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.
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.