Property bounce in the Philippines
By Jennee Grace U Rubrico
MANILA - Philippine property is showing new signs of life after enduring
falling rental rates and rising vacancies in 2009. As developers reactivate
projects stalled with last year's global economic downturn, cranes are swinging
again on the skylines of Manila and other metropolitan areas with the
brightened economic outlook.
Stronger demand from overseas Filipino workers (OFWs), who sent back a
projected US$15.8 billion in remittances from January to November last year, is
expected to drive new residential developments. Meanwhile, resurgent demand
from the buoyant business process outsourcing (BPO) industry is projected to
fill
current commercial office space vacancies and spur new building.
If so, it will mark a dramatic turnaround from last year's downcast trends.
Real estate consultant CB Richard Ellis estimated average rental rates across
the Metro Manila area slid 4.3% from the second to third quarter last year,
while overall office vacancy rates were up 200 basis points to 12.8% over the
same period. By year's end, rental rates had fallen 25%-30% off their mid-2008
peaks, property consultant Colliers International said.
Now, developers are tapping into local debt markets to finance optimistic new
expansions. Ayala Land, a subsidiary of the country's largest conglomerate, has
said it plans to issue 1 billion pesos (US$21.6 million) worth of retail bonds
that will be dedicated to home financing schemes for buyers of its properties.
Filinvest Land, another top residential and commercial developer, plans to
raise 3 billion pesos in bonds in addition to last year's 5 billion pesos worth
of issuances to meet its projects' capital requirements.
Megaworld Corp recently raised 5 billion pesos in bonds, the proceeds of which
will be used for a newly acquired 8.3 hectare land plot for its Megaworld
development in North Bonifacio, near Manila's central business district of
Makati. Another developer, Robinsons Land Corp, raised 5 billion pesos in new
capital through a retail bond offering last year.
Indications are that they are putting those funds to quick use. Statistics from
the Housing and Land Use Regulatory Board (HLURB) showed a spike in property
permit issues, which property developers need to market new real estate
projects, at the end of 2009. Developers who stalled on projects in the first
half of 2009 rushed to get sales permits before the year ended, with the number
issued in November up 146% over the same month in 2008.
Retail space investors are also coming out of the doldrums. Mall developer SM
Prime Holdings plans to build five new malls, adding to its stable of over 40
retail centers across the country. Ayala Land has unveiled a nationwide
expansion plan to construct more BPO complexes, residential projects and retail
developments.
A number of factors support the projected growth. Most notably, OFW foreign
remittances are expected to strengthen with an improved global economic
outlook. Augusto Santos, acting director general of the National Economic and
Development Authority, estimated that remittances would likely grow by 10% this
year. Despite the global economic downturn, OFW remittances were up 5% in the
11 months ending November 2009, he said.
Those resilient remittances are expected to buoy in particular the residential
housing segment, of which many developers identify foreign-currency earning
OFWs as their main target market. That optimism hasn't shown up yet in the
statistics. While licenses issued by the HLURB for non-residential units grew
sevenfold year-on-year in November, residential licenses fell by 22.8% over the
same period.
Commercial developers exposed to the globally oriented BPO industry appear to
be the safer bet for investors. Ramon Jose E Aguirre, head of research at
Colliers International Philippines, estimates that growth in outsourcing firms
alone will be enough to this year absorb half the oversupply in the office
space market.
"Obviously there is a glut in office space supply, but at the end of this year
we expect many empty spaces to be taken up - this means construction can resume
despite the fact that there are still plenty of offices available in the
market," he said.
Bubble watch
With property price bubbling up in China, South Korea and Taiwan, analysts are
now looking for similar signs in Southeast Asia's fast-recovering economies.
Regional analysts believe that Philippine property will outperform most
Southeast Asian neighbors, and there are no signs yet of emerging price
bubbles, they say.
Property prices in Singapore rose by 15.75% quarter-on-quarter in the third
quarter of 2009. That's prompted concerns about possible property price
bubbles, but so far the overheating situation in Southeast Asia seems unique to
Singapore.
Elsewhere in the region, economies have experienced more tempered price rises
due to gluts of supply. Business Monitor International notes that the Malaysian
property sector is expected to recover from last year's downturn, but price
rises will be tempered by lingering oversupply.
Thai property has been hampered by political concerns and a lack of buyers,
although the state-run Thai News Agency reported recently that the property
developer confidence index posted a record high of 57.8 in the fourth quarter
of 2009.
"The relative success of the Philippines to lure outsourcing companies and the
steady flow of OFW remittances to finance other property development products
will set it apart from neighboring countries," projected Claro Cordero Jr, head
of research and consulting for Jones Lang LaSalle Leechiu in Manila.
The sector still has a long way to go before rates return to 2008 peak levels.
Average prime office space rental rates in Metro Manila currently hover around
800 pesos per square meter, down from 1,200 pesos (US$17) in mid-2008. Danilo A
Antonio, president of local property consultancy firm Land Excel Consulting,
said that heated competition would prevent real estate developers from hiking
prices too rapidly.
The Philippine central bank has also downplayed any property bubble concerns,
maintaining that recent rises in local property prices and easing vacancy rates
are indicative of legitimate demand rather than speculation.
National elections scheduled for this May represent another wild card for the
sector. The new incentive-laden Real Estate Investment Trust Act (REIT) "lapsed"
into law in late December when President Gloria Macapagal-Arroyo failed to
follow up a veto recommendation from the finance department linked to its
concerns the act would have a negative impact on tax revenues.
According to Cordero, REIT-derived financial instruments will enhance
private-sector participation in infrastructure projects and promote more
foreign participation in construction activities. However, the REIT's
implementing rules and regulations are expected to be drafted by the next
government.
The property sector is expected to get a boost if Manuel Villar, a real estate
magnate and senator at present running second in opinion polls to front-runner
Benigno Aquino, emerges as winner in the presidential election. Industry
players are keen to see whether the next government will approve tax incentives
for completing projects that reduce the current housing backlog of 3.8 million
units and if it will follow up on Arroyo's efforts to sell off blocks of idle
property now owned by the military.
"A new government will definitely affect the direction of business in the next
few years and this includes the real estate and construction industries," said
Aguirre. "How will [a new government] react? The private sector will be closely
watching the results."
Jennee Grace U Rubrico has been a journalist for over 10 years
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road,
Hua Hin, Prachuab Kirikhan, Thailand 77110
