MANILA and PHILIPPINES Property #2



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POSTED BY OffThePeak (10 mths ago)
MANILA and PHILIPPINES Property #2

AX in its wisdom has closed PH#1 thread, this is a continuation:
PH#1 : http://hongkong.asiaxpat.com/forums/hong-kong-property-finance/threads/087bc4ff-a19d-4cbb-afd6-5f782ef43e4c/manila+and+philippines+property/
(there's some good data, and historical articles & commentary on #1.)

Here's the Colliers price index for Makati, the main CBD:
http://i273.photobucket.com/albums/jj235/jimolsen2/AG/Makati_graph2015E_zps7pzznoe8.jpg

The election of a new president about two months ago, is changing foreign investors view of investing in the Philippines.
So far, this seems to be in a positive way. But the big supply coming in 2016-18 may cause a market pause, if the growth is not strong enough to absorb an expect supply rise of 35-50% over the next 3-4 years. However, the very strong economic growth, the strengthening credit rating, and the positive demographics are all positive factors.

Manila Map : http://www.destination360.com/asia/philippines/manila/mandarin-oriental-manila-map.gif

COMMENTS

OffThePeak (10 mths ago)
Beyond war on drugs, Philippines' Duterte seen setting up economic boom


Reuters - 23 August 2016


MANILA: Less than two months in office, Philippines President Rodrigo Duterte is getting high marks from the business community for policies that could engineer an economic surge and companies say they are making new investments as a result. While Duterte may be getting headlines for a bloody war against drug dealers and users, less attention has been paid to one of Asia’s few economic success stories. The groundwork was laid by Duterte’s predecessor, President Benigno Aquino, who took growth above 6 percent over his six-year term , but executives are also cheering the new administration’s focus on building new infrastructure and say it could spell the start of a long-term boom.


Some even see Duterte’s violent and highly controversial anti-drugs campaign as potentially positive. “We are in a very good spot,” said Antonio Moncupa Jr., president and CEO of East-West Banking Corp, one of the top 10 lenders in the country. “The pronouncement of government prioritising infrastructure spending, accelerating it and cutting red tape, solving peace and order, I think all point to very good prospects ahead.” Last week, the government announced that the Philippines’ economy grew at 7 percent in the second quarter from a year earlier, its highest level in three years. It makes the Philippines the fastest growing among all countries that have reported so far for the second quarter.


When Duterte won the May presidential election, there were questions marks over how he would handle the economy...


The mainstays of the economy - remittances and the outsourcing sector - are flourishing and boosting domestic consumption.

DOMESTIC EXPANSION

Jollibee Foods Corp, the biggest fastfood chain in the country, plans to open 200 more domestic stores this year. So does Robinsons Retail, taking its total to over 1,500. BDO Unibank Inc, the country’s biggest lender, plans to open 50-100 new branches this year. “We are supportive and encouraged by the new administration’s socio-economic agenda, which has a holistic approach for the benefit of all, including JFC,” said Jollibee investor relations officer Cossette Palomar. However, the Philippines has a worrying precedent of a strongman leader. In the 1960s, when the country had one of the highest per capita incomes in Asia, Ferdinand Marcos took over as president. Two decades of dictatorship, corruption and plunder by Marcos left the Philippines in a shambles.


“Business will be good under this administration,” BDO Unibank executive vice-president Luis Reyes said of Duterte. “Concerns centre more on the extra-judicial killings.” Supporters of Duterte say even as the long-term mayor of the southern city of Davao, where he earned his reputation for busting crime, he created the conditions for business to flourish. Government data show that the Davao region’s economy grew by 6.6 percent on average in 2010-14 compared with 6.3 percent for the whole country. According to one estimate, there were more than 20,000 people in outsourcing jobs in the city in 2013, and this sector was growing at more than 20 percent a year. Duterte’s reputation of carrying out his promises has given businesses plenty to look forward to - for instance his vow to make spending on infrastructure a priority.


“I believe infrastructure is going to grow very fast and it will have a double or triple effect,” said Henry Schumacher of the European Chamber of Commerce in the Philippines. “Money will be available. An iron fist is going to be behind it.”


SPEED UP, OR ELSE

In May, Duterte told the country’s main telecom providers to speed up the internet, or he would junk laws that prohibit foreign competition. Duterte’s economic plan also includes lowering corporate and income taxes and a commitment to invest in education, to reap the demographic dividend of the country’s young population. About two-thirds of the Philippines’ 100 million people are of working age, between 15 and 64, rising from about 56 percent of the population in 1990. In 2030, about 70 percent of the 125 million people will be of working age, the government has projected. “This is another advantage given other neighbours in the region, most of Northeast Asia and some in Southeast Asia, have populations that are ageing and are therefore facing labour supply constraints,” said Euben Paracuelles, an economist at Nomura. Still, Joanne Burgonio, a 27-year-old software analyst in Manila, said it was too early to say what a Duterte presidency would bring. “My concern is transportation,” she said, adding that she waited two hours for a bus home the previous evening. “His focus now is (on) drug pushers, hopefully the focus will be on infrastructure. I am optimistic because whatever he promised before he was elected, he is doing.” -- Reuters

Read More : http://www.nst.com.my/news/2016/08/167600/beyond-war-drugs-philippines-duterte-seen-setting-economic-boom

Vivnay (10 mths ago)
Exceprt from a sellside research report.

"We have turned more constructive on the Philippine Peso (PHP). At the beginning of the year the looming uncertainty of the elections and the introduction of the central bank's new interest rate corridor were seen as providing two main obstacles for the PHP. But these risks have now passed. While the currency has rebounded recently, we believe it can move onto a stronger footing.

There are encouraging signs that the new government is willing to push ahead with important reforms. Incoming president, Rodrigo Duterte, has appointed a businessfriendly cabinet who have already suggested they may be willing to lift caps on foreign ownership, hike infrastructure spending up to 7% of GDP from 2.7% currently and simplify the tax system.
Historically, FDI flows have been elusive in the Philippines, partly because of restrictions on foreign ownership and a lack of public spending on infrastructure projects. But this could all change if Mr Duterte and his government are successful in passing their proposed agenda.
Admittedly, it still could take some time for FDI flows to materialise. However, if Mr Duterte presents a credible strategy for how he intends to implement his reforms and infrastructure spending at the State of the Nation Address on 25 July, then the excitement around the Philippines could continue to build. Improved sentiment and resulting portfolio investment could help buoy the PHP. Besides capital inflows there are other reasons why the PHP is looking better. Unlike many other Asian currencies, we believe the PHP is less directly affected by the global economic slowdown and domestic consumption is bucking the regional trend by remaining strong."

Having purchased a landed property for personal use early last year, I have recently bought a pre-selling studio unit in Makati. The Gentry, units were apparently were well bid. Does feel like a toppish print in the market but I remain net bullish long term.

OTP, another thought that did cross my mind was looking at lower cost housing outside of BGC and Makati (main business centres) for immediate rental yield.

davidrb (9 mths ago)
Vivnay - what rental yield realistically would you expect?

OffThePeak (2 mths ago)
UPDATE: Prices "Up", but Rents are drifting lower on over-supply
=======

In my view, Colliers "rigged" its index, to keep it from falling.
Rather than restricting it to existing properties, it has brought in some new super-premium properties, and so the mean of their index numbers is still going up.

Meantime, rents are reported to be lower:

RENTALS : Makati, Bonifacio, Rockwell
========
Qtr /Year : CapVal.: Yield%: MMidpt: QonQtr : YonYr / Lo - Makati - H / L-Bonfacio-H / L-Rockwell- H /
4Q /2012 : 118.0k : 7.32% : 0,720 : +1.69% : +7.0E% / 0,525 - 0,915 / 0,570 - 0,865 / 0,686 - 0,912 :
4Q /2013 : 134.9k : 7.16% : 0,805 : +0.63% : +11.8% / 0,550 - 1,060 / 0,610 - 1,010 / 0,720 - 1,020 :
4Q /2014 : 144.5k : 6.96% : 0,838 : +0.96% : +4.10% / 0,575 - 1,100 / 0,640 - 1,045 / 0,750 - 1,055 :
4Q /2015 : 151.0k : 7.02% : 0,883 : +0.91% : +5.37% / 0,600 - 1,166 / 0,688 - 1,094 / 0,814 - 1,094 :
1Q /2016 : 152.0k : 6.82% : 0,865 : - 2.04% : +2.00% / 0,590 - 1,140 /
2Q /2016 : 147.6k : 6.95% : 0,855 : - 1.16 %:- 0.11 % / 0,580 - 1,130 / 0,660 - 1,050 / 0,800 - 1,100 :
3Q /2016 : 146.5k : 6.88% : 0,840 : - 1.75 %: - 4.00 % / 0,570 - 1,110 / 0,655 - 1,040 / 0,790 - 1,080 :
4Q /2016 : 150.0E : 0.00%: 0,830 : - 1.20 %: - 6.00 % / 0,560 - 1,100 / 0,640 - 1,026 / 0,780 - 1,070 :
========

Mid-point Rents dropped from P883 (Q4-2015) to P830 per Sqm (Q4-2016) : - 6.0%

The worst of the over-supply is hitting the market in Makati this year, and will spill over into 2018. Agents tell me they are seeing some bargains in the secondary market.

But for those who know what they want to buy (especially for own-use), there can be some interesting opportunities. And some parts of Makati and Manila are undergoing some impressive gentrification.

OffThePeak (2 mths ago)
A property agent friend of mine will arrive in HK tomorrow.
He can give a nice introduction on property investing in the Philippines.
with a special focus on Makati. BGC, and Tagaytay.

Anyone who might want to meet, please send me a quick PM, and I will see if something can be arranged.

Here is a short interview (with him) which gives some basic information for Foreigners considering their first investment:

https://www.youtube.com/watch?v=TnuJExWtrF4

Baap (2 mths ago)
I am not interested, but would you still recommend buying? I went to Ho Chi Minh City a couple of days ago, and a lot of construction in District 2. Who is going to buy all that stuff? The univ. prof. who tour guided us said there is a lot of demand by people, also from Saigon. But they buy it as an investment and try to sell it off for a profit. Typical bubble. He said the price is about US$150,000 to 200,000, and he would need 100 years to pay for it. And they keep building. My worry is that in 5 years the 5-year old buildings will already be rubbish, and there will be plenty of new buildings. So you can't sell the 5-year old buildings any longer. Do you see this in the Philippines?

OffThePeak (2 mths ago)
Still recommend?
It depends on WHY you are buying.
If for own use, why not? You can get something nice for 1/5th to 1/10th the price of Hong Kong, and your living costs will be much lower.

If for investment, then I suggest being careful, and investigating fully, Don't buy the first thing you see. In fact, the oversupply situation is hitting Makati right now - in 2017, when completions could be at least 20% of current supply. and it is putting some pressure on rents, which are probably down 5-10% from the peak. Take-up remains high, but less than current completions, so vacancies are rising this year (per Colliers.)

Fortunately, the supply situation should start to ease by late next year as completions fall back below expected take-up rates. I believe Colliers estimates 2018 completions in Makati at about half the 2017 rate. (But they are still very high in BGC and Manila Bay for 2018.) With this in mind, I do think you should be a careful and discerning buyer now. Yet it might be a good time to investigate and seek out some bargains.

As for older buildings, I think you could find some bargains in the secondary market, among 5 year old and older buildings. But the quality of management can be a very important factor, which is why I have preferred buildings built and managed by developers with a string reputation, like Ayala and Shang. Their 5 year old buildings still look good, and can attract good tenants, and resales. Some others look very tired after 5 years.

OffThePeak (2 mths ago)
Colliers Summarizing their year-end (Q4-2016) report, for those who would rather Listen than Read

Colliers Market Update: Philippine Residential Sector
https://www.youtube.com/watch?v=KPSPoBKK2Wk

Residential vacancies were at 10% at year-end 2016, up 2% from the first half, and are climbing on the influx of supply.

Residents are drawn to fringe areas, where they can get bargains
"We see condominium prices continuing to rise, with yields going down"

Landlords should target young workers and expats

OffThePeak (2 mths ago)
BTW - if you want to know how I am doing with my investments in the PH

1/
Best is a 1-BR (27sm) property in The Rise purchased from Shang Properties (a JV with Kerry Properties / Shangrila of Singapore) less than two years ago at just under P 3 million. Similar units are now being sold at P5 million and more.
It should complete in 2019

http://i1248.photobucket.com/albums/hh483/sjw55555/Citgate-Rise-50pct_zpsvoam1wag.jpg
The Rise is rising here (in the Left), with Air Residences next to it on the Right. When finished, they will both be about 50 floors. A new complex called Citygate is to the left in the foreground.

2/
Middle is a 1-BR (59sm) "bigger cut" property in a nearby building which topped out two months ago, and will be completed around the middle of next year. I paid about P125,000 psm, and the building is now sold out with the final sales being made at about P160,000* psm. This building is developed by premier developer, Ayala, and is right next to an office tower called ALVEO Financial Tower which should complete in 2020. There are only 3-4 units left in AFT, priced at over P260,000 psm.

http://i1248.photobucket.com/albums/hh483/sjw55555/Citygate-AFT-50pct_zpsemiuojll.jpg
Kroma Tower has topped out in the middle, next to the Jaka Tower, which will be completed with a new name: Alveo Financial Tower, with a prime address on Ayala Avenue. To the right of Kroma is a two-building complex which is the first phase of Citygate and will be completed in 2019-20.

http://i273.photobucket.com/albums/jj235/jimolsen2/AF-no1/Kroma-CityGate_zpsvs4sgrez.jpg
Evetually, Citygate will look like this

3/
My only completed property is a small studio of 22sqm which I bought at P 2,1 million, and I am told is now worth P 2.4 -2.5 million. I use it as a hotel room during my stays in Manila, and may sell it if I move into one of the other two places. It was new when I bought it, and has the virtue of being a short walk from the high-end Greenbelt shopping mall.

*At 160k psm my 59sqm flat is worth: P9.44 Million. At P6.40 /HKD, that's HKD 1.475 million for 633 sf, or HKD 2,330 psf. It is slightly larger than the flat I sold in HK for almost HKD 9 million. Does anyone think this was not a smart move?

OffThePeak (2 mths ago)
Place Making

To highlight its key location on one end of Makati's famed Ayala Avenue, Citygate will have a distinctive Urban park, on 2-3 different tiers

http://www.ayalalandalveo.com/uploads/4/8/7/5/48751973/7035766.png
2/
http://i1248.photobucket.com/albums/hh483/sjw55555/CitygateSkyPark2_zpser7b2yte.jpg
There is also a walkway along Dela Rosa connecting it to the Greenbelt mall

http://sa.kapamilya.com/absnews/abscbnnews/media/news-special1/nation/11/28/20161128-makati-walkway-mp.jpg
Mayor Abigail Binay at the opening of the walkway in 2016

OffThePeak (59 days ago)
I am surprised at how well the Philippines has done at growing while keeping its debt levels down

First, here's Government Debt
http://cdn.tradingeconomics.com/charts/philippines-government-debt-to-gdp.png?s=phldebt2gdp&v=201704031432t
Then,
Philippines Household Debt | Economic Indicators - CEIC
In the latest reports, Philippines's Household Debt accounted for 8.8 % of the country's Nominal GDP in Dec 2016.
==
Compare with other countries:
Country tot'l 2013 / Govt.: HseHD : Total-2016
=========
Japan------- : ????? / 250% + 62% = 312%
USA--------- : 123% / 104% + 79% = 183%
Singapore - : 105% / 105% + 62% = 167%
Euro Area-- : ????? / 91 % + 59% = 150%
Malaysia---- : 140% / 53 % + 89% = 142%
OECD aver. : 134% /
Thailand--- : ? 53% / 44 % + 71% = 115%
Hong Kong : ????? / 32 % + 67% = 99 %
China, PRC: ????? / 44 % + 43% = 87 %
Philippines : ????? / 42 % + 9 % = 51 %
Indonesia-- : 38 % / 27 % + 17% = 44 %
==========
> http://www.tradingeconomics.com/hong-kong/indicators

OffThePeak (44 days ago)
A BIG REASON

Here's an important reason why I have invested in PH property.
> https://www.bloomberg.com/news/articles/2017-05-04/india-philippines-to-lead-asian-growth-as-workforces-rise
EXCERPT
"
Philippines, with 31 percent of its population currently under the age of 15, is projected to see a 1.9 percent expansion of its 15-to-65 year-old population this year, with Malaysia’s due to rise 1.6 percent and India 1.5 percent, Nomura economists said in a report. Malaysia’s population growth, however, is expected to slow faster than India’s.

That contrasts with bleaker prospects for the likes of China, Japan and Hong Kong, all of which have seen a contraction in the workforce since 2015...."
So this may not be surprising:
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iibUaI2SKxRk/v1/800x-1.png

OffThePeak (44 days ago)
Colliers 1Q 2017 -- a snapshot
"
In the residential sector, luxury three-bedroom condominium units remain in demand amid rising vacancies in the low to mid-level condominiums. Residential capital values continue to rise as rents are slowly declining "
==
> http://www.colliers.com/-/media/files/apac/asia/collierscmis_marketsnapshots_q117.pdf

The biggest concern is the rising vacancy rate for Residential, which at Q4-2016 Colliers pegged at 10% for Metro Manila (and 13% for the Makati CBD) and projects to be rising through 2017 as we see peak completions this year. Fortunately, demand remains high, and leasing of the new space is high too, but not as high as this year's record completions.
.
On the OFFICE side, vacancies are far, far lower. Colliers expected vacancies to "hover between 4.0 and 4.5% in the next twelve months" for Metro Manila. And with very low Office completions, they estimated Makati CBD office vacancies at - under 1% and falling%! :
"Colliers believes that both tenants and developers must brace themselves for a probable increase in rents across the various submarkets" for Office Space,
==
> Q4-2016 Market Reports: http://www.colliers.com/en-gb/philippines/insights

Baap (44 days ago)
So there seems to be a big bubble on the residential side. Me thinks you would have been better off keeping your hong kong properties.

OffThePeak (43 days ago)
Haha.
You think there is LESS of a Bubble in Hong Kong?
Only the pressure of money fleeing China has prevented a price drop here.
There are plenty of empty flats in HK, just go to Kowloon station at night and observe how many lights are switched on. There are many, many "dark" flats owned by people not using them,

With 2-3 Million people visiting Makati everyday, and only 22,000 condos, it is mainly a pricing issue

I am too honest not to see (and say!) that there are arguments on both sides. But I have no doubt that the supply of flats in Makati can be absorbed when you see the massive traffic jams coming into the city everyday, with so many people who want and need to be there (to work, shop, and "play"). At lower price levels, there is still almost unlimited demand, and Ayala has recently announced they will build a dormitory highrise in the Makati CBD to be leased out.

Baap (43 days ago)
But there is.t much construction in HK, and there is a lot in Makati. I have the impression that the flats are simply too expensive for most potential customers. Prices should drop 20% for people to buy them.

In addition, with a lot of new flats, and considering the likely shobby construction, in 5 years you will have difficilty renting out or selling your "old" flat.

These are just my thoughts, and the reasons i wouldnt buy there.

OffThePeak (43 days ago)
There is a time frame required for rents and tenants to agree to transactions, and we are seeing 20-30% supply jumps in this year in many parts of Metro Manila, and there is bound to be some rise in vacancies when that happens, as well as some pressure on rents.

The number of completions starts to fall in 2018 and beyond. So this is a soft patch we are seeing, not a crash. And job creation remains strong, and Office completions are strong in BGC, and will pick up again in Makati after 2020.
========

PRESENTATION NEXT WEEK : Wed. 5/17

There will be a presentation by one of the Top developers in the PH next wednesday evening.
Anyone who wants an invitation (it is free), should send me a PM, and I can give you the details. (Might be nice to meet some folks who are reading this thread also.)


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