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A FILLIP FOR PHILIPPINES

Buoyed by a booming BPO industry and a resurgent retail market, Asia’s second fastest growing economy is the on the cusp of a real estate boom.

May 2015

If political will and geo-political strategy can transform the fate of a nation, then the Philippines is a fine example of it. Within five years of taking office, President Beningo Aquino III, through sheer political determination and a range of reforms, has led the Philippines from being a struggling Asian nation to rising as a roaring economic success. With the current GDP growth rate galloping at a rate of 7 percent, the USD 310 billion Philippine economy is tipped to reach the USD 500 billion mark by 2020, and emerge as a USD 1 trillion economy by 2030. While the manufacturing sector has been steadily increasing year-on-year since 2010, the services sector – led by the BPO industry – continues to grow at a blistering pace.

On the geo-political front, the country’s integration with ASEAN this year has paved the way for a fresh wave of foreign investments, growth of industry and sustained economic development in the years to come. Leading from the front, the government has approved 12 key infrastructure projects costing about PHP 184.4 billion last year, and lined up another PHP 890 billion for major infrastructure works, which in turn will attract sustained foreign investments and drive the country’s economy along a high growth trajectory. Overall, growth prospects in the Philippines are expected to remain positive in the next few years despite slower-than-expected global economic recovery.

Big market, bigger pie

From the real estate perspective, the surge in the number of ASEAN investors and tourists has translated into an expanding pie. The big developers are enlarging their plates by partnering with international investors and enhancing their capabilities. Leading players – like the Ayala Land Group that has increased its target capital expenditure by 43 percent from PHP 70 billion to PHP 100 billion this year – are venturing aggressively into newer segments like hospitality, retail and commercial projects to capitalise on the increasing opportunities in the Philippine realty sector.

“Real estate in the Philippines has attracted investors, both foreign and local, as properties are cost-competitive compared to other Asian countries. This provides potential high yields for those who would like to cash in from their property purchases,” says Rick Santos, Chairman and Chief Executive Officer of CBRE Philippines, adding that the government’s role in maintaining stable conditions and sound regulations has helped create an environment that is conducive for investment.

The growth of the Philippine real estate market is driven by strengthening investor sentiment, with rating agencies like Fitch, Standard & Poor and Moody’s maintaining an upbeat stance. The agencies have cited the declining debt, manageable inflation and strong macroeconomic fundamentals as key considerations for reinstalling the investment grade rating for Philippines. “With intact investment and credit ratings, and sustained growth rates of traditional demand drivers, the real estate prices continue to post steady growth rates,” says Bee Lin Ang, Associate Director – Asia Pacific, Jones Lang LaSalle Property Consultants.

Commercial break

A big positive signal is that in recent quarters, the growth of the manufacturing sector in the Philippines has been outpacing the services sector, which is indicative of a more broad-based development.

“Occupancy and rents in industrial zones as well as office buildings have been steadily increasing,” says Jojo Salas, Director – Research & Consulting of Pinnacle Real Estate Consulting Services, adding that commercial office space is the best sector to invest in due to the continuous demand from the business process outsourcing companies; occupancy levels in major business districts are north of 90 percent.

The demand for offices has spilled over outside Manila’s main business district of Makati CBD and encouraged development of various emerging urban districts and mixed-used developments in Manila and key urban pockets upcountry.

“With ample government support to ensure the future growth of the sector by further developing the resources, improving the quality of qualified labour and enhancing the business environment, we expect the BPO sector to continue to drive office space demand in the near-to-medium term,” says JLL’s Bee Lin.

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