THE PHILIPPINE REAL ESTATE INVESTMENT CLIMATE: SWEET AND SOUR TRENDS, ISSUES, AND STORIES

The Philippine economy has been doing a strong performance in the past months and it further bolstered its position as one of the emerging markets in the Asia. And among the economy’s bright spots is real estate, which continues to exhibit sound fundamentals and strong demand.

Yesterday, November 14, 2012, we attended the Asia Pacific Real Estate Investment Summit held at Intercontinental Manila and organized by the Asia Pacific Real Estate Association Philippine Chapter.

Vice President, Jejomar Binay, delivers his opening speech.

The lectures and presentations were done by top key players of the real estate industry, together with foreign groups from United Kingdom, United States, Australia, Korea, Japan, Hong Kong, Singapore, and other countries

It was an event that presented the various perspectives and analysis of the real estate industry from the leading experts in the field, offered in-depth and interactive panel discussions involving key industry players, and provided excellent opportunities for networking. It also showcased the best of and further explores the opportunities in each segment of the local real estate industry.

Mr. Ramon C.F. Cuervo III was one the panelists in the topic of “Sustaining the growth momentum: What reforms are needed to further hasten the development of the Philippine real estate market.” He discussed the need to nurture, develop, and train professional real estate service practitioners in line for the demand for higher standards of practice to meet global and international best practices.

Honorable Vice President, Jejomar Binay, opened the event after Peter Michell, APREA’s Chief Executive Officer and Summit Chairman, gave the background and objective of the investment forum where the key players of the Real Estate Industry attended with anticipation, optimism, hungry for more real estate information . The delegates sat with bright happy faces of satisfaction and with eyes shining from an appetite for more on data & information as to the trends, opportunities and success stories of Philippine real estate investments.

VP Binay said that the good news for the Philippines is the economic growth and the future looks bright, especially for the real estate industry. He described the industry as driven by good economic fundamentals, boosted by the BPO and tourism expansion.

According to him, the BPO industry contributes to the growth as more residential developments are being built near the outsourcing centers to cater to the growing number of BPO workers. He cited Ayala Corporation in foreseeing the rise of BPO industry and met real estate needs. For the tourism, in anticipation of growing number of tourist arrivals, more hotels are being built and the airports are now being refurbished.

He also cited the economic gains of GDP growth, low interest rates, and strong system market, describing it as “all systems go.”

The opening speech of VP Binay was brilliant. He was a very well up to date on research paper with details of an optimistic outlook. He reported how the Philippines is now one of the best emerging nation of the Asia Pacific Region.

Our reputation for investments, as Mr. Cuervo would like to put it is the “Flavor of the Decade”. The Filipino people are in general sweet and so is its real estate investment- sweet, yet in some areas, sour, as we shall see later.

The consensus among the participants is positive but they also tackled some issues, like the Real Estate Investment Trusts, which we will discuss below.

Among the positive issues that were discussed is the booming residential sector. The BSP is closely monitoring the residential sector because of on the concern by market analyst of a possible supply surplus. Most of the attention was placed on the mid-priced condominium but Ayala Land Inc. President, Antonino Aquino, downplayed those concerns because the fundamentals of the country relative to overall demand situation is very strong.

The speakers: Hans Sicat of PSE, Dr. Johnny Noe Ravalo of BSP, and Elizabeth Opeña of Quisumbing Torres

ALI and other developers are also optimistic on the tourism sector and gave credit to the government on its tourism campaign to draw more foreign visitors.

The office sector also remains as one of the real estate industry’s brightest spot, according to Mr. Rick Santos, the Chairman of CB Richard Ellis Philippines Inc.

He mentioned that the BPO sector showed no signs of slowing down and its expansion is on the run. He also said that the domestic office space segment is estimated at 450,000 sqm., with 80% already taken up as of September.Mr. Santos said that the growth will continue to move forward with US corporations feeling the pressure to keep costs down and the debt problems being faced by EU and this can lead to more BPO activities.

The retail and commercial sector has also been growing according to SM Malls President, Annie Garcia; Ayala Malls COO, Rowena Tomeldan; Festival Supermall Managing Director, Danny Antonio; and Robinsons Mall Senior VP, Arlene Magtibay.

In building a mall, SM studies demographics a lot and see what the people want. According to Ms. Garcia, the Philippines is still a very robust market for SM but China has a very big potential. SM has been expanding aggressively in China and they feel they have a good opportunity in to do business in China.

Ayala Malls considers GDP, wage hikes, retail stocks, size of market per region, and closely monitor the global trends. The company is mostly focused on local market and sees more potential outside of Metro Manila.

Festival Malls, being a starter in bringing more brands, looks at where the trends are going because this particular trend follows where the growth will be and catalyzes growth in population in an area. Mr. Antonio mentioned that they are doubling the size of Festival Mall in Alabang and slowly moving in the Filinvest areas in Calabarzon and Cebu.

For Robinsons Malls, according to Ms. Magtibay, they look at level of economic activity whether the number of business is growing, sales, influx of retailers, and see what the drivers of the local economy in thata re are.

Another positive news is in the creation of new metropolis and urban centers. The Bases Conversion and Development Authority is planning to develop a new metropolis in Clark, spanning on over 30,000 hectares.

Dr. Johnny Noe Ravalo of Banko Sentral ng Pilipinas said that the strong backward and forward linkages of real estate development make it a source of growth and contagion. What the banking regulators concerned most includes credit underwriting and liquidity standards, granularity of balance sheet exposures, balance between intermediate funding (loans) and direct market intervention (securities), and intervening at early signs of bubble.

He advised some pro-active steps in moving forward- market convention for real estate lending, promoting transparency in loan pricing, improved coverage of exposure reporting, and mitigating systemic risk.

Mr. Cuervo answers the question of the moderator.

Citing the need to support growth even the global economy is still fragile, BSP reduced its key rates by 1% this year to 3.5% for overnight borrowing and 5.5% overnight spending. This serves as a benchmark for banks in pricing their loans and as a measure for investment yields.

Other key real estate areas that are positive includes infrastructure, urban renewal, creation of new urban centers and PEZA hubs, and health care facilities.

Now, let’s go to some sour issues and the number one is the Real Estate Investment Trusts (REIT)

Philippine Stock Exchange President and CEO, Hans Sicat, said that the issuance of REIT may have to wait until our country gains the sought after investment grade credit grade rating, which will be a 12-month period. He also said that PSE expects the property developers to continue ignore REIT because of the current tax issues. He doesn’t think that BIR will back down because of fear that they may lose revenues due to current tax rules.

The panelist in Retail and Commercial Sector: Ms. Annie Garcia of SM Malls, Rowena Tomeldan of Ayala Malls, Arlene Magtibay of Robinsons Malls, and Danny Antonio of Festival Malls.

REIT is a good vehicle for capital formation but Finance Secretary, Purisima and BIR Commissioner, Kim Henares, killed and spoiled the Philippine REIT with stiff tax requirements and regulations on ownership. The result, as what Mr. Sicat said, is zero.

As compared with other Asia Pacific REIT that are listed in Japan, Australia, Singapore, and Thailand, they have proven to be a success, not only to the proponents but also to investors, public, and government from tax collections that have reached billions of US$.

As usual, some of our government policies, regulations, and laws are contradictory and in conflict to the administration program to attract direct foreign investments to the Philippines. But this will not happen I we do not remove this myopic outlook of putting restrictions to incentives for capital investments.

Mr. Sicat remained optimistic despite the lack of progress on PSE and DOF discussion. “We have been trying to work with them but I don’t think you will see the REIT product anytime soon,” he said.

He also advised the real estate players to continue the advocacy by pursuing amendments of law, convincing the government of the multiplier effect, softening the constraints, and keeping the channels open. Mr. Sicat also said that with a robust banking sector and a lot of liquidity, funding is still possible.

THIS BLOG OR ARTICLE IS OWNED BY MR. RAMON C.F. CUERVO AND MAY CONTAIN LEGAL PROPERTY WHICH IS RIGHTS-PROTECTED. IT IS INTENDED FOR PUBLIC READING ONLY. COPYING, DISTRIBUTING, OR RE-PUBLISHING THE ARTICLE OR BLOG WITHOUT THE APPROVED CONSENT OF THE WRITER IS PROHIBITED. ANY ENTITIES WHO WANT TO SHARE THIS BLOG OR ARTICLE, PLEASE CONTACT THE WRITER AND ACKNOWLEDGE THE SOURCE: www.cuervopropertyadvisory.wordpress.com  AND WRITER: MR. RAMON C.F. CUERVO, WITH MR. RAPHAEL D. TORRALBA

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2 Responses to THE PHILIPPINE REAL ESTATE INVESTMENT CLIMATE: SWEET AND SOUR TRENDS, ISSUES, AND STORIES

  1. Gloria R. Canlas says:

    Congratulations Hon. Mon Cuervo for your timely and useful update regarding the real estate industry which we care about. As professionals, these updates will surely help us and are highy appreciated. May I please request to print them for reference purposes. Thank you.

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