Property bounce in the Philippines (Asia Times Online)

Written for and published by Asia Times Online on January 26, 2010. Click here for the original article. 
 
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

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