Chinese developers continue ‘economic invasion’ in key Philippine urban areas

(Second of a series)

Last week, Inquirer Property revealed pundits’ forecast that the 2016 presidential and national elections would freeze any major real estate activity in the first two quarters of the year. So, with the country going bananas over the ballots in the year of the monkey, what other real estate activities are we to expect? Property experts continue their predictions:

6Mainland Chinese developers continue their “economic invasion” in key urban areas of the Philippines. “An interesting sideline to the current geopolitical conflict between China and the Philippines regarding the contested Spratly islands is the growing interest of mainland Chinese developers acquiring properties for development in Taguig, Makati and the Bay Area the past three years,” said Enrique M. Soriano III, Ateneo program director for real estate and senior adviser for Wong+Bernstein Business.

Soriano added that “China’s growth has considerably slowed down and has rattled investors, prompting mainland developers to look for growth areas in the Asean region. This opportunity will be a new driver for both new takeup and office inventory in 2017, but on the downside will also add new supply to the already crowded mid-market residential segment.”

Claro dG. Cordero Jr., Jones Lang LaSalle Philippines’ associate director and head for Research, Consulting and Valuation, said “the exodus of Chinese developers to the local property market may not be as successful, since the mid-market condominium segment has already reached a saturation point and even the local developers have been looking for new markets to serve, and are phasing their projects carefully.”

Cordero added that “this will prove challenging to foreign developers (not to mention the foreign ownership restriction), as they may be also faced with stiff competition from major local developers who also have the financial muscle to weed out further competition.”

Soriano said mainland-based Chinese developers have been buying properties and forming joint-venture deals in the country since China’s real estate has been stunted since 2013, thus continuing mainland China’s interest in the Philippines. This trend, however, is not unique to Manila, as Chinese mainlanders have also been seeking more investment opportunities in Jakarta and Singapore, for example.

7Slower growth rate for office rents. Cordero said that office rents will still continue to grow, but at a slower rate than that of previous years.

Cordero said: “This is because of the huge amount of office supply expected to be completed in 2016 and 2017, estimated at 1.8 million square meters. Nevertheless, the still strong and strengthening take-up of business process outsourcing (BPO) companies (due to new locators and sizable expansion of existing ones) will likely be able to absorb this huge supply, such that the accelerated growth of office rents is expected to bounce back in two to three years.”

Soriano said that in 2015, the office sales market recorded strong performances with several large-scale transactions having been concluded. BPO companies are expected to continue to strongly prefer buildings for lease in the main central business districts (CBDs) this year. They will be the key drivers for new takeup and office acquisition in the next three years.

Online property portal Lamudi Philippines said that BPO companies will continue to buoy Metro Manila’s commercial real estate, citing that “experts do not foresee the supply of office space surpassing demand soon, meaning commercial properties (and offices in particular) remain a beneficial investment for 2016.”

Soriano also said that in 2016, Grade-A office rents in prime areas is expected to increase by 5 percent, given strong demand for office space and low vacancy rates. Meanwhile, rents in non-CBD areas may slightly drop by 5 percent due to available supply in Makati and Bonifacio Global City.