RACuervo’s FOOTPRINTS ON LAND: PROFILE ON REAL ESTATE INDUSTRY PART 4

The service sector has been dominating the country’s economy these past few years. Hospitality, BPO, tourism, etc. has been on a boom and is projected to continue its growth for the coming years.

Ramon C.F. Cuervo III, in an SMS interview, stated that per PCCI report, the commercial and industrial chamber is projecting a growth of over 10% in exports and manufacturing industry.

“Our economic backbone is starting to mature with small and medium size industries and the build up of entrepreneurs who are fast growing to be world class and globally competitive,” Mr. Cuervo said.

The Carmelray Industrial Park in Canlubang, Laguna. (Photo source: www.ascendas.com)

The Carmelray Industrial Park in Canlubang, Laguna.
(Photo source: http://www.ascendas.com)

ROQUE SORIOSO: Unlike other middle income Asian economies, the Philippines has a small manufacturing sector: the result of failed government policies in import substitution, labor practices and one of the highest energy cost in Asia.  The Philippines still has some comparative advantage in niche industries in intermediate electronics and high end furniture, which are its two main export engines.  Domestic manufacturing however, was mostly uncompetitive and most goods are imported.

This weak manufacturing sector has meant that demand for industrial properties has always been soft.  In addition, the property boom in the mid-1990s created sprawling industrial parks, which remain more than 40%-60% vacant to this day.  Thus, weak demand and surplus properties result in low prices and rents.

In the third quarter, the manufacturing sector grew flatly (less than 5% in revenues) and can be expected to remain soft-if not slightly negative if external conditions worsen.  The table above summarizes the current condition and, most likely, near-future conditions.  Metro Manila industrial properties are mostly light manufacturing and warehouse spaces.

Recent developments in China may change the short and medium term prospects of the Philippine industrial property sector.  First and fundamentally, the average wage rate of coastal city labor in mainland China have increased to a level two to three times that of the Philippine daily minimum wage.  Secondly, the threat of political and ethnic unrest spurred on by territorial and historical disputes with investor countries simmer and threaten to boil over and there is no resolution in sight.

Consequently, multinational firms have been increasing scouting forays into the Philippines (and other Southeast Asian countries), looking for possible relocation sites.  Japanese and Korean firms, in particular, have been especially interested.  The BOI have reported dozens of inquiries in the third quarter alone.  The interest is expected to translate to effective demand when the Philippines earn investment grade rating sometime in 2013.

PINNACLE REALTY: The industrial market is showing some bright spots with the continuous improvement in the economy. The new jobs being offered has led to the growth of the consumer population which in turn has led to an increase in the demand of manufactured products.

To capitalize on this some manufacturers have constructed new and larger manufacturing plants with upgraded facilities. One such locator is Suzuki Philippines as it transferred its motorcycle manufacturing operations from its old plant in Pasig to its new PhP1 billion plant in Carmelray Industrial Park in Canlubang, Laguna.

Latest statistics on Industrial sector by Pinnacle Realty

Latest statistics on Industrial sector by Pinnacle Realty

The same company announced plans of opening a car manufacturing facility beside the motorcycle plant. However no actual details regarding this have yet been disclosed.

Three new manufacturing plants were recently opened in the First Philippines Industrial Plant (FPIP) in Sto. Tomas, Batangas. On the FPIP website, the companies that opened their manufacturing plants in FPIP were B/E Aerospace, Nestle Philippines and Murata Manufacturing Co.

The manufacturing plant of B/E Aerospace, a leading manufacturer of aircraft passenger interior products, is its first outside of US and Europe. At an estimated cost of PhP2 billion, the plant has 25,000 sqm of floor area situated on a 63,000 sqm lot.

Nestle Philippines, one of the country’s leading food and beverage companies, manufacturing plant in FPIP is its fifth in the country. The PhP5 billion plant has a floor area of 44,000 sqm situated on a 270,000 sqm lot. The facility will produce the popular Coffee Mate creamer and later on Bear Brand milk.

Murata Manufacturing Co., a manufacturer of components for smart gadgets and appliances, opened its biggest manufacturing plant in Asia in FPIP. At an estimated cost of PhP3 billion, the plant has an area of 37,600 sqm situated on a 228,000 sqm lot. Plans of doubling the plant’s size by 2013 was disclosed by company officials during its inauguration.

Three other companies are also constructing their manufacturing plants in FPIP. These are Canon Inc., Brother Industries Ltd. and Sonion, a hearing aid manufacturer.

Reports of rising labor costs and other incentive related issues in China are leading some Korean manufacturers to seriously consider relocating their manufacturing plants in the country. These companies are expected to have very little difficulty in this transition as they already have extensive experiences with working in the Philippines and have established communities across different parts of the country. In fact, one of the biggest plants in the country is the shipbuilding facility of Korea’s Hanjin Heavy Industries with an estimated cost of about US$2 billion.

Suzuki Philippines will open its P1B plant in Laguna.(Photo source: www.gadgetsmagazine.com.ph)

Suzuki Philippines will open its P1B plant in Laguna.
(Photo source: http://www.gadgetsmagazine.com.ph)

The Philippine Export Zone Authority (PEZA) has recently stepped up its activities to attract more foreign investors to set up their industrial and manufacturing facilities within the country. They foresee more foreign investments coming into the country because of the ease in doing business in the country brought about by the governments efforts in cracking down graft and corruption. At the same time, industrial park operators are doing their part in this by increasing the area of their industrial estates to accommodate this expected influx of investments.

Several major industrial estates south of the metropolis have been reported increasing their total land area. This is in anticipation of the reported expansion plans of their existing locators as well as to accommodate new locators into these facilities.

RAMON CUERVO: I wasn’t able to forecast the industrial sector for 2012 but I was amazed by its development that benefited the real estate industry.

Mr. Ramon CF Cuervo III believes that the manufacturing sector will be a pillar of the Philippine economy.

Mr. Ramon CF Cuervo III believes that the manufacturing sector will be a pillar of the Philippine economy.

I agree with what Roque Sorioso and the Pinnacle Realty stated that manufacturing companies are now moving to the Philippines.  Manila was adjudged as a real estate investment destination this year and the country was named as “New darling of investment.”

Economic zones in the Philippines are also expanding, making it to catch the eyes of foreign companies. More real estate developers are developing new economic zones so running out of economic zones is not an option.

The reasons why foreign manufacturing companies are relocating to the Philippines is that it is a part of the trend showing investors turning into secondary markets and emerging cities like Manila in search for returns. Second, the country’s young and English-speaking workforce. Human capital is what the country can offer. Third, low labor cost compared to other Asian countries such as China, in which I heard is increasing its labor cost. Fourth, the Philippines’ economy is on the right track. The Korean Chamber of Commerce Philippines stated that the country is strategically located in the Asean, a booming market and an especially attractive one given the recent Asean-Korea free trade agreement (FTA).

However, some companies deterred to move or thinking twice before moving because on the limits on foreign ownership of land and other restrictions imposed in the Philippines. One example is if a company make a big investment, the land cannot be acquired and the property can also be turned over to other entity.

Improved manufacturing in the country can be seen by 2014 because the global economy is expected to recover during that span and the Aquino government will focus on the needs of the manufacturing companies, especially the infrastructure, in order to attract them to invest in the country.

For me, manufacturing is one of the future pillars of the economy and real estate. If the government can properly provide the needs of the companies, then manufacturing will become another booming industry and will benefit the real estate.

Sources of Data:

  • Roque Sorioso Jr.
  • Pinnacle Real Estate Consulting Services, Inc
  • Institute for Philippine Real Estate Appraisers (IPREA)

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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