Entrepreneurship in RP's leisure property sector

BY DANILO A. ANTONIO, Entrepnews (Nov 2010) 

The local real estate industry is experiencing an upsurge after years of flat growth. The overall market confidence brought about by the new Aquino administration promises a rosy scenario for the sector over the next few years.

Strong performance across all residential product lines points to sustained demand for dwelling units. Shopping center projects likewise benefited from a very strong consumer spending base that has been expanding, thanks in no small part to the remittances sent by overseas Filipino workers (OFW).
And so long as the Philippines continues to be a preferred site for outsourcing services, office space builders can expect a continuous growth in demand from business process outsourcing firms.

Encouraging Signals
Ranged against the sterling performance of other real estate products, investments in resorts and hotel projects have not been as buoyant. The international decline in tourism, brought about by the weakening propensity for leisure among citizens of developed countries, have caused this below par performance.
But things are looking brighter for the segment. For one, major real estate players are now adding hotel and resorts projects into their portfolio. Likewise, the increasing interest among foreign resort and hotel operators to locate themselves in local leisure spots is a source of optimism in the subsector.
The country actually has all the necessary elements needed to become a strong player in the resort tourism business. We have all the natural spots waiting to be developed, and all the manpower competencies to staff all the key positions for tourist facilities, from managers to front desk clerks. What we lack are more entrepreneurs to put up all these facilities in significant numbers.

Potential Investment Areas

Condotel projects in selected tourist areas should be further explored. OFWs and returning Filipinos could be invited as “passive investors,” particularly in the provinces and localities from which they originally came. Not only will they earn handsomely from their investments, they can also contribute to the growth and economic improvement of their hometowns.
Setting up health and wellness facilities is likewise a lucrative opportunity that’s worth exploring. Thailand and Indonesia are doing great here; and there is no reason why we can’t do the same.
Finally, retirement facilities and gaming sites are other investment possibilities that are just waiting to be tapped. Again, there is no dearth of qualified and competent local manpower to provide the needed staffing for these projects.

The Segment’s Critical Role
Apart from the inherent business rewards, leisure property’s major contribution to the economy should not be overlooked. Tourism dollars from increasing traffic in the medium term should go up dramatically, as we currently make only one third of what Thailand makes. The infrastructure and facilities investments in resorts and hotels create a lot of value added and multiplier effects to the rest of the country. Finally, the jobs created by escalating resort tourism investments should go a long way towards improving overall labor and employment rates.

All told, it is hoped that with all of these positive signals, a lot more investment activity among local entrepreneurs in the resort tourism subsector can be expected in the next few years.

Danilo A. Antonio is one of the Gurus for the Master in Entrepreneurship Program of the Ateneo Graduate School of Business. He is currently the president of the ACE Center for Entrepreneurship and Management Education, Inc. and the chief executive officer of Land Excel Consulting, Inc. (LEC).  A former faculty member at the Asian Institute of Management, he handled the Development of Enterprise (DE) and Real Estate/Property Management and Finance elective of the AIM’s Master in Business Administration Program. For inquiries about the Ateneo’s Master in Entrepreneurship Program, call 8994579, 8997691 loc 2407.

For latest update on real estate development and its RA 9646, the Real Estate Service Act of 2009, visit www.ra9646.com.ph.

Cebu steel bar maker forms property unit

Businessworld:  CEBU CITY -- Steel bar manufacturer Worldwide Steel Group, Inc. has formed a property development unit to take advantage of a booming real estate market fueled by demand from business process outsourcing (BPO) here.

Worldwide Central Properties, Inc., with an initial capitalization of P100 million, is also seen to complement the group’s businesses, said Alan Kent Ong, company president. The group has been manufacturing and distributing steel bars and other construction materials for 36 years.

“Our mission is to build communities. We’re taking it a step further by not just providing construction materials but also building homes for our customers,” Mr. Ong said in a briefing last week.

The firm’s first project will be a two-tower residential condominium dubbed as Sundance Residences in Banawa, Guadalupe, the most populous barangay in Cebu City.

Mr. Ong said he believed the real estate boom in Cebu “will still continue for a few more years because of the growing BPO industry, the housing backlog and increasing OFW (overseas Filipino workers) remittances.”

Sharon Anne G. Ong, vice-president for marketing and sales, said their first project will rise on a 3,200-square-meter family-owned property in Banawa.

The first tower, estimated to cost P450 million, will have 208 units in 12 storeys and a retail component. Construction will start middle of next year and is targeted to be completed in 2015.

Ms. Ong said the units, which will be priced starting at P1.8 million for a studio, will be designed for the middle to upper middle class segments.

“We are looking at the second generation of families living in the Banawa and Capitol area,” she said.

Amenities will include a pool, kiddie pool, day care center, and a sky garden with fitness center and family entertainment center on the 14^th floor.

The project’s design team includes architect Antonio Trillanes, Jr. for the condominium and furniture designer Kenneth Cobonpue for amenities.

The company also plans to develop a two-hectare property in Lapu-Lapu City on Mactan Island into a residential subdivision. “This is still in the planning stage. But we’re looking at (launching this) late next year,” Mr. Ong said.

Worldwide Steel started in 1976 as Cebu Worldwide Hardware & Electrical Supply. It later formed Worldwide Home Depot, Cebu Diamond Industrial & Manufacturing Corp. and Worldwide Polytech Industries, Inc. -- Marites S. Villamor

Manila rising, and so are rents

Businessworld - MANILA’S CHANGING skyline demonstrates a city coming up in the world.

The Philippines’ capital is in the throes of a property boom described as the best in two decades, reflecting increasing confidence in an economy that only recently began shedding its image as one of the region’s basket cases.

Nowhere is it more obvious than at Bonifacio Global City, carved out from Manila’s biggest army base. Originally sold by a cash-strapped government in the mid-’90s, building only got underway in earnest during the last six years after Ayala Land, Inc. took ownership.

"Work here is 24 hours," said Renel Reyes, an engineer and property manager overseeing a 30-storey tower due to be completed by the year-end.

Soon to be home for Nickel Asia Corp. and local conglomerate Aboitiz Equity Ventures, Inc., NAC Tower is just one of several tower blocks under construction.

Located near Makati, the main business district that grew up in the 1970s, Bonifacio is a project in progress, but rents at P800 per square meter ($19.5) are already catching up with its older, established, but saturated rival.

Though rents paid in Makati have recovered almost 30% in the last three years, they are still way below the peak of P1,200/sqm ($29) paid before the global financial crisis hit in 2008, data from property manager and consultancy Jones Lang La Salle Leechiu (JLL) shows.

That makes renting in Manila’s business districts far cheaper than Hong Kong, Shanghai or Singapore. But then infrastructure remains a drawback, as anyone arriving at Manila’s airport quickly realizes.

Still, as Bonifacio lures companies tired of Makati’s cramped spaces with its sprawling parks, luxury hotel chains and Italian supercar makers have followed the money. Lamborghini opened its first Philippine showroom, side by side with Ferrari, in Bonifacio, while Hyatt and Shangri La hotels are opening there soon.

Office space in most new buildings are snapped long before completion. At the NAC Tower, for example, only six floors remain un-let, but Mr. Reyes said they have potential takers.

Take up of new office space this year is set to hit a record 400,000 to 450,000 sqm, up as much as 25% from last year, according to Jones Lang and CBRE Philippines, another of the country’s biggest property manager and advisers.

"Pre-leasing is back," said Rick Santos, chairman of CBRE. "We are now experiencing the best real estate market in the Philippines in the last 20 years."

The primary driver of demand for office space comes from business process outsourcing (BPO) firms catering for European and American multinationals that want to cut costs.

With one of the region’s fastest growth rates, GDP grew 6.1% in the first half, the Philippines has shown resilience in the face of falling demand in the West and China that other more export driven economies must envy.

Analysts say the Philippines could achieve its first investment grade sovereign debt credit rating in the next 12 months.

Strong private and public consumption has underpinned growth, while inflows of foreign capital have driven the stock market to new peaks and the peso to near five-year highs.

An anti-corruption drive launched soon after President Benigno S. C. Aquino III came to power in 2010 has help the Philippines’ image.

Low inflation, low interest rates, and a ready supply of reliable, English-proficient labor are strong draws.

The vibrancy is evident in Bonifacio, where shops are open until midnight and fast-food chains and coffee shops cater round the clock, mainly for call center employees.

The BPO sector accounts for 80-90% of office space take up in the country, and is a major source of employment for the country’s nearly half a million new college graduates annually. The industry is forecast to double its current employee base of more than 600,000 by 2016, fuelling sustained growth in demand for office space.

But steady growth in demand from the traditional front office market such as banks, insurance firms, and representative offices is also fuelling the property boom.

CBRE’s Mr. Santos saw the Philippines, known as the world’s call center capital, fast becoming Asia’s back office banking hub.

JP Morgan Chase, HSBC, Bank of America, Citibank, ANZ and Deutsche Bank have all transferred critical back office processes to Manila in the last five years, while Wells Fargo is among the more recent newcomers.

Rents are expected to stabilize in coming years as new office space totalling at least 1.3 million sqm become available in 2013 to 2015, according to Jones Lang, with little danger of property bubbles as supply is just keeping up with demand.

Outside Manila, a similar transformation is unfolding, with industrial parks, especially those close to the capital and devoted to manufacturing, drawing more foreign firms than ever before, despite cribs about the high price paid for power.

"What we are seeing now is the re-emergence of manufacturing, which is really good for the economy because manufacturing employs people that the BPO industry won’t employ," Lindsay Orr, Jones Lang chief operating officer, said. -- Reuters

Philippines Oversight Aims to Avert Asset Bubble: Southeast Asia

Bloomberg Businessweek - The Philippines’s move to enhance oversight of real-estate lending this year will help curb speculation and improve its ability to prevent a property bubble from forming, the central bank said. 

The regulator ordered banks to provide more details on their real-estate exposure in August, including reporting investments in stocks and bonds that fund property ventures and loans to developers of low-cost homes. Closer monitoring will encourage banks “to exercise more self-restraint,” Deputy Governor Nestor Espenilla said in a phone interview Sept. 7.

“It’s a preemptive move,” Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said in an interview the same day in his office. “We don’t see at this point signs of strains in the market but we don’t want to wait for that. That’s the trick with asset bubble; when you see it, that means it has formed and you’re too late.”

The country joins Asian nations including China and Singapore seeking to temper soaring property prices and avoid the economic fallout created by the bursting of the U.S. subprime bubble and real-estate crashes from Spain to Ireland. Philippine bank loans and investments in the property sector surged to a record in March, central bank data show, and rising prices have spurred Ayala Land Inc. and other developers to build more homes.

Property Stocks

Ayala Land Inc. (ALI), the nation’s biggest developer, led the decline among Philippine property companies in Manila trading. Ayala Land dropped 2.8 percent, Megaworld Corp. (MEG) lost 1.8 percent, and Vista Land & Lifescapes Inc. (VLL) fell 1.5 percent. The Philippine Stock Exchange Property Index slid 1.1 percent, compared with a 0.2 percent decline in the benchmark Philippine Stock Exchange Index.

Century Properties Group Inc. (CPG) said today its rising condominium sales in the past two years point to a property market fueled largely by legitimate end-user demand.

“The demand is driven by our 11-million strong Filipino expatriates, coupled by a growing local market with increased purchasing power because of favorable economic conditions,” Marco Antonio, Century Properties’ co-chief operating officer and managing director, said in an e-mailed statement.

Central bank monitoring of lenders’ real-estate exposure will protect the property industry from a bubble, the company said.

“It makes the market even stronger as it ensures that real-estate loans are given to worthwhile projects and weeds out speculators,” Antonio said.

Regulators Cautious

“Regulators are being cautious because they don’t want the recklessness that happened in the U.S. or China or even Europe to happen here,” said David Leechiu, country head of Jones Lang Lasalle Leechiu. Still, “there won’t be a property bubble in the Philippines in the next three years because household debt levels are very low.”

Bangko Sentral currently caps banks’ real-estate exposure at 20 percent of total lending, with some exclusions. With the additional information now required from lenders, the central bank will decide if its policy needs to be reviewed, Espenilla said.

The central bank said Aug. 23 it will expand reporting of real-estate exposure to include real-estate projects and “ancillary services like buying and selling, rental and management of real estate properties.” The scope is broader than the previous ruling, which limited real-estate activities to the acquisition, construction and improvement of property, it said.

Makati Prices

East West Banking Corp. (EW) President Antonio Moncupa and Moody’s Investors Service welcomed the central bank’s August directive. Leechiu said it could slow lending for some projects and make it harder for small Philippine developers to meet demand.

Prices in the Makati business district rose 2.3 percent to an average of 284,130 pesos ($6,819.39) a square meter in the first quarter from the previous quarter and may climb to a record 300,000 pesos by the end of March, 2013, according to a quarterly report by Colliers International UK Plc. In Fort Bonifacio, which is adjacent to Makati, values rose 28 percent as of March from a year earlier, it said.

“Prices are going up and before you know it, everybody thinks they could be a developer,” Moncupa said in a Sept. 6 interview. The central bank is “trying to manage the exposure of the banking system to real estate. That should also correct any speculative activity.”

Cheap Credit

Cheap credit at the end of the last decade inflated property prices, leading to housing bubbles in countries from the U.S. to Ireland and Spain. The collapse of those markets contributed to the global economic downturn, prompting the world’s biggest central banks to stimulate their economies and flood markets with liquidity. That money has found its way into emerging markets, pushing down borrowing costs and driving up housing prices.

The number of condominium units built in the Philippines rose 48 percent to 33,000 last year as construction of 50,000 units started, Colliers said in its report. The PSE Property Index (PPROP), which tracks developers including Ayala Land and SM Development Corp. (SMDC), has risen 35 percent this year, surpassing the 19 percent increase in the Hang Seng Property Index. (HSP)

Philippine banks’ loans and investments in the property sector rose to a record at the end of March to 538.1 billion pesos, 21 percent higher than a year earlier and 3.8 percent more than the previous quarter, central bank data show. Real estate made up 15.2 percent of lenders’ total loans in the first quarter, rising from 14.5 percent a quarter earlier, according to the central bank.

25,000 Homes

Ayala Land plans to start construction of a record 25,000 homes this year, 20 percent more than last year, Chief Executive Officer Jaime Augusto Zobel de Ayala said in an interview in March. It boosted 2012 spending to 47 billion pesos from an earlier budget of 37 billion pesos, Ayala Land said in a report posted on its website last month.

The central bank’s latest moves “are credit positive for Philippine banks with substantial real estate lending because they will prompt the banks to tighten credit controls,” Moody’s said on Aug. 30.
Growth in construction accelerated to 10 percent in the second quarter from 3.6 percent in the first three months of 2012, according to government data. Cement demand rose 25.5 percent during the period, data show.

“More bullish activities have been noted with respect to the high-rise condominium market,” Guinigundo said. “When you are now into your second or third or fourth house which is investment-related and you’re having some problems amortizing, then you can forgo the fourth or the third. And the banks would end up with bad assets. That’s what we want to prevent.”

BSP keeps easing options open

ABS-CBN - The Philippine's economy does not need more stimulus for now as domestic demand remained buoyant despite the global slowdown dampening exports, but the central bank can ease policy if needed later this year, its governor said on Wednesday.

Any adjustment to interest rates would depend whether the risk of inflation acclerating or risk of economic growth falling was greater, Governor Amando Tetangco told Reuters.

"Right now the balance of risks is broadly even," Tetangco said in an interview at his office in Manila.


The Philippines has shown resilience amid the global downturn that has slowed growth in China and other emerging market economies in the region.

Having posted one of the highest growth rates in Southeast Asia in the second quarter, there was evidence that the Philippines could sustain growth in the second half of 2012.

The Philippines' GDP expanded an average 6.1 percent in the first six months, and policymakers are optimistic growth will hit the higher end of a 5 to 6 percent target for this year, accelerating from last year's 3.9-percent expansion, despite weakening exports of electronics, the main export earner.

"The policy stimulus currently in place is sufficient to provide support to domestic economic activity amid the ongoing weaknesses globally," Tetangco told Reuters in an interview at his office in Manila.

"I'm not going to rule out possible further easing during the rest of the year, but that will depend on our assessment...of the stance of policy relative to the inflation target, which is our primary mandate, and relative to economic growth," he said.

The Bangko Sentral ng Pilipinas, which next meets on Oct 25 to review policy, has kept its overnight borrowing rate at a record low of 3.75 percent following three cuts totaling 75 basis points this year aimed at shielding the economy against external shocks.

STATE SPENDING
Capacity utilisation in the manufacturing sector was above 80 percent, and energy sales, an indicator of economic activity, was on the rise.

Accelerated government spending in the second half, and more efficient spending brought about by budget reforms would help sustain growth, Tetangco said.

"We expect to get more bang from each peso spent," he said.

Data released earlier on Wednesday showed government spending rose 10.4 percent in August from a year earlier, although it was down 22 percent from July.

Economists say there is scope to ease policy further to dampen rapid peso appreciation and curtail speculative inflows.

Having gained 5 percent against U.S. dollar so far this year, the Philippine peso is the second best performing currency among emerging Asian economies, only bettered by the Singapore dollar.

Sound macroeconomic fundamentals and the prospect of being rewarded with an investment grade credit rating in coming months have drawn investors, flush with cash thanks to easier monetary policies adopted in developed economies.

While a strong currency offers protection against the inflationary effects of higher prices of imports, it could also crimp growth as it makes the country's exports more expensive and reduces the buying power of foreign currency remittances from Filipinos working overseas.

Domestic consumption, which accounts for 70 percent of GDP, is driven by remittances, which average $1.7 billion a month.

Tetangco said higher oil and food prices in the world market were upside risks to inflation, but these risks were moderated by the weak global economic outlook.

While policymakers were closely watching asset prices particularly in the property market, a bright spot in the economy driven largely by a growing offshoring and outsourcing industry, there were no signs of asset bubbles yet.

"We continue to believe there is limited evidence of stretched valuations in the real estate market," Tetangco said.

Philippine real estate loans increase but sector remains healthy: central bank

PROPERTY REPORT - Real estate loans in the Philippines were worth PHP561.6 billion (US$13.5 billion) in June, up 18.9 percent year-on-year and 4.4 percent higher than the previous quarter ending in March 2012. The numbers are a strong indication of the boom in the country real estate industry, reported the Manila Bulletin.

According to The Bangko Sentral ng Pilipinas (BSP) in a monthly report, 38 universal and commercial banks accounted for 77.3 percent of the exposures, or PHP434 billion, while the rest are from the 72 thrift banks. BSP also said the majority of the loans were real estate loans with just 2.7 percent being in securities issued by real estate corporations.

In value terms, real estate loans increased by PHP22.3 billion with PHP11.9 billion coming from residential real estate loans.

Despite the increase in real estate loans, the central bank said that the level of real estate loans ratio to total loan portfolio remained stable at 15 percent, slightly lower than March’s total loan portfolio of 15.2 percent.
Another signs that the property sector is faring well is that the number of non-performing loans for the end of June decreased by 9.6 percent to PHP24.2 billion from PHP26.8 billion in March. The NPL ratio was also lower at four percent from 4.8 percent in the previous quarter, according to the Manila Bulletin.


Manila Bulletin - The country’s large-capitalized banks and some big thrift banks reported real estate exposures worth P561.6 billion as of June, up 18.9 percent year-on-year and 4.4 percent higher from the previous quarter ending in March, a strong indication of a continuing boom in the real estate sector.

The Bangko Sentral ng Pilipinas (BSP) in a monthly report said the 38 universal/commercial banks accounted for 77.3 percent of total exposure or P434 billion while 22.7 percent or P127.6 billion are from the 71 thrift banks.

Majority of the industry’s real estate exposures are real estate loans, about 97.3 percent of total while the remaining 2.7 percent are investments in securities issued by real estate corporations.
Real estate loans as of end-June amounted to P546.5 billion, which was 4.3 percent higher from March, while banks’ real estate securities totaled P1.2 billion, up 8.4 percent from the previous quarter.

In value terms, real estate loans increased by P22.3 billion which came from P11.9-billion residential real estate loans and P10.4 billion from commercial real estate loans.

During the period, real estate loans for commercial purposes accounted for 55.3 percent or P302 billion of total real estate loans while 44.7 percent or P244.4 billion are residential real estate loans.

The central bank said that despite the increasing level of real estate loans, the level of real estate loans ratio to total loan portfolio remained stable at 15 percent, lower compared to 15.2 percent in March total loan portfolio.

The universal/commercial and thrift banks’ non-performing real estate loans for the end of June decreased by 9.6 percent to P24.2 billion from P26.8 billion in March. The NPL ratio in the same period was also lower at four percent from 4.8 percent in the previous quarter.

Thrift banks have better quality real estate loans compared to the big banks. The thrift banks’ real estate NPLs stood at 4.1 percent while big banks at 4.5 percent.

The BSP has recently amended the way it captures real estate exposure data, by including investments in debt and equity securities and by expanding the scope of activities that are real estate-financing related.
As of end-June, the banks’ investments in debt securities issued by real estate companies rose 8.4 percent to P15.2 billion from p12.4 billion in the previous quarter.

Debt securities accounted for majority of the total real estate investments or about 80 percent or P12.1 billion while 20 percent or P3 billion are equity investments.

BSP said only universal/commercial banks have exposure in real estate investments.
 The central bank said with the inclusion of all loans, investments in debt and equity securities, all loans are now counted as a bank’s real estate exposure.

Banks’ real estate exposures will also be referenced against its adjusted capital and the single borrower’s loan limit. This will be consistent with the “sound risk management practices which espouse the maintenance by a bank of adequate capital that is commensurate to its risks,” said the BSP.

By BSP definition, real estate activities are activities that include construction and development of real estate projects as well as other ancillary services like buying and selling, rental and management of real estate properties.  This is a wider definition from the original circular which limits real estate activities to the acquisition, construction and improvement of real estate property.

A New City, A New Metro Manila, A New Future

Manila Bulletin — That new city must have a land use plan that reflects function and priorities. Creating an environment of trust in real estate investment at the national level and at the same time launching an intensive marketing drive for the new city will boost real estate prospects and effectively counter poor image and engender a positive overall perception of the country in this regard.
That new city should promote an environment-friendly lifestyle where residents have access to waste management technology and arrangements for recycling, re-using and disposing potentially polluting items and articles that would otherwise cause air, water and land pollution. With this in place, waterways and the city‘s sewerage and flood control system will be free of obstructions and can deal more capably with climate change phenomena. Greenery, open spaces and ecological efficiency are a "must" in the city‘s overall design and layout. An environmental conscience must be nurtured in the minds of both young and old citizens to reinforce ecological efficiency in practice.

That new city should be a veritable melting pot and dynamic hub for culture and the performing and fine arts, which are some of the most environment-friendly activities known to mankind. I envision cultural centers, schools, festivals and competitions for music in its diverse forms, creative writing, dance, film-making, painting, sculpture and other artistic endeavors, operating year-round and contributing to a golden age in the production of creative intellectual property.

That new city will be conducive to academic institutions as they provide higher learning, produce highly skilled individuals with masteral and doctoral degrees, and churn out research and development outputs for technological innovation and industrial growth. It should become an oasis for partnership between the academe and the business sector.

That new city should be a model of social inclusion in partnership with civil society. The city government must ensure the fair distribution of land, resources, services and opportunities among the city‘s residents. Neighborhood interventions should be undertaken through non-government organizations for cross-cultural education and dialogue that will enable citizens to celebrate their cultural diversity while enhancing their sense of community. To be truly inclusive, citizens must be empowered to make physical (mobile) and socio-cultural connections. And those connections must be facilitated through projects jointly conceived, planned and implemented by the city government and the private sector (consisting of the business sector and non-government organizations), in consultation with citizens.

Finally, that new city must have the critical catalysts for all of the foregoing in order to stimulate growth and human development—entrepreneurship development, management capability-building, a stable local government finance mechanism for revenue generation, and a menu of creative incentives that will effectively encourage all sectors to interface and cooperate. Such catalysts will greatly aid in mitigating threats to the natural environment while enhancing the capacity for urban living. With these incentives in place, such an enhancement can be implemented through a combination of low carbon and resource-efficient development with the use of information and communication technologies (ICT) to better manage complex urban systems.