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The most recent forecasts for 2015 are in, and it seems that the 6.5 percent to 7.5 percent target of the government for 2014 and the 7 percent to 8 percent goal for 2015 would be a too challenging feat, especially with global economic forces weighing down on the local economy along with other home-grown issues threatening the growth momentum. World Bank revised its growth trajectory from 6.6 percent to 6.4 percent for 2014 and from 6.9 percent to 6.7 percent for 2015. The Asian Development Bank (ADB) and International Monetary Fund (IMF) also adjusted their forecast. ADB placed economic growth at 6.2 percent (6.4 percent) for 2014 and 6.4 percent (from 6.7 percent) for 2015, while IMF maintained its projected growth for 2014 at 6.2 percent this year but also downgraded the estimate of 6.5 percent to 6.3 percent for the coming year.
But in spite of the changes, overall, the sentiment on the Philippine economy remains generally positive. Despite the slowdown, the Philippine economy is still seen as the fastest-growing among the ASEAN-6, as it claims the highest GDP forecast in the region for 2014 to 2015. It is likely to trail behind China (or even India) as among the robust economies in Asia. And it looks like the expansion and growth of the local economy will continue through next year.
- The decline in economic growth projections are attributed to slackened government spending, higher inflation, and monetary tightening. All these might slow down the economic activity. With the aftermath of the Typhoon Haiyan, the country had an understandably slow start this 2014.
- Projected growth of the local economy also hinges on global economic recovery. The global economic forecast is a little bit bleak, with 3.3 percent projected growth this year and 3.8 percent next year, as opposed to the brighter outlook on the ASEAN economy, with 4.7 percent projected growth for 2014 and 5.4 percent accelerated growth for 2015, according to IMF. The most recent forecast on Philippine economic growth basically reflects the weaker global economy.
- The Philippine economy is not the only one to suffer from weaker global growth and economic downturns. Major economies in Southeast Asia also face the same downshift.
- Although the local economy posted a rather disappointing growth at 5.7 percent in the first quarter, it was able to pick up the pace with an accelerated growth of 6.3 percent in the second quarter, rounding up a 6 percent growth in the first half. The comeback in the first half was prompted by improved export, strong private consumption, and increased investment.
- Economic growth for the remaining part of the year and the coming 2015 will bank largely on improvements in government fiscal disbursement and also in the export sector as prompted by better prospects in major industrial economies, according to ADB. IMF, on the other hand, cited domestic demand as one of the main growth drivers, given a sound labor market and encouraging financial conditions.
- Business sentiment is mostly positive as confirmed by surveys conducted by the Central Bank. The first half of the year saw the rise in foreign direct investment, although compared to other economies or markets in the region, this is still relatively low.
Investment groups, banking institutions, economists, and industry exports echo the same sentiments on sustaining growth. We believe that these would make accelerated and inclusive growth possible in the coming years:
- The sad state of infrastructure in the country has been standing in the way of its progress. It cannot fully capitalize on its growth potential if its transport and communications systems remain un-rehabilitated, along with other delayed infrastructure developments.
- Data shows that poverty incidence has been reduced significantly, from 27.9 percent in 2012 down to 24.9 in 2013. But while around 2.5 million Filipinos rose from the poverty line and about 1.7 million jobs were created in April 2014, according to World Bank, underemployment is still at a high rate of 18.3%.
- Even if the country has a rather strong GDP, there's still a need to create better employment opportunities. The country should not only rely on the hyperactive growth of the IT-BPO. It should also focus on building a stronger manufacturing sector and should capitalize on tourism and service industries. To do this, there should be more infrastructure projects, such as new roads and transportation systems, to support this growth and to decongest the main CBDs in Metro Manila by creating and exploring new potential CBDs such as Quezon City and Bay City.
- Although the Philippines has managed to land itself back in the investment radar and has spurred growing interest and attention from investors overseas, it needs to be even more competitive. Business process and regulation should further be simplified. The government should push for economic reforms and should take measures to address restrictions on foreign property ownership and other critical issues that keep investor interest from turning into actual investments. The policies should support long-term economic growth and should not be short-sighted.
- The country is also in need of better tax policies and should push for reforms to make tax collection and the entire system fair, free from the shackles of corruption, and simply more efficient. The additional tax revenues will be crucial for funding infrastructure projects, investing in improved social services, and for reinforcing the growth of other industries, aside from IT-BPO.
Real estate in the Philippines
The property market in the Philippines is still in a sweet spot. This year, we have seen some big investments rise from the ground with local developers and foreign investors creating a new landscape, doing their best to deliver to the increasing demand and activity in the market. Metro Manila's central business districts and other prime locations in the city have become home to new residential communities and have been the hot spots for expanding office developments and booming retail markets. The third quarter property market update reflects high investor confidence. With the upcoming developments and launches and ongoing constructions, the industry is in an upward spiral. The office market is the most active and popular of all the assets and property types. Residential real estate hasn't lost steam, although market interest is shifting towards the lower segment. The steady flow of OFW (overseas Filipino workers) remittances, booming IT-BPO industry, increasing domestic demand, and growth in tourist arrivals over the next few years drive growth in the property market. With the Philippines fast-growing economy, it is suited to become a top real estate market in the coming years.
It's a landlord market for the office and commercial property sector, and it is likely to stay this way because of the shortage in supply. The office market has an impressive third quarter performance. We can see an early upswing for the office market and commercial property sector. There's an increasing demand and decreasing vacancy, resulting in a price increase. In central business districts, there are single-digit vacancy rates below five percent. Take-up is rather impressive. We can see new and upcoming supplies putting some pressure on rental prices and vacancy rates. However, rental growth will be at a more conservative pace. As prime office supply in CBDs stays low through 2016, the demand in the leasing market and interest particularly on serviced offices will be sustained, especially with the IT-BPO and KPO industry's expansion and SMEs wanting to test the market first. Investors and developers should explore the idea of developing new CBDs as BGC, Makati, and Ortigas start to fill to the brim and become saturated. Great locations would be Quezon City and Bay City. CBDs can also be developed in other parts of the country, with the rise of Next Wave Cities that have turned into promising investment destinations.
Residential real estate
The demand for residential properties is still high. The third quarter update even marks a slight increase in average rental rates. But from luxury residential properties, developers' interest and focus are set more on lower segments, such as the mid-end residential supply. The middle income market will help sustain the demand in this segment. The middle class is focusing on efficiency and is looking for a mid-cost option. Developers and investors should capitalize on this trend. The high demand in the residential market will be sustained, with global businesses, international brands, and foreign investors infiltrating the local market because of the generally positive business sentiment.
Hotel and leisure industry
In the early parts of 2014, we have marked an increase in foreign tourist arrivals, and this is expected to grow in the coming years, with the government targeting up to 10 million tourist arrivals by 2016. However, this growth might be difficult to achieve, given that runways are already at full capacity. To achieve 10 million growth, newer and larger airports that can cater to more flights need to be built.
Along with a warmer investment climate, this prompted extensive hotel developments and room expansions in key locations in Metro Manila and a number of tourist spots throughout the country. It's great to know that developers have extended developments outside city and into other prime tourist destinations and leisure spots such as Cebu, Boracay, and Palawan. But while a good number of hotel and leisure developments in the country are up to par with world-class facilities, there's much to be desired when it comes to providing vital infrastructure and improving accessibility to the country. We're talking about renovating the airports, transport links, and other access, beyond cosmetic enhancements. The country can make great strides by building an airport city and other top-class facilities.