PROPERTY KMC MAG GROUP: Ease foreign ownership rules

By Catherine Talavera of the Manila Times, 07-01-2016

A relaxed foreign ownership rule needs to be implemented for the Philippine property sector to benefit from the Brexit victor, a real estate analyst said.

In a text message, KMC Mag Group head of research Anton Nordberg noted a possible capital spillover to emerging markets, including the Philippine, as Britain leaves European Union (EU).

". . . After the investors have reassessed the current situation, I believe there will be more capital spillover moving to emerging markets such as Philippines," Nordberg said.
In a research note, Colliers International Asia said the Brexit victory would probably make Asia Pacific (APAC) investment properties more attractive.

"Brexit will probably lead to further downward pressure on already very low global bond yields, increasing the relative attraction of the 3 percent to 6 percent yields on core APAC investment property," Colliers said.

Headline yields on major office property markets range from 2.9 percent in Hong Kong to 5.7 percent in Melbourne and 6.0 percent in Sydney, compared to the dropping bond yield rates in most developed global markets.

"At the time of writing, the US 10-year bond yield has dropped to 1.47 percent - close to the 1.38 percent level of July 2012, which was the low point for the last 10 years, while the corresponding yields in Germany and Japan are -0.11 percent and -0.19 percent, respectively," Colliers noted.

Despite the allure of APAC investment properties, Norberg noted the Philippines needs to loosen its foreign ownership rules to attract foreign direct investment (FDI).

Foreign investors can only own up to 40 percent of a property in the country.

"This would be the perfect time to relax the foreign ownership rules so that this capital can go to FDIs rather than portfolio investments," Norberg said.

The shock of the Brexit vote reminds investors of the potential negative political and economic surprises in developed western economies, making APAC markets such as China and Japan more attractive to investors despite the cautious economic prospects.

"In the wake of the UK's vote, Japan may well appear more stable than many western countries. Opinion towards China may well also improve, although Southeast Asia will probably continue to be seen as a "risky" region, at least for the time being."

Jones Lang Lasalle Philippines head of Research, Consultancy and Valuation Claro Cordero Jr. noted the Brexit controversy has no immediate effect on the local property market.

"If at all, the probable impact will be on the flow of investment funds to the Asia-Pacific regional property markets, as global interest rates and bond yields are forecasted to remain low, in light of the Brexit event; while the spread between global interest rates and bond yields in core property markets remain at respectable levels," Cordero said.

However, Cordero noted that the country is not likely to benefit from this.

". . . The Philippine property market is not included in those core property markets in the Asia-Pacific region, so we are also less likely to be a beneficiary of these funds," Cordero said.