This election year, who will prove to be Philippine real estate’s winners?
By middle of 2016, there will be a new president who have won the plurality vote. Sure there would be political noise during the national and local elections. It is important to note, however, that President Benigno Aquino III and his allies were the staunchest critics of the Arroyo administration, and yet there was a smooth transition of power. Philippine politics have relatively matured to compel opposing parties and personalities to accept the verdict of the democratic processes and institutions. This political stability resulted to positive windfall benefit to the economy over the past five years.
The Philippine government campaigned hard during the last quarter by spending more in infrastructure development, driving the quarterly gross domestic (GDP) growth to 6.3 percent. This effort, however, slightly fell short to reach the full-year target growth of 6 percent. The latest Philippine Statistics Authority data shows that Philippine GDP growth is 5.8 percent for 2015. At any rate, the investment grade of “BBB” has been maintained, and Philippines is doing better than most countries in this cluster according to Fitch Rating.
The Bangko Sentral ng Pilipinas’ (BSP) latest figures show that the net foreign direct investment (FDI) has been consistently increasing in the past five years. Net FDI reached $6.202 billion in 2014, while net FDI from January to August of 2015 is pegged at $3.004 billion. Overseas Filipino remittances have also been stable, which reached $25.77 billion in 2015, compared to $24.63 billion for 2014.
Inflation rate for February 2016 is a low 0.9 percent compared to 1.4 percent in 2015 according to the BSP. While this is generally correlated to weak economic activity, the labor market is generally stable. Latest unemployment rate data is pegged at 5.8 percent as of January of this year, compared to 5.6 percent in 2015.
According to the Department of Tourism, total visitor arrivals in 2015 reached 5.36 million, registering an increase of 11.67 percent over the arrivals in 2014. Meanwhile, tourism earnings for the same period reached $5 billion, up by 3.3 percent from the $4.84 billion earnings in 2014.
Tourist arrivals in 2015 reached 5.36 million, 11.67 percent more compared to 2014. Photo via Shutterstock
Winning and the Winners
In the Philippine real estate market, winners have been pushing their winnings. Ayala Land has continued to lead by snatching more trophies in recent months. The group generated revenues from the sale of residential lots and units, which reached Php58.4 billion, 12 percent higher than the Php52.3 billion posted in 2014. In terms of reservation sales, the group generated a total of Php105.3 billion.
The SM Group is another big winner, which reported a 54 percent year-on-year increase in consolidated net profit to Php28.3 billion for 2015, buoyed by a Php7.4 billion, one-time trading gain on marketable securities booked in the first quarter of 2015.
Andrew Tan-led Megaworld is another big winner. It completed 16 residential projects and six BPO office towers with retail components across its integrated urban townships. Megaworld currently has 20 integrated urban townships across the country, and its total land bank spans over 4,000 hectares nationwide.
Vista Land has been winning its own trophies as well. The Manny Villar-led company purchased Boracay Sands Hotel on the last business day of 2015, shelling out Php157 million in cash for the 55-room property. Apart from its successful residential platform and steadily increasing mall floor area, its convenience store business All Day has already reached nearly 100 stores strategically placed in various Villar developments.
Another big winner is Filinvest with its joint venture with the Bases Conversion and Development Authority (BCDA) for the 288-hectare Clark Green City and its long-term lease with the 201-hectare former Mimosa Leisure Estate from Clark Development Corporation. Filinvest reported total consolidated revenues of Php16.53 billion in 2015, up from Php15.46 billion in 2014 (an increase of 7 percent) boosted by robust real estate rental and sales. Real estate sales increased by 6.4 percent to Php14 billion, with nearly 80 percent of the sales coming from units sold to the middle-income market.
Robinsons Land is keeping its winnings in recurring income. Revenues increased by 16 percent to Php19.73 billion in 2015 from Php17.05 billion in 2014, as the group’s commercial centers, office buildings, hotels and residential segments chalked up double-digit growth rates. Recurring revenues from its commercial centers, offices and hotels divisions account for 66 percent of its total revenue. By the end of its fiscal year, Robinsons has 40 commercial centers, 11 office buildings, and 14 hotel properties.
Ayala Land proved to be a winner in 2015. The company posted revenues amounting to Php58.4 billion. Photo of Ayala Land’s Serendra development, via Shutterstock
Office Real Estate Market
The business process outsourcing (BPO) industry is still the main driver of the office market in the coming years. Buoyed by this strong demand, more than 1 million square meters of office space are planned to open in the next two years in major business districts in Metro Manila. Overall Grade A and Prime Grade A office stock in Metro Manila is approximately 5 million square meters.
Pinnacle Research opines that big tenants would still have a hard time looking for suitable office, especially if they need contiguous floors. Landlords are still the winners in this segment. Rents in the Makati central business district (CBD) generally held up, where Premium Grade A buildings have a weighted average of Php1,280 per sqm per month, Grade A buildings have a weighted average is Php865 per sqm per month, and for Grade B&C Buildings, the weighted average is Php675 per sqm per month.
The business process outsourcing (BPO) industry is still the main driver of the country’s office market. Photo via Shutterstock
Residential Real Estate Market
Much has been said about the fear of property bubble in the residential condominium market. Given the estimated demand for housing at 5.5 million for this year, it is really a concern of right match of the supply being built vis-à-vis the actual demand. What is a more accurate picture is that the residential segment of the real estate market is the most competitive at present since a lot of players have experienced high profitability in recent years. Given the numerous developments in Metro Manila, the winners in this property segment are the buyers since there are a lot of choices, and financing is relatively easy. Likewise, future tenants of these residential units, especially those units bought as investment, would also be winners, enjoying the available choices as well as the competitive rents.
One big winner in providing affordable housing is the maverick 8990 Group. The Group breezily reached a net income of Php4.05 billion in 2015 coming from its 11 ongoing projects. The 8990 Group will start 14 new projects this year, adding 75,608 units to the inventory in the coming years. For 2016 alone, the group will build 12,453 housing units, where 46 percent would come from Luzon, 30 percent from the Visayas, and 24 percent from Mindanao.
The JNJ Summithill Group is another maverick that is successful in servicing a market niche: “dormitels” near major universities. Its first project is “Upad” close to De La Salle University–College of Saint Benilde and Saint Scholastica’s College. It offers rooms that can be shared by two, three, four or even six students. Apart from very plush room amenities, Upad has a gym and a pool supporting the healthy lifestyle of the young students and professionals or millennials. The building is practically 100 percent occupied.
The residential segment of the real estate market is the most competitive at present since a lot of players have experienced high profitability in recent years. Photo via IngImage
Retail Real Estate Market
The biggest winners in this property market segment have been the SM Group, the Robinsons Group, and Cosco/Puregold Group. SM intends to increase its 58 malls to 61 this year, apart from its joint venture with Double Dragon to build CityMalls nationwide. It even expanded its SM Cinemas to 307 screens across the country with total seats of 141,753 by the end of 2015, or an increase of 12 percent from the previous year.
Robinsons has 40 malls at present and intends to build three to four malls per year to reach 55 malls by 2020. It is also operating more than 400 Ministop stores around the Philippines. Cosco/Puregold has 36 stores and is planning to open eight stores in the next three years.
The SM group intends to increase its malls in 2016, from 58 to 61. Photo via Shutterstock
Hotel and Gaming Market
Tourism has been touted as a growth area and a steady dollar earner. Tourist arrivals have been record-breaking in recent years, although the 6-million-per-year mark is still to be reached. In this vein, the Tourism Infrastructure and Enterprise Zone Authority has been tasked to give incentives to investors and developers in the tourism industry to accelerate developments, much like what the Philippine Economic Zone Authority is doing in the manufacturing, information technology, and related industries. The designated tourism enterprise zones are in Bulacan (Ciudad de Victoria), Cebu (Queen’s Castle), Davao (Hijo), Dumaguete (Bravo Golf Resort), and Manila (Resorts World).
Industrial Real Estate Market
The biggest winner in this segment in recent months is Filinvest due to its development rights on the 288-hectare Clark Green City and long-term lease of the 201-hectare former Mimosa Leisure Estate. Filinvest would presumably take advantage of the pent-up demand for industrial spaces, and blend in mixed-use developments to increase the level of success and profitability.
Ayala Land’s Alviera Industrial Park in Porac, Pampanga, is likewise positioned to capture the demand for industrial spaces. The 31-hectare industrial park has been reported to have sold some lots already.
The winners here are the developers since the demand is high at present; the locators, since they will have new options; and the Filipino labor force since there would be new jobs that will be created. These industrial zones would also spur development in their surrounding localities.
The winners in the industrial segment will be the developers, since demand is very high at present. Photo via Shutterstock
Quitters never win, and as mentioned above, the big players are not quitting, even with the election-related noises. They are pushing with their developments to reach the broadest possible market and offer the most number of choices. With or without elections, the top players and mavericks will take advantage of the underserved demand in the market.
In Philippine politics, some losers never quit, too. Ultimately, it would be the Filipino electorate who would choose the winners, and in turn, the democratic process and sustained economic development would be the clear winner. This would then have positive impact on the real estate market.
This article was sponsored by Pinnacle Real Estate Consulting Services, Inc. Pinnacle Real Estate Consulting Services, Inc. provides a full range of services to buyers, real estate lenders and investors. A team of experienced professionals is dedicated to enhancing the value of clients’ investments throughout the Philippines.
Main image via Shutterstock