Integration Will Not Get in the Way of Real Estate Sector Growth
Business Mirror by Roderick L. Abad10-09-2014
The Philippine real-estate industry still has more space
for expansion even with the integration of the 10 member-states of
the Asean at the end of next year.
"By 2015, when the Asean integration takes place, the
real-estate market should have matured further and the Philippines
should be in a good position to complete fairly with the other
Asean partners," Jones Lang Lasalle CEO Lindsay Orr told the
"So we think, it will be very exciting for the country," CBRE
Philippines Founder, Chairman and CEO Rick Santos said.
Most property-consultancy firms in the country agree that growth
will continue across all segments, particularly in the office and
Santos said a lot of companies in the region are seen moving
more of their operations or headquarters here for "cost reasons, as
well as for high-quality real-estate perspective, labor pool and
good quality of life."
The office sector continues to look very promising during and
after the integration, particularly with the continuing growth of
the information technology-business process outsourcing (IT-BPO)
sector and considering the relatively low base rate for rents at
"There is no letdown seen in the growth of IT-BPOs in the
country. IT-BPO companies come here for the cost and grow quickly
because of the people," Santos said.
What's fuelling the continued strength of the outsourcing
business are office rental rates in the Philippines, which remain
to be the lowest and best value in Asia-at $29 per square feet per
annum-thus, increasing further demand for office space.
In fact, for three quarters of 2014, a total of 124.55 square
meters (sq m), or 1,340.65 square feet, of office space has been
occupied-the highest transaction ever in the last six years. This
bullish take-up, according to CBRE, is projected to track supply as
more spaces are now being developed.
Aggregate vacancy declines to 2.45 percent from 3.3 percent in
the first quarter of this year. Up-coming office supply will offset
the drop with more than 400,000 sq m of new space within the
Location-wise, the traditional Makati Central Business District
remains most attractive to global firms, followed by the emerging
business hub of Bonifacio Global City. Not to be ignored also are
the outsourcing growth areas in the country identified by global
outsourcing advisory firm Tholons, such as Santa Rosa City, Bacolod
City, Davao City, Iloilo City, and Cebu City. Philippine Economic
Zone Authority-registered industrial sites are, likewise, going to
contribute to the supply.
The ample pool of highly skilled work force also draws the
interest of foreign locators to do business here.
Based on the 2014 A.T. Kearney Global Services Location Index,
the Philippines is ranked 7th among 51 countries as
prime BPO location.
The study highlighted the country's labor sector as one of the
"deepest" or that of large, untapped value and skill. Beyond voice
as its major strength, the industry is expanding into
higher-value-added services, as well as into IT and business
processes in the medical or health care, legal, financial,
insurance, and other specialized fields.
"BPO full-time equivalent employees are expected to reach 1.3
million by 2016. This, as well as the upcoming Asean integration,
will be favourable to the strengthening of the country's position
as tip BPO destination." Santos said.
The direct boost by the single economic community is also
expected for manufacturing and, thus, industrial sector as free
trade expands the size of "domestic" market, according to Antton
Nordberg, manager for research and consultancy of KMC MAG Group
"Real-estate industry is ready for this. There are enough
industrial parks and offices to serve these companies," he
For Orr, this property segment also looks promising given the
interest now being shown by manufacturers looking to scale down in
China. Warehousing and distribution, among other areas have
considerable growth prospects, particularly with the development of
more industrial business parks in Central Luzon and the South, he
Apart from Japanese companies, Santos cited that Southeast Asian
locators who are "very aggressive" to set up their production
facilities here are from Indonesia, Malaysia, Singapore, and
Thailand. He added that those from Brunei Darussalam, Cambodia Lao
PDR, Myanmar, and Vietnam are also keen to expand in the
But what concerns most of them in putting up a business in this
archipelago is in infrastructure that could hinder the growth,
stressed Orr. He said that "the poor level of infrastructure is
limiting the manufacturing sector and is also the reason why
services sector is bigger than industrial in the country."
As to the other real-estate sectors, bright prospects for the
retail, hospitality, and residential segments will continue in the
next couple of years.
Much like the office space, retail will still be one of the
prime movers of the property market, according to CBRE Philippines
Senior Director for Global Research and Consultancy Jan Paul
In terms of lease rates, he said that Manila charges the lowest
rent of $38 per square foot as compared to its counterpart cities
in the Asia-Pacific region. "This actually gets attraction from
most international retailers. Normally, the rates paid by retailers
in terms of their renting expenses is probably two or three times
higher than what they pay here," he said.
Apart from the big malls, he said that a lot of new convenience
stores are coming in. Smaller store formats, he added, are being
spread out especially in the ground floors of new office buildings,
as community malls rise up in areas where there's a high density of
The increasing purchasing power, especially among the
middle-income earners and families of overseas Filipino workers,
help drive the continued growth in the retail space, Custodio said.
This, in turn, has encouraged more developers and global retailers
to set up stores in the country.
The upbeat tourism of the country, with 5 million projected
tourist arrivals by end of the year, has pulled the demand for more
hotels and retail establishments in tourist spots and CBDs
nationwide. Such momentum is seen to continue for the hospitality
segment, with the developments of new accommodation and gaming
facilities, particularly in The Entertainment City of the
Philippine Gaming and Amusement Corp. in Pasay City, with an
inventory of 1,624 rooms.
These include the Belle Grand-City of Dreams, which is expected
to be opened any time soon with 920 rooms, as well as Radisson
Hotel with an inventory of 500 rooms. In November 2014, Malaysian
hospitality brand Tune Hotel will be opening its 200-room branch in
Aseana City. All these are included in the estimated 4,000
additional rooms set for completion this year, as 2,000- plus rooms
are expected in 2015.
A vibrant residential sector will keep on the rise, especially
in the development of vertical housing projects. From 2014 up to
2019, it is estimated that additional 169,000 units will be
constructed, of which 96 percent will be mid-range and only 4
percent in the luxury sector.
The mid-end condo projects are those with a price range between
P1.5 million and P10 million, and unit size below 15 sq m; while
the high-ends are offered at P10 million and above with over 160 sq
m unit size. The majority of residential condominiums both existing
and future are priced under P3 million.
While the Philippines is fairly competitive across most sectors
of real estate, Orr cited that residential land and condominium
prices are now higher than several of its neighbours, as well as
five-star hotel room rates. These sectors, he said, should "sharpen
their competitiveness to reap the rewards of integration and
maintain the flow of goods, services, and business or tourist
Beyond sustaining its core competencies, capital values, rental
rates, costs of labor, and the sufficiency/cost of power are key
areas that the entire property industry should consider to ensure
that the Philippines stays on track or much ahead of the
"Technically, the integration will make your expertise in
certain industries become stronger when you gain competitive
advantage. Therefore, you need to benchmark the economic structures
of Asean countries to see which these industries could be,"
NO PROPERTY BUBBLE BURST IN THE OFFING
Davao City-Bangko Sentral ng Pilipinas (BSP) Deputy Governor for
the Monestary Stability Sector Diwa C. Guinigundo brushed aside a
warning of a European financial-service firm that allowing the
banks to exceed their ceiling or borrowing may lead to another
episode of a property bubble burst similar to what caused the
financial meltdown on the region in 1996.
"We have already instituted macro-prudential measures and these
are all in place since then," he said.
He said the banks remained obligates to the ceiling of their
lending to the property sector "and what have been loaned so far
remained within these ceilings."
"In fact, the total loans on real estate and property sector is
still way below the level in those years leading to the Asian
financial crisis," he said. Joey Cuyegkeng, chief economist and
director at the Manila unit of the Dutch financial services giant
ING, told reporters last week that "because the banks continue to
lend more in support of even more real-estate projects and
investments, the BSP may need to put up additional measures to
safeguard banks from risks down the line."
"Part of the increase in bank loans to the sector is due to the
expanding out-sourcing industry, which also requires residential
and commercial spaces," Cuyegkeng said.
Guinigindo said the banks have at least three items that would
determine if they have stretched their loan capacity so far.
Aside from the required ceiling of 20 percent of total loan
portfolio, there is also the 70 percent loan-to-value limitation
and lending cap of 25 percent net worth of the bank to single but
What the ING saw as a concern when some banks have loaned as
much as 22 percent of their loan portfolio was the sum of the
aggregate items of the banks' required ceiling. "There's nothing to
worry about that," he said.
Besides, he said, property loans were not given to property
"We include holding companies, their debt securities, bond
flotations, and all their instruments."
Overall, he said, "the total loan value amounts to only 22
percent of the total loan portfolio of banks."
"It's even smaller compared to other Asian countries. They gave
reached 30 percent even," he said.
"We have not seen any over-stretched valuation of real-estate,"
Also, he said, there will only be a bubble burst "If you
overbuild and no one buys."
In the case of the Philippines, he said the construction of
residences and other real properties remained far from the backlog.
He said demand from the overseas Filipino workers(OFWs) alone
He said the entry of BPO companies have added to the increasing
demand for real-estate and property development.
His statement came at the heels of a World Bank projection this
week that countries like the Philippines, Malaysia, and other
countries in the East Asia and the Pacific region have "experienced
sharp increases in real estate prices."
While it said this may have been fuelled "by high demand, not
all these were fuelled by stable sources, such as income,
population, growth, and employment."
The Philippines's weak spot in real estate, it added, "is that
about 40 percent of new housing units in the country are financed
"Where housing price growth is mainly driven by rapid credit
expansion, for instance linked to loose monetary policy or easily
reversed portfolio capital inflows, the economy may be more exposed
to the risk of an abrupt downturn," the bank said.