Property firms move to cap exposure to Pogos

While both the Philippines and China scrutinize online gaming operators—the proverbial goose that have laid the golden eggs for the property sector in the last three years—big property developers have consciously capped their exposure to this sector.

“While we are the biggest lessor of office space in the Philippines, the Pogo (Philippine offshore gaming operator) issue won’t affect both our office and residential businesses because our exposure remains small and manageable,” Megaworld chief strategy officer Kevin Tan said in a statement on Saturday.

“We are quite comfortable with this level of exposure and we don’t see ourselves increasing the percentage contribution of Pogo to our business in the next two years,” he added.

Tan noted that Pogos, to date, accounted for 12 percent of the group’s total rental space in terms of gross leasable area (GLA), contributing about 8 percent of total rental income.

In 2018, Tan said about 5 percent of Megaworld’s total rental income had come from Pogos, which accounted for 7 percent of total rental GLA while cash flow contribution was around 5 percent of total.

On residential reservation sales, Tan said that out of P215 billion ($4.13 billion) sales take-up in 2018 up to end-June 2019, sales to Chinese nationals would be around 13 percent of total.

“The impact of Pogo on residential revenue will only happen when we already complete the residential projects taken by Pogos. For those sold to Pogos in 2018, we will see the impact next year,” Tan said.

For next year, Tan estimated that Chinese contribution to residential sales would likely reach only 4 percent, accounting for P1.5 billion of the total residential revenue forecast of P40 billion.

“Assuming these residential sales from Pogos will result to back-outs, they will just be brought back to our inventory and the collection from reservation and other payments will just form part of our other income,” Tan said.

Shares of Megaworld have gone down by 16.5 percent to P4.80 per share since the Chinese government issued strong rhetoric against Pogos, which mostly target clients from mainland China, where gambling is illegal, and also tap Mandarin-speaking Chinese workers.

Based on data from Ayala Land, Pogo tenants currently occupy about 7 percent of its office GLA, consisting of space leased out in Circuit Makati and South Park. The share will rise to 8 percent of office stock upon the turnover of a new office facility in Bay Area this year.

On the residential segment, Chinese nationals accounted for P5.4 billion or 7.4 percent of ALI’s P72.3 billion residential sales in the first semester. Sales take-up by Chinese clients went down by 10 percent from the same period last year.

Chinese buyers accounted for 44 percent of Ayala Land’s P12.4 billion worth of foreign sales in the first semester. The majority of its residential buyers are resident Filipinos— which accounted for 70 percent or P50.2 billion of six-month reservation sales—while overseas Filipinos accounted for 13 percent or P9.7 billion. Sales to resident Filipinos and overseas Filipinos went up by 1 percent and 23 percent, respectively, in the first six months.

In the last two weeks since China aired concerns about money laundering, human trafficking and working conditions of Chinese workers in the Philippines, analysts turned cautious on the local property sector. Last week, the anti-Pogo rhetoric escalated when China called on the Philippines to ban online gaming.

“That’s a red flag. That will devalue the growth in the property sector because the growth in the property sector was anchored on the assumption that Pogos will continue to operate. If they pull out at the same time, that’s going to be a problem,” said Robert Dan Roces, economist at Security Bank.