportunities. Knowing how best to handle natural disasters and its aftermaths on a national and local level would help ensure that we protect, not just the lives of the people in these areas, but the properties and public assets as well. Minimizing the risks through proper government support and intervention, and secure insurance strategies will help protect our investments. Working with a trusted brokerage firm would also ensure that you are getting the necessary leverage and advice in your prospective property, no matter its location in the world.

Main photo via Wikimedia Commons.