ULI's latest Emerging Trends in Asia Pacific report highlights several real estate industry issues that must be considered throughout 2015
On January 8, 2015, the Urban Land Institute launched their Emerging Trends in Asia Pacific 2015 report. The report is based on personal interviews and surveys from influential leaders and experts in real estate and gives readers a comprehensive look on the trends of real estate industries in the Asia Pacific region. Particularly for the Philippines, the report detailed both good and bad news for our real estate industry this year. Here are four of the most important takeaways from the report:
1. Manila, dropped to eighth place in investment
From fourth place, Manila dropped to eighth place in investment rank. Restrictive policies, bureaucracy, and transparency issues are the main factors cited in the real estate report. Though there are many who are initially attracted to invest in the country, foreigners often turn away due to the strict policies regarding ownership of land. The policy does not allow foreigners to own land and they are only allowed to own land if 60% of their company is owned by a Filipino citizen. Meanwhile, transparency scores have declined from 3.32 in 2008 to 2.8 in 2014.
Capital outflows from US were also cited as a factor for losing foreign investor interest.
Despite hesitation from foreign investors, there are still sophisticated Singaporean- and Hong Kong- based investors who are active in the country.
2. Office real estate bullish and BPO sector a strong driver
The BPO sector in the Philippines is maturing and office real estate is benefitting greatly. Much demand for office space is coming from BPO companies, and vacancies are significantly low. Many multinational corporations are setting up in the country due to the low lease rates and long-term policies, as well as the existing talent pool in the country.
Panelists at the launch also cited that the Philippines’ is patterned similarly to western corporations, thus the country is a “natural” at catering to western-based companies. The booming outsourcing industry also creates a domino effect. The BPO sector brings growth to both retail and housing sectors as many Filipinos prefer living close to their workplaces and commercial areas.
3. Many residential markets in Asia has overheated, Philippines still one of the best bets
In the past year, most residential markets in Asia have overheated after prices appeared to have reached unsustainable levels. Hong Kong, Singapore, Malaysia, Taiwan, and China have had their respective financial regulators to come up with policies to cool their overheated property markets.
However, it is reported that the Philippines, along with Japan and Indonesia, remains a best bet for residential properties. Despite speculations of a property bubble existing in the country, the report cited “ young demographic, booming economies, and a rapidly rising middle class whose members will be buyers of residential property simply because they can now afford it,” as key factors for having a favorable market.
However, though our residential market in general is not showing signs of overheating, it should be noted that the country’s central bank has recently announced imposing policies to protect banks in case of a real estate collapse, and to avert the sector from a property bubble. At the launch’s panel, the panelists believed that while it is a little early for these implementations, it is at least “better early than late.”
4. Philippine REIT still non-existent
An REIT or Real Estate Investment Trust corporation allows people to invest or purchase income-generating property much like stocks. It allows them to own or finance properties. REITs have many benefits such as high-yield and high liquidity. An established REIT industry is expected to boost the real estate sector even further, and while the REIT Act was passed on 2009, the country still lacks REIT corporations. This is due to the restrictive policies that govern REITs and many believe that a reform of the act is in order.
During the panel, SEC President and CEO Hans Sicat stressed the importance of getting the REIT industry off the ground and agreed that it was a “must-have” for the country.
In the report, an interviewee stated that “The government thought it might be too early, because it would casuse too much tax leakage. So the REIT sector will eventually happen, but it’s on the back burner at themoment, probably until [the next elections] in 2016.”
Photo by Flickr/Jun Acullador