Foreign funds pumping money into PHL 'second tier' property developers
GMA News Online by Siegfrid O. Alegado, 01-14-2014
Multimillion dollar deals are brewing in the property
Foreign institutions diversifying their portfolio in Asia in
the past months have been in talks to infuse $10 million to $300
million into "second tier" Filipino property developers, real
estate consultants interviewed by GMA News Online said.
"There is strong foreign interest in real estate in the
Philippines," Julius Guevara, Colliers International Philippines
head of Research and Consultancy Practice, said. "Most of these are
in talks stage, but we've been experiencing a lot of activity
especially in the last six months," said Guevara, who has been
"introducing some investors to smaller developers."
The foreign institutions are mostly mandated to invest only in
real estate or to put bulk of their placements in the sector, said
Michael McCullough, Managing director at real estate services KMC
MAG Group, an associate of London Stock Exchange-listed Savills.
"They want to put money into the Philippines, and they expect a
certain type of return," McCullough, who is closing a $25-million
deal between a Hong Kong fund and a Filipino developer for a
"condotel" project in Manila, said in a separate interview.
"They see a growing market here in the Philippines, where
yields here are definitely higher. There's also just so much good
news coming out of the country," said Henry Cabrera, Associate
Director at property consultancy Jones Lang LaSalle (JLL). Cabrera
said another Hong Kong fund is "in discussion terms" with a local
Colliers' Guevara said offshore funds need to tap local
partners because they lack expertise in navigating the domestic
property sector. There are also restrictions on foreign ownership
of land and equity under the Philippine Constitution, he
Consultants declined to name the foreigners involved in the
transactions to protect their business interest. "It's a mix, but
most are Asians," said Guevara. Cabrera noted the funds they are
handling - up to $250 million - are usually from Singapore, Hong
Kong, Japan, Indonesia and the Middle East. The funds are shying
away from declining yields and tightening real estate laws in
Singapore and Hong Kong but are wary of the waning attractiveness
of other emerging markets like Thailand, which is currently plagued
by political turmoil.
"These are Asians buying Asians," said KMC's McCullough. The
local counterparts are mostly what consultants label as "second
tier" developers. "Obviously, they (foreign investors) don't have a
lot of choices here. Because the established players don't need the
money," said McCullough.
Top developers - like the SM Prime Holdings Inc., Ayala Land
Inc., Robinsons Land Corp., and Megaworld Corp. - are awash with
cash and could also easily tap the capital markets to pursue their
projects. Nicholas Antonio Mapa, economist at the Ayala Group's
Bank of the Philippine Islands (BPI), said the regulatory limits on
real estate lending place a strain on funding for smaller
Bangko Sentral ng Pilipinas has cast a wider net in capturing
the financial system's exposure to the property industry, telling
banks to report more types of credit and investments in the real
estate sector. As such, "all these local developers, upcoming
developers at that, will be searching for funds. And its on private
equity," McCullough said.
JLL's Cabrera said top developers have monopolized land
holdings in Metro Manila, which ranks fourth in the list of most
preferred cities for real estate investors in Asia Pacific this
year prepared by Washington-based Urban Land Institute and
global financial services firm PricewaterhouseCoopers. "For now,
they (foreign investors) are looking at Cavite, Laguna, Bulacan and
Pampanga for developments, mostly single detached housing," he
said. Tourism hotspots like Boracay and Palawan "have been on
investors' map," said Collier's Guevara.
However, KMC's McCullough has a different view to things.
"Look, Metro Manila is Metro Manila, so the interest is there," he
said. But the next wave cities are also gaining attention,
McCullough said, noting "one of the bigger funds" they are handling
"is looking at Cebu."
BPI economist Mapa warned of risks stemming from the deals.
"Some funding constraints may be seen by smaller developers
in the future if they will access from offshore dollar funds," Mapa
said, noting the pressure on interest rates and the peso's weakness
against the greenback. The peso depreciated by over 8 percent to
trade back at 44:$1 last year. "It's really not a problem, but it
could lead to problems domestically," he said, adding that what is
needed is strong monitoring to cushion any financing risks that
But Cabrera noted the parties involved know the risks that
come with the deals. "They see growing opportunities, but see it
with certain risks including political and foreign exchange," he
said. - VS, GMA News