Posted on October 21, 2015
10:30:00 PM [ BusinessWorld Online ]
By Victor V. Saulon
TOP officials of real
estate services firm Jones Lang LaSalle (JLL) on Wednesday brushed aside talks
of a property bubble in the Philippines and dismissed fears about regional
financial integration, but pointed out restrictions that continue to hamper the
entry of foreign investors.
At the same time, JLL
executives identified warehousing and distribution as a new segment of the
property market that is showing potential growth as foreign manufacturers look
at the Philippines as a possible site to relocate their businesses from other
Asian countries.
Alastair Hughes, JLL’s
Asia-Pacific chief executive officer, said properties in the Philippines were
reasonably and competitively priced.
“There is a bubble when
property values become irrationally priced in terms of their long-term
pricing,” he said in a briefing, pointing out that the rise in real estate
valuations came after a long spell of conservative building following the Asian
financial crisis in the late 1990s.
He said the country’s per
capita gross domestic product (GDP) is a good indicator of whether property
prices are surging without real demand backing it up. Philippine per
capita-GDP, which roughly measures a country’s output as against its
population, has been rising after steady economic growth.
“The housing market should
follow that line or that trajectory. There should be a connection between real
income and the value of property. When that relationship becomes irrational
that’s when there’s a bubble,” Mr. Hughes said.
He added that developers
are taking a close watch of the situation. “If there is a feeling of
oversupply, they will deliberately bring it down.”
The Philippines, he said,
is one of the top performing markets and one of the most talked about countries
among JLL’s property clients.
Mr. Hughes said the
interest is largely driven by the business process outsourcing (BPO) sector,
and reasonably priced labor and real estate markets.
“If you went back 10 years,
people won’t be very interested in the Philippines, now it’s part of the global
market,” he said. “BPO is going to be extremely popular over the next five to
10 years. Our clients are asking us continually.”
Meanwhile, Christopher
Fossick, JLL managing director for Singapore and Southeast Asia, said the
Philippines and the region stand to benefit from the market integration of the
Association of Southeast Asian Nations (ASEAN).
“There will be enough
investors to supply space that is needed,” he said, adding that there is a
finite supply of local capital and foreigners are looking to fill that need to
develop the real estate market.
Integration, Mr. Fossick
said, brings with it competitiveness in the market, greater transparency to
help the investment community and ushers in best ideas and practices.
WAREHOUSING, DISTRIBUTION
Lindsay Orr, who heads
JLL’s Philippine operations, said they are seeing demand picking up for
properties in the warehousing and distribution sector in the Philippines.
This is attributed mainly
to the rise in e-commerce.
However, he noted one
problem for the local property market is the limited supply that is suitable
for investors.
“The demand is there but
there’s no supply. When you look around, [real estate properties] are taken
even prior to completion,” said Sheila Lobien, JLL national director and head
of project leasing markets.
Mr. Orr said, for instance,
Japanese manufacturers that relocated to China in the 1990s because of that
trend at that time, are now evaluating their options and could be exiting in
big volumes.
“Japanese manufacturers are
exploring the prospects of relocating some of their businesses in the
Philippines,” he said.
But restrictions remain, Mr.
Orr said, citing a limit to land ownership for foreign individuals, and for
companies, a 25-year leasehold tenure even with a 25-year extension is too
short for those wanting to make long-term investments.
There is restricted access
to global investors, he said, with “manufacturers and retailers waiting to be
involved.”
“I don’t think a 60%-40%
structure will change,” Mr. Orr said, referring to legislation that sets a
minimum 60% Filipino equity in corporations. “I don’t think the rule will
change, not in the near future.
What I see is the leasehold
situation being extended.”
‘NO ASSET BUBBLES SEEN’
At the same time, the
Bangko Sentral ng Pilipinas (BSP) said it is not seeing signs of an asset
bubble formation in the sector.
“Right now, we believe that
there are no asset bubbles in the property sector. Basically, the increase in
property prices and the growth in the property sector has been essentially
demand driven and banks have really learned their lesson from the 1997-1998
Asian crisis… They changed their business models,” BSP Governor Amando M.
Tetangco, Jr. said in a forum on Monday.
The combined exposure of
universal, commercial and thrift banks to the volatile real estate sector stood
at P1.359 trillion in the first semester, 22% higher than the P1.16 trillion
recorded last year. The amount was likewise 7% higher than the P1.273 trillion
seen in the first three months of the year.
Growth in real estate
exposure was mainly driven by a 26% increase in real estate loans, reaching
P1.176 trillion at end-June from P934.89 billion in the same period last year.
BSP has intensified its
monitoring of banks’ exposure to the real estate markets, with economic growth
and ample liquidity boosting household incomes and encouraging them to borrow.
The central bank is wary of
real estate prices, particularly if it forms a bubble and take down banks when
it bursts. -- with M.F.E.F.
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