Banking, real estate sectors forecast optimistic outlook
THE banking and real estate sectors — represented by BDO Capital and Investment Corp. President Eduardo “Ed” Francisco and Lobien Realty Group Chief Executive Officer Sheila Lobien, respectively — expressed optimism and economic growth for this year and the next to come.
During the fireside chat of The Manila Times’ economic forum on February 21, Lobien and Francisco said the economy would be doing much better this year and their industries would soon follow.
In the same forum, Department of Budget and Management Secretary Amenah “Mina” Pangandaman proudly said the economic development of the Philippines was one of the fastest growing in Asia, surpassing countries such as Malaysia, China and Vietnam.
Specifically, the Philippine economy expanded by 5.6 percent, exceeding the forecast of private analysts and multilateral organizations such as the World Bank, the International Monetary Fund and the Association of Southeast Asian Nations +3 macroeconomic research office.
According to Pangandaman, these positive economic indicators included lower unemployment and underemployment rate, lowest recorded inflation rates since October 2022, accelerated government spending and lower budget deficit.
“Despite anticipated global uncertainties, this gives us confidence the Philippine economy can rise above the tide and still achieve the government’s growth target over the medium term,” Pandaman said.
For the real estate sector, a positive economic forecast of 5.5-percent to 6-percent growth would benefit the industry as office markets also rose.
“When the market is moving up, the office market and property sector will also follow,” Lobien said.
Lobien added it would be interesting how this would play out in connection to the banking sector, stating: “[It] would help the real estate sector also if the interest rates will really go down. Then, that will fuel demand not just for the residential market, [but for] the condominiums and hopefully, the office sector. Developers will borrow money again and build more projects. It will benefit a lot of us here in the country.”
Francisco agreed with Lobien, stating: “The sooner we can bring rates down, [the sooner] people can advertise for their housing loans.”
He also noted that the banking sector would continue to grow faster as observed with the loan growth in December last year. Demand would also improve greatly.
“That was already the signal. It’s not just going to happen. It’s been happening. So, we expect it to continue,” Francisco said.
Space for office spaces
Aside from that, the strong forecasting growth in the business process outsourcing (BPO) industry — the biggest driver of demand in the real estate industry — was good news for real estate, Lobien said, especially the acquisition of office space.
Office work was affected by hybrid work; therefore, creating high vacancy rates in offices. However, Lobien noted that higher office occupancy was noted in 2023, compared to the previous year.
This could be attributed to office demand from BPOs, most of which required its employees to be in the office at least three times a week. At present, outsourcing industries were looking at a growth rate of 8 percent with many companies eyeing to hire more full-time employees; therefore, needing more office space.
“They’re saying that their target is that by 2028, 5 years from now, they want to be at the 2.5 million number of full-time employees. In terms of square meters (sqm), that’s 5 million sqm,” Lobien added.
BPOs were also expanding outside Metro Manila, relocating to find better offices at affordable costs. This could be beneficial to landlords.
Lobien stated: “Many landlords today are flexible. They have a big vacancy. Therefore, they have to entice tenants to stay by giving better terms, or encourage companies to relocate, get a better office at a much better rental compared to the past. If you’re not flexible today, then you lose occupants and tenants.”
The closure of some Philippine offshore gaming operators (POGOs) also left a big vacancy, but Lobien stated these POGOs were gradually returning.
Another strength for the industry would be the young talent in the Philippines, and she stressed the need to upskill them.
She added: “We have to improve the education system here in the country [in order] that [employers] can hire more talent. The higher value work means higher paying jobs will also be created for the Filipinos.”
However, a challenge for this sector would be the power costs. Lobien said clients from outsourcing firms mostly complained about the electricity cost in the country.
She concluded: “Somehow, the future is better or brighter. The office market, though experiencing some challenges… we see hope that the demand is getting stronger. For the residential markets, we are waiting for interest rates to go down [in order] that more people can afford to buy properties, and developers will borrow again and develop more projects all over Metro Manila. That will be good for us.”
Low-hanging fruits
Francisco said for the banking sector, changing the constitution was not urgent as there were other low hanging fruits that could be worked on such as easing bureaucracy and red tape.
Francisco said: “There have been enough changes in the Public Service Act and things like that to open up the economy. It’s just that challenges and doing business here is hard. So, if that can be fixed, we might have a better return.”
One of the low hanging fruits in the banking sector was competition against other foreign banks, which were allowed 100-percent ownership.
“We might be big here, but we know we are small fish,” he said.
Despite this, he believed the banking sector was still in a better state due to strong capital and restructuring after the pandemic. He noted that the sector was also closely watching the execution risk of the government.
He stated: “One critical thing we are looking at is the execution risk of the government because…we have a physical problem, right? In a way, [we have a] limitation: we cannot borrow as much as the previous administration. We want to make sure that all these [public-private partnership] programs get executed because that’s the way we’re getting investments in. We want it to be executed well. We don’t want a lot of complaints [or] things brought to the court.”