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Marriage of hotels, condos transforms PH real estate

posted October 31, 2015 at 11:50 pm by  Roderick T. dela Cruz [ manilastandardtoday.com ]

Sales growth of mid-scale residential condominiums in the Philippines has begun to soften, with some buyers stopping their monthly installments, according to an expert in Asian real estate and hospitality industries.

“We are concerned over the mid-scale real estate.  We are seeing that growth has been getting softer in the past 12 to 18 months....Potential buyers are not completing sales on a broad basis,” says Bill Barnett, an American national who oversaw the development of several hotels and other properties in the Philippines in the past.
A view of high-end condominium buildings along Ayala Ave. in Makati City.  Shown right is C9 Hotelworks Company Limited founder and managing director Bill Barnett.

“There is a slowdown in the broad market, where it is [easy to become] speculative.  People were buying second or third homes. That happened in China, where people were buying multiple units because of the availability of [cheap] credit.   People buying second or third units and flipping them out could be gone,” Barnett says in an interview at Peninsula Hotel Manila in Makati City.

Barnett, the founder and managing director of Phuket-based asset management and hospitality consulting company C9 Hotelworks Company Limited, monitors the real estate and hospitality sectors across 12 Asian countries, including the Philippines.

He clarifies that while the mid-scale residential sector has been slowing down, the higher end of the industry and the hotel-branded residences remain in the upswing.   “In good locations, and in upper end of the market, that [softening] is not happening,” he says.

“Over the next five years, we see growth of 10 to 20 percent per annum, which is extremely high. We think that because there will be a lot more luxury properties coming to Metro Manila and resort areas, which are broadly untapped.  We think we will see a lot of resort-grade projects,” Barnett says.

Most residential projects tap high-income Filipinos and expatriates, according to global property website Lamudi.  Ordinary office workers, however, do not have the capability to buy homes in commercial business districts where they work, it says.

“A salaried Filipino with more than 20 years of work experience may need 128 years’ worth of his salary in order to afford a house in Makati, the Philippines’ most expensive housing market,” Lamudi Philippines says.

Barnett, however, says the sustained growth of the Philippine economy will support continuous demand for branded condo projects. He says branded residences, or condominium projects under hotel brands such as Raffles Residences, Grand Hyatt Residences or Shangri-La Residences will do better than the rest of the real estate industry, as buyers want more premium in terms of branding.  Other brands include CDC Millennium Ortigas, Hotel 101 and Lancaster the Atrium. 

He says Century Properties, one of the most active developers in introducing branded projects, teamed up with hotel chain Accor for Novotel Suites affiliation.

“People feel there is a greater value to it. The reason why developers want hotel brand is there is a premium in pricing.  In our research, there is a 26-percent premium for resort properties in terms of pricing per square meter and for urban locations, 14 percent,” he says.

“When we see the market in sales pace, there is faster absorption of hotel brands versus independent projects,” he says.

Barnett describes hotel residences as a marriage between real estate and hospitality. “We call them hotel residences.  People sometimes call them hotel branded residences.  Sometimes, they call them condominium hotels. There is a hospitality element to it.  It does not mean it operates necessarily as a hotel,” he says.

Barnett says name recognition is also the reason why property developers team up with celebrities such as Donal Trump, Paris Hilton, Philippe Starck and Giorgio Armani as well as established hotel chains for affiliations.

C9 Hotelworks advises developers on best use planning and provides market research on hotels and residential projects.  “We work across 12 markets,” says Barnett, who has been in Asia for 30 years, including a year in Manila in 1995 and two years in Cebu.  He started Thailand-based C9 Hotelworks in 2004.

Barnett says more than 28,000 hotel branded units in 120 projects across seven Southeast Asian countries are currently for sale across the region.  Thailand is the biggest market, followed by Indonesia, Vietnam, Malaysia and the Philippines.

“We looked at 28,000 units to evaluate.  We work actively in these markets.  We work with the hotel chains, so it is probably easy for us to triangulate information,” he says.

He estimates that the hotel residences market in Southeast Asia topped the P749-billion level this year.  The market is worth P158 billion in the Philippines, which has over 11,000 residential units.

Metro Manila and Boracay are the top two locations of hotel or resort residences in the country, while other potential sites are Cebu, Davao and Palawan.

Barnett says the average price per square meter for urban properties in the Philippines is P196,547, while the price in resort destinations is about P189,276.

He says despite the price, the Philippine residential market remains relatively affordable and has room for more luxury projects.  “We don’t see the urban properties pushing as high as they could.  Grand Hyatt is a luxury, but it is not multi-million-dollar units.  That is reflective of the tax regime on luxury properties here.  Even though, you have Raffles and Fairmont, they have relatively smaller units.  We don’t see the ultra luxury properties. We think there is a market for that. There is a market for that in Thailand, Malaysia and Singapore.  But we don’t see that market here.  There is room to grow,” he says.

“The Philippines has a lot of blue skies in terms of real estate growth. It offers one of the biggest potential for upside, because you have a unique market.  You have overseas buyers.  You have areas like BGC [Bonifacio Global City] that are offering good opportunity.  The biggest negative here is infrastructure,” says Barnett.

He says growth will come, along with the rise in international visitor arrivals.  “The DoT [Tourism Department] wants to double tourism.  That seems impossible without addressing China.   You can do that in five years, but not in one year [10 million arrivals].  You have to stimulate demand.  And the airport is a problem.  And you have to be willing to address China,” he says.

Barnett says tourism in the Philippines can comfortably grow 8 to 10 percent a year.  “Pushing beyond that, you need some magic,” he says, adding that infrastructure such as airports should support the industry.

“With 30 million people in Metro Manila, you cannot survive with a single airport,” he says.
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