PH Real Estate in 2015 Ended on An Upbeat Note

As 2015 ended and 2016 unfolded, most business pundits were optimistic that the local economy and the real estate industry would emerge stronger than ever, politics notwithstanding.

Bucking the trend

Then NEDA chief Arsenio Balisacan believed that the country’s economic gains have been a boon to the property sector.  The International Monetary Fund (IMF) announced that the Philippine economy likely grew 5.7 percent last year, and is expected to rebound  with a more than 6-percent expansion in 2016 and 2017, making it one of the fastest growing economies in Asia.

600-pound gorillas - 

In synch with the Year of the Monkey, the top real estate developers are rampaging through the forest.

 

”The shape of real estate industry in the Philippines has changed dramatically over the years,” Balisacan said at a summit organized by the Land Registration Authority (LRA) and The Organization of Property Stakeholders.

“In particular, the property market has grown robustly over the last 20 years as increasing demand for residential and commercial properties in the country became ever more evident against the backdrop of our changing economic landscape,” he observed.

Bucking the trend of many property funds that have their sights firmly set on China, BPE Asia Real Estate said it is looking for gold elsewhere, such as the Philippines and Vietnam. “There are still some uncertainties in China,” explained Mark Fogle, managing director and head of real estate for BPE Asia, citing a glut and the economic downturn. “It may not be the right time to buy assets there.”

BPE, therefore, sees good prospect in other countries. “We have confidence in the Philippines. The country is changing dramatically and the middle class is growing rapidly,” said Fogle.

“We are very positive on the way things are going for the real estate market,” said Rick Santos, founder, chairman and CEO of CBRE Philippines. “The transformation of areas outside the major central business districts are continuously creating more investment opportunities. From Clark up north to Davao down south, the playing field is becoming more exciting, especially for the BPO sector which will sustain the momentum and drive for the coming years.”

Ruling the forest

The Ayala Land Group led the biggies by building townships all over the country. The Group generated revenues from property development reaching Php 75.1 billion for the first nine months as compared to the same period last year of Php 68.3 billion or 10% higher. 

SM Group was selling an average of 15,000 units every year. Based on Housing and Land Use Regulatory Board (HLURB) figures, the average license to sell given to condominium developments has an average of approximately 75,000 per year. SM Group targetted to increase its annuals sales to the 20,000-unit level, thereby solidifying its market share in the condominium segment.

Another big “gorilla” is the Megaworld Group that has been busy with its five new townships all over the country. The group also announced its intention of catching up in the retail mall segment by building 20 malls in the next five year. 

The Vista Land Group was pushing major real estate projects all over the country, with its patriarch declaring that he will stay away from politics. The Group unveiled 27 projects in the previous months that are expected to rake in Php 20.7 billion of sales, plus the additional planned launches with estimated sales value of Php 15 billion. 

DMCI Group was set to launch nine projects in 2016 with approximately 14,000 units and estimated sales value of Php 50 billion. Likewise, the Group intended to generate recurring income when it launched its 36-storey office project along Pasong Tamo in Makati City.

Eton Properties, the real estate unit of the Lucio Tan Group, continued to focus on generating income by building more office buildings to meet the growing demand in the BPO-IT industry. Eton had already built office buildings with a total leasable area of 124,000 square meters. It intended to build an additional  200,000 sqm of leasable office spaces.

BPOs still going strong

The business process outsourcing (BPO) industry was expected to end the year with 1.2 million employees, which is very close to the next year’s goal of hitting 1.3 million jobs, industry sources said. Revenue-wise, the BPO industry generated total revenue of US$ 18.9 billion in 2014, and expected to hit between 15%-18% this year. The 2016 revenue target was pegged at US$ 25 billion.

Property Report, one of Asia’s leading luxury real estate, architecture, and interior design publications, recently cited the Philippines as a solid performer and although analysts are predicting a slight slowdown in growth, they see plenty to be positive about—especially in an office market likely to be the beneficiary of a thriving BPO (business process outsourcing) sector. Duncan Forgan, writer for Property Report, said “the IT (Information Technology)-BPO industry in the Philippines is poised to create up to 1.3 million jobs this year, thus the rise in demand for more office spaces.”

“The growth pillar in the Philippines, its BPO industry, is powering ahead thanks to sound economic management, a stable political landscape, and a largely young and well-educated population,” added Sigfrid Zialcita, managing director of research at commercial real estate firm Cushman and Wakefield. “The next five years could still see BPO companies enlarging their footprints across the country to ensure high occupancies and a platform for long-term moderate growth of more than five percent.”

With strong demand of four million square feet of office space each year, the Philippines is a solid market for many big and multinational companies, added Fogle.

What bubble?

The residential market is the segment that is most competitive at present, since a lot of players have been cashing in from this profitable sector. Whispers of a property bubble persist, and have zeroed in on a smaller segment, the condominium market.

Most developers have been targeting overseas Filipinos. In addition, a lot of buyers have been promised  “good investments.” Delivery of new residential condominium units was expected for the rest of 2015. Condominium buyers who were expecting rental income wanted to see how their yields would flow in, especially if these purchases are leveraged with bank financing.

The SM Group intended to sell at an annual average of 20,000 units starting 2016.. DMCI announced that it would launch 14,000 units the same year. The Ayala Land Group and Ortigas & Company have packaged their residential projects with mixed used and township developments.

Jockeying for retail space

The retail market has been dominated by the “600-pound gorillas” , such as the SM Group, Robinsons Group and Cosco/Puregold Group. SM Group has 55 stores, 41 SM Supermarkets, 43 SM Hypermarkets, 127 Savemore stores and 27 WalterMart stores. 

The other big players like the Ayala Land Group and Megaworld are aggressively pursuing their own retail strategies. The Ayala Land Group is planning to open at least five new shopping malls in the next few years in line with its goal to earn a net income of Php 40 billion by 2020. Megaworld Group is joining the race with its plan to put up 20 malls in the next five years.

The Vista Land Group acquired 88.25% of Starmalls, Inc. from the Fine Group to officially seal the merger. The Group is integrating its retail platforms with its housing projects and intends to open six to seven “AllHome” annually over the next five years. 

Hotels rising

Hotel occupancy rates in Manila slipped to an average of 68% percent in the first half of the year, just 1.6%-points lower than the rates a year ago, according to a report by the United Nations World Tourism Organization (UNWTO) report. Even with this slight decrease, the Philippines is actually doing better than most countries in Southeast where drops ranged from 2.1%-points (Singapore) to as high as 8.6%-points (Bali). 

Tourist arrivals have been increasing every year. Robinsons Land Group is steadily beefing up its Go Hotel brand. At present, it has nine sites: Bacolod, Butuan, Dumaguete, Iloilo, EDSA-Mandaluyong, Ortigas Center, Otis-Manila, Puerto Princesa and Tacloban.

The Filinvest Group is beefing up its hotel portfolio and rebranded its Filarchipelago Hospitality, Inc. to Chroma Hospitality, Inc. that would offer hotel management services to third parties. 

Chroma Hospitality is spending as much as Php 2.6 billion for a 228-room Canvas Hotel in Cubao and a 185-room Canvas Hotel in Mactan. The Group is bringing to the market a Crimson Hotel in Boracay; Quest Hotels in Dumaguete and Tagaytay; Canvas Hotels and Resorts in Cubao, Mactan and Cebu City; and a Serulyan condotel in Mactan. 

The Ayala Land Group plans to put up Seda hotels across the country in the next five years. It is even considering bringing the Seda brand broad. The Ayala group currently has four Seda hotels located in Bonifacio Global City, Cagayan de Oro City, Davao City and Sta. Rosa, Laguna. 

The Rockwell/Lopez Group opened its first Aruga hotel-serviced apartments in Rockwell Center, Makati. It is offering 114 units of studio, one-bedroom and two-bedroom, catering to mobile businessmen and professionals. 

Casinos upbeat on prospects 

The gaming industry in the Philippines is “doing well,” at least in the eyes of casino operators.

The local casino industry was beset with challenges last year particularly with the Chinese government’s crackdown on illegal gambling that has affected gaming revenues in the entire region. Still, casino operators in the Philippines are bullish on their prospects for the remainder of the year.

City of Dreams Manila COO Kevin Sim says they are “confident” that the newly-opened casino resort will “expand across all segments.” “Despite being open only a few months, City of Dreams leads the Philippine market in visitation rates,” Sim said.

Travellers International Hotel Group, which operates the Resorts World Manila, also remains positive about the state of the local gambling industry.

Owen Cammayo, director for corporate communications at Resorts World, said they are focusing on “concrete and aggressive expansion plans in the next five years.”

The casino development industry in the country is not showing any signs of slowing down in the near future. For example, the Sino-American Gaming Investment Group and Macau Resources Group Ltd. are already in talks with Philippine state gaming regulators regarding the possibility of opening two mega-resorts outside of Manila: one in Cebu, and one in Masbate.

Within Manila, two more casinos are expected: Manila Bayshore, a joint venture between Alliance Global Group Inc. and Malaysia’s Genting Group; and Japanese billionaire Kazuo Okada’s Manila BayResorts.

Finishing strong

While it is typical for companies to “finish the year strong”, especially for publicly-listed entities, the real estate market is more of a long distance marathon. Developing real estate products takes months, even years.  This is the reason why due diligence and market scanning is very important in any segment of the property market. Maximizing the liquidity of the financial market is also important. This is the advantage of the country’s stable, low interest rate regime.  ###