Property sector's star brighter in 2013

By Rizal Raoul Reyes, BusinessMirror

Posted at Dec 26 2012 08:23 AM | Updated as of Dec 26 2012 06:50 PM

MANILA, Philippines - The Philippine property sector will continue to flourish next year, according to the country’s leading property management and consulting firms.

David Leechiu, country head of Jones Lang LaSalle Leechiu (JLL), said Manila would remain an attractive investment site for property investors in 2013.

As of last October, according to Leechiu, the firm had tracked 413,000 square meters of office leases, or 15 percent higher than that monitored in 2011. He said JLL expects more leases to be closed before the year ends.

“We are seeing confident investment sentiment not just in office development but also in the acquisition of property for future development, whether it be for mixed use, commercial, residential, hospitality, retail or industrial,” he said.

CB Richard Ellis (CBRE) also expressed optimism on bullish prospects for the property sector in 2013.

Rick Santos, CBRE chairman and founder, said the country’s property sector is experiencing the best growth in the last 20 years.

Santos added that it is a different situation right now compared to a few years back when Manila was not on the radar screen of property investors.

“The challenge is how to cope with this unprecedented success. Suffice it to say that if you build it, they will come, be it office, residential or leisure property,” he said.

From an investment standpoint, according to Santos, confidence in the Philippines is very high and will continue to be so next year.

He said strong macro-economic fundamentals, along with combined and renewed confidence in the country’s leadership, record low-interest rates and creation by the outsourcing and business-process outsourcing (BPO) sector of 4.5 million square feet of new office a year are boosting the Philippines’s image as an alternative investment site in Asia Pacific.

Judith Lopez, chairman and senior partner in Isla Lipana & Co., a PricewaterhouseCoopers (PwC) member-firm, concurred with Santos that a property boom is happening in Manila right now.

“It’s the best that we’ve seen in decades, clearly a sign of the increasing confidence in our economy. Gross domestic product [GDP] of the Philippines expanded 7.1 percent year-on-year in the third quarter of 2012, the fastest pace since 2010, driven by higher household expenditures, construction and investments. This is nearly the same pace as China and is even the best in Southeast Asia. It shows the Philippines’ strong economic growth,” she said.

JLL pointed out that Manila is becoming a favorite among real-estate investors and developers, indicating a growing interest in alternative markets in Asia, while China continues to experience continuous rise in property prices, according to Emerging Trends in Real Estate 2013 published by the Urban Land Institute (ULI) and PwC.

Based on the study of the 22 markets in Asia, Manila was ranked 12th in investment prospects and ninth for development prospects, a major improvement from its cellar position in the previous years.

A growing economy, a transparent and business-friendly government and the country’s ongoing success in attracting foreign corporate clients to it BPO facilities, which account for approximately 70 percent of new office occupancies in Manila, have boosted Manila’s position on the investors’ list.

Furthermore, the gaming industry will have a major contribution as tourism and gaming facilities are expected to be completed in three to five years.

In the office/commercial sector, CBRE said the country has emerged as a major player in the BPO sector.

Santos said the country’s BPO growth can be compared to the BPO growth in India in the early 1990s.

Citing Business Processing Association of the Philippines (BPAP) figures, he added that there is a lot of expansion in the BPO sector as in other areas, such as software and web/graphics development, information technology and engineering services and health care, which are ready to grow next year.

BPAP said BPO revenues are expected to grow by 10 percent to 15 percent in 2016.

Furthermore, Santos said, “The Philippines is one of the most cost-effective outsourcing destinations in Asia, providing conducive environment for foreign investors through its excellent pool of skilled labor and customer service, one of the cheapest rents, and highest yields in Asia.”

He added the Philippines has become a haven for several American and European companies, which need to outsource in order to develop stability and sustainability in their jobs.

Santos said that the movement of global banks’ back-office operations to the Philippines is proof that the country’s BPO industry will get bigger in the near future.

Richard Price, ULI Trustee and ULI North Asia vice chairman, said that investors are seeking attracting investment opportunities in Asia Pacific as the business environments in Europe and the United States are facing challenges, such as high rents, high capital values and low yields.

“As a result, investors are expanding their horizons as they seek compelling investment opportunities. Some are looking at frontier markets, such as Indonesia, while others are revisiting often overlooked capitals, such as Kuala Lumpur and Bangkok, which explains the strong showing for these locations in this year’s report. Secondary markets, such as Kowloon in Hong Kong and second-tier Chinese cities, are also experiencing increased interest from international buyers,” JLL said.

“At the same time, core investment markets in many mature, Western markets are seeing a surge in demand from newly formed Asian institutional investors seeking to capitalize on the post-global financial crisis corrections there,” it added.

JLL said the government’s transparency program and anti-corruption campaign have boosted the country’s image to foreign investors, making the country more attractive to foreign investors.

As a result, Manila’s real-estate sector is mirrored by the great opportunities presented by the BPO and gaming sectors over the next two years.

“Multiple credit-rating upgrades, the support of the government and positive outlook are encouraging more businesses to expand and relocate to the country, creating demand in luxury destinations and leisure property,” JLL said.

While demand for the high-end market will be sustained in 2013, Santos said that developers would give more attention to the mid-income residential-market segment within the P45,000 per square meter to P80,000 per square meter range, signifying that there is a growing demand from the growing population of families and young professionals, and supported by the record-low interest rates.

“The Philippines has the lowest interest rates and best financing schemes for home ownership today. Interest rates range from 5 percent to 11 percent for short- or long-term payment schemes.

“This has opened the opportunity for more Filipinos to become owners rather than renters,” Santos said.