Record Manila Land Sale Stokes Frothy Valuations: Southeast Asia
Bloomberg by Siegfrid Alegado, 11-06-2014
Record bids for two plots of land in a Manila business district
have lifted prices to a 17-year high, raising concerns that a
property bubble is forming.
The 1,600-square-meter (17,200-square-foot) site in the former
military camp of Bonifacio fetched 732.8 million pesos ($16.3
million) and 800 million pesos each at a government auction in
September. That was a record half-a-million pesos per square meter,
about 80 percent higher than the previous government land sale in
the area, according to the local associate of Savills Plc.
The "Philippines is at risk for an asset bubble," said
Antton Nordberg, a property analyst at KMC MAG Group Inc.,
Savills's associate in the country. "The price of the land is just
Land prices in the Philippine capital's five major business
districts have surged to the highest since the Asian financial
crisis in 1997-1998 as accelerating economic growth, rising
remittances from more than 10 million Filipinos overseas and low
borrowing costs fuel demand. The boom is spreading outside Manila,
prompting the central bank to cap the value of property that can be
used as loan collateral in part to cool real estate lending and
investment that breached 1 trillion pesos as of the end of
The record bid "has an effect on property prices and rents,"
Kash Salvador, a Manila-based investment manager at broker CBRE
Group Inc., said in a telephone interview on Oct. 15. "It could
create the belief that anyone is able to lock in value seen usually
in top-tier property."
Land values in at least seven cities tracked by Colliers
International UK Plc climbed in the last quarter to the highest
since the 1997-1998 Asian crisis, property analyst Romeo Arahan
said. Manila home prices have surpassed 2008 levels and
office space is near a six-year high, according to Colliers, as
the Philippine economy expanded more than 6 percent in
nine of the last 10 quarters to the end of June.
Closely held Goldenwill Inc. and Focus Palantir Inc. outbid a
unit of Robinsons Land Corp. (RLC), the second-largest
operator of shopping malls in the Philippines, at the Sept. 23
auction of the land sold by the Government Service Insurance System
in Bonifacio. The Social Security System sold a Bonifacio property
for 277,000 pesos per square meter a year earlier.
Based on the maximum of 12-story building height allowed in the
area, average construction cost of about 60,000 pesos per square
meter and an average profit margin of 40 percent, the developers
may fetch 170,000 pesos per square meter, KMC MAG's Nordberg
That will be 21 percent higher than current prices
for office space and 30 percent more than apartments in
Bonifacio, KMC MAG said in a note. The developers didn't give
details about their buildings plans.
At 170,000 pesos per square meter, investors must be ready to
accept yields closer to 5 percent, Nordberg said. Yields are 9
percent for office space in Manila and 7 percent for residential,
according to CBRE data.
Residential condominium rents and prices increased about 5
percent each in the second quarter from a year earlier, according
to Colliers. Office rents added 6.9 percent in the three months
through June from a year earlier, the fastest pace in four
quarters, while capital values rose about 5 percent, the broker
Banks' exposure to real estate jumped 22 percent in the second
quarter from a year earlier, climbing the most since the central
bank first began tracking the investments in 2012.
While prices may be rising too fast in some parts of
the property market, overall "you don't see any clear evidence
of a real estate bubble," central bank Governor Amando Tetangco
said on Oct. 29. Tighter lending measures should help prevent a
"sharp and abrupt" correction, Tetangco said.
Bangko Sentral ng Pilipinas raised its benchmark interest
rate twice this year, to 4 percent, from a record-low of 3.5
The central bank said last month it will release an index to
better gauge how real estate prices affect the economy.
Property loans will moderate in the next two years after Bangko
Sentral last month ordered lenders to cap the collateral value of
real estate mortgages at 60 percent, said Michael Wan, a
Singapore-based economist at Credit Suisse Group AG.
A correction in the housing market is overdue, said Jose Sio,
chief financial officer at SM Investments Corp., which controls one
of the nation's biggest builder.
Sales at Megaworld Corp. (MEG), the nation's largest
provider of space for outsourcing companies, continue to do well,
Jericho Go, a senior vice president, said on Oct. 27. Megaworld
shares rose to an all-time high the day after the Bonifacio sale.
The company is the top landlord in the area, where it is developing
105 hectares (259 acres) into four different township
"The central bank has been proactive, so I wouldn't say that the
market is in a bubble," Go said.