Now is the REIT time to invest
‘REITs have the power to democratize the Philippine property market, allowing the individual investor to invest in high-value real estate,’ says Rick Santos, chairman/ CEO of Santos Knight Frank.
Amid the construction frenzy all over the country — a hotel, an office or a residential building, a resort, a mall rising here, there, and everywhere — it’s plain to see that the Philippine real estate industry is as robust as can be.
No longer the “Sick Man of Asia,” the Philippines, notes Rick M. Santos, chairman & CEO of Santos Knight Frank, a global real estate service provider, has outdone its Asian neighbors like Thailand and Taiwan with its record-breaking foreign direct investment of US$10 billion in 2017, reflecting a high investor confidence. “The government’s ‘Build, Build, Build’ infrastructure program and the continued growth of the BPO (Business Processing Outsourcing) sector all point towards an even brighter road ahead for the Philippines.”
To quote an oft-repeated line from Kevin Costner’s fantasy-drama movie Field of
Dreams, “Build it and people will come.” Santos Knight Frank’s fearless prediction is that “the next wave of expansion will come from sectors such as logistics, hospitality, retail, and REITs.”
“REIT (Real Estate Investment Trust) will be a new market here, we think there’s a great opportunity for it,” declares Rick Santos at the media conference at ShangriLa Makati’s Manila Ballroom.
TIDBITS ON REITS
Rick dishes up more tidbits about REITs. “Just like you’ve seen the Toronto Raptors come out of nowhere (in the NBA Finals vs. the Golden State Warriors), REIT will be a great opportunity to showcase Filipino workers and talent. REITs will substantially boost the Philippine capital market to enable the expansion of the real estate sector not only in Metro Manila but also in the provinces.”
FYI, a REIT is a publicly listed stock corporation that owns income-generating real estate assets such as malls, offices, and hotels.
REIT has actually been around for a while — since 1960 in the US, Canada, France, Italy, Germany, UK, Japan. In the Philippines, since Republic Act 9856 was passed in 2009, the real estate market has been anticipating the realization of REIT. And now, with the government amending the rules on REITs, developers are increasingly looking at listing their income-generating assets as REIT companies.
GOODBYE, HONG KONG! HELLO, PHILIPPINES!
With the current political crisis in Hong Kong (not that we thrive on another country’s misery), more institutional investors are expected to look at the Philippines with a keen eye as an alternative haven for their investments.
The Philippine STAR’s Property Report shares more from the Santos Knight Frank report on the state of the Philippine real estate industry. (Santos Knight Frank was recently named the Best Real Estate Services Company and the Best Property Management & Facilities Management Company at the Golden Globe Tigers 2019.)
• Manila remains to be a preferred office location for occupiers looking for affordability, talent, demographics, and infrastructure. Manila’s gross effective rent is the second most affordable (next only to Malaysia) in 20 key cities in Asia Pacific -offering lower rates than Bangkok, Jakarta, Bengaluru (Bangalore, India), and Mumbai.
• In many parts in Metro Manila, demand has overtaken the growth in office supply. The Bay Area is now 100-percent occupied. There’s been a lot of growth and interest in the Bay Area as well as in Bonifacio Global City.
• Outsourcing companies, including third-party BPO providers and global captive centers, continue to expand in Metro Manila and regional areas such as Metro Clark, Metro Cebu, Davao, Iloilo, and Bacolod.
• Foreign investors are recognizing the growing real estate investment prospects in the country while the local sector continues to create wealth for investment in their country of residence.
• Infrastructure challenges and congestion have encouraged the growth of co-living. As business districts grow, employees are seeking secondary homes to save on time and cost in transportation amid heavy traffic congestion.
• The Philippines is a hot market for the travel and hotel industry with international arrivals rising by 7.6 percent in the first quarter. International events — mainly the Southeast Asian Games 2019 in NovemberDecember — will put the spotlight on rising business destinations like Clark.
• The “Golden Age of Hotel Construction” continues with more than 10,800 hotel rooms in the pipeline in Manila (concentrated mainly in the Bay Area, Makati, Ortigas, and BGC) and Cebu until 2023. Two integrated resort developments (Isla dela Victoria and Emerald Resort & Casino) are expected to further increase tourist arrivals in Cebu.
• With the limited supply of branded hotel rooms within the Clark Freeport Zone, the daily rate of five-star hotels within the Freeport (P11,151) has surpassed the average in Makati (P8,432) and BGC (P9,158) while an overnight stay in a fourstar hotel in Clark (P7,674) is currently more expensive than Makati (P6,441).
• The logistics market, a significant emerging market, is expected to rise further, along with the advent of e-commerce. The office sector — particularly the IT-BPOs and the co-working spaces — is expected to flourish with upwards of half a million new offices to be built in key areas in Metro Manila.
• Developers today are more mindful of the environmental impacts of their projects. Sustainable tourism development of destinations is key.
• While brick-and-mortar retail has declined in the US, both malls and Internet retail are very much alive and expanding in the Philippines, driven by strong household consumption, optimistic consumer confidence, OFW remittances, and a rising middle class. In fact, mall space in Metro Manila has grown by 15 percent over the last six years to 4.3 million sqm (gross leasable area) as of the first quarter of 2019. Vacancy in the first quarter of 2019 ranged from one percent (BGC) to 4.2 percent (Makati).
• Investments in the transportation and storage industries grew by 626 percent to P129.6 billion in 2018 from P17.8 billion in 2017.
As a parting shot, Rick Santos stresses, “I think the time for REITs has come. I think it’s a good opportunity for investors to come in. People will be watching closely to see how well the first REIT does and then other people will follow suit.”