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Philippines Real Estate Report Q1 2012
Business Monitor International, Nov 2011, Pages: 60
Business Monitor International's Philippines Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Philippines's Real Estate industry.
MARKET HIGHLIGHTS
Philippine President Benigno Aquino III announced a PHP72.1bn (US$1.7bn) stimulus package in October aimed at protecting jobs, as the economy had thus far failed to meet growth expectations in 2011. While the package is a positive sign that the government is willing to more actively promote economic growth in the short-term, its modest effect is unlikely to boost full-year growth to the government's target range of 5.0-6.0%, and BMI continues to forecast that the economy will grow 4.7% in 2011 before slowing further to 4.5% in 2012.
Despite difficulty sustaining economic momentum and with export demand from major developed trading partners softening, the Philippine real estate sector is set for generally buoyant short-term growth. High take-up rates will keep pace with supply in the office segment, maintaining healthy rental growth. The ever-expanding retail sector is making for a competitive property market, with growth in Cebu City's rental rates of particular note. Thanks to the many special economic zones and foreign manufactures looking for lower-cost operating environments, the industrial real estate market is also potential heavy.
The country opened up the market for real estate investment trusts (REITs) after passing the Act Providing the Legal Framework for Real Estate Investment Trusts and for Other Purposes in February 2010. It allows investors to benefit directly from a property's income rather than investing only in the developer. However, in July 2011, the tax agency added 12% value added tax (VAT) on the transfer of REIT assets and the Bureau of Internal Revenue (BIR) added 30% income tax, severely reducing its attractiveness to developers.
In September 2011 Robinsons Land Corporation, the property business of JG Summit Holdings, was yet another firm to abandon plans to list assets through a REIT, according to the Manila Standard Today. Robinsons' vice chairman, Lance Gokongwei, said, ‘given the constraints, given the current implementing rules, I think it does not make financial sense to do a REIT.' Since mid- 2011, REITs have not been a very viable proposition for developers in the Philippines.
KEY OPPORTUNITIES
Some of the key opportunities in the real estate market are:
- The Philippines is one of the fastest-urbanising countries in East Asia. With an English-speaking and relatively low-cost workforce, it is ideally placed to participate in high-demand services such as business process outsourcing.
- Many residents of cities in the Philippines continue to experience poverty, environmental degradation and live in slums or other inadequate housing arrangements. Economic development has created rural-to-urban migration.
KEY RISKS
Some key risks to the real estate market are:
- Political unrest in the Middle East and North Africa causing a decline in overseas remittances.
- Economic difficulties in the US and eurozone, and commodity price fluctuations, pose risks to private consumption growth.
- Despite President Benigno Aquino III's pro-foreign direct investment (FDI) policies, the changes in the law affecting REITs mean developers that had planned to set trusts up have stopped. In August 2011, mall developer SM Prime Holdings dropped its plans to raise US$500mn via a REIT and Ayala Land dropped its plans to raise US$400mn following the tax rises by the BIR and the tax agency.
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