Promising possibilities

ACCORDING to the real estate services firm Colliers International Philippines, resilient remittances from overseas Filipino workers (OFWs) and revenues from the business process outsourcing ( BPO) industry should, among other things, sustain strong domestic demand and provide trickle-down benefits to the property segment.

In a report released last May, the firm notes that the OFW remittances — which grew 8% to $7.7 billion in the first three months of 2017 owing to OFWs taking advantage of the weaker peso — coupled with low interest rates fuel the take-up for affordable to mid-income residential condominium units.

The firm thinks that a portion of the $31 billion worth OFW remittances that the central bank projected this year “will continue to finance the amortization of the OFWs’ properties as owning a house is every Filipino’s aspiration.”

Colliers adds, “The continued surge of OFW remittances and low inflation sustain the growth of Filipinos’ purchasing power. GDP per capita ( proxy for individual income) in 1Q 2017 rose by 4.9% YoY. The rising demand for retail encourages developers to build more malls and cash in on the emerging online shopping business.”

The slower growth of the outsourcingled services sector during the first quarter of this year — 6.8% compared to 7.5% during the same period last year — can be partly attributed to the outsourcing firms’ lower share in aggregate office take-up in Metro Manila, from 60% to 21%, Colliers says. “We attribute this sharp reduction to perceived geopolitical concerns that compel existing tenants to take a wait-and-see stance on their expansion plans and delays in the approval of Philippine Economic Zone Authority ( PEZA) applications.”

Still, Colliers maintains a positive stance since traditional service-oriented companies, such as consulting and accounting firms, expand and occupy larger office space. “Additionally, a number of major BPO players have reportedly closed new accounts which indicate a potential increase in office space take-up by the latter part of the year,” it adds.

Demand for office space in other urban areas, Colliers says, remains relatively stable as a number of BPO and KPO ( knowledge process outsourcing) companies expand operations outside Metro Manila.

In addition to OFWs and BPO companies, exports are also contributing to property demand, in particular industrial park demand. “Exports surged to 20.3%, the fastest growth since 3Q 2010. Semiconductors, clothing accessories, and office equipment were among the major drivers of growth,” Colliers says.

“Imports grew by a fifth, indicating a faster growth in outbound shipments over the next twelve months as much of the imports serve as an input for the Philippines’ major merchandise exports.”

The firm foresees a rise in total export bill given the economic recovery of the major trading partners of the country, including the United States, and the implementation of trade deals with the ASEAN and European Union.

“The expansion of the country’s export base should have a spillover impact on the demand for industrial space and standard factory buildings in the country’s economic zones,” Colliers says.

Although government expenditures increased only modestly in the first quarter of 2017, Colliers sees greater economic contribution from government spending over the medium term due to President Rodrigo R. Duterte’s administration’s efforts to ramp up construction of roads, bridges and railways.

“The country’s economic managers have pledged that the next five years will be the ‘golden age of infrastructure’ in the Philippines. The government has promised to pour in a total of P8.45 trillion ($172.4 billion) for public projects from 2017 to 2022, or about P1.4 trillion ($28.6 billion) per year. This is equivalent to an annual infrastructure spending of 5- 7% of GDP, more than double the 2.6% of GDP spent in the past 50 years. The intensified infrastructure development, coupled with the Duterte administration’s decentralization thrust, should expedite the spread of economic growth to more urban areas ex-Metro Manila,” the firm says.

Colliers sees the Philippines as having much headroom for economic expansion. However, it says that the government has two challenges: first, ensure that the GDP grows within the projected range of 6.5% to 7.5% and, second, make sure that this growth redounds to the benefit of more than a hundred million Filipinos.

Ensuring inclusive economic growth, however, entails timely completion of pivotal infrastructure projects, the firm says. And to achieve that, there needs to be a positive change in absorptive capacities of the implementing agencies, like the Department of Public Works and Highways and the Department of Transportation, as well as the elimination of bureaucratic bottlenecks delaying awarding the and implementation of projects.

“Developers should take advantage of the government’s plan to step up infrastructure development,” Colliers says. “We recommend that they intensify efforts in terms of strategic landbanking to maximize the implementation of public projects across all regions.” —