Is there a real cause for alarm?
All the furor over Philippine off-shore gaming operators (Pogos) in recent weeks had raised concerns about how this booming segment, hailed as one of the primary drivers of growth—and prices—of office and residential spaces, can affect the real estate sector and local economy should a ban on online gaming be implemented.
As it is, the Philippine Amusement and Gaming Corp. (Pagcor) has already suspended the issuance of Pogo licenses while the Anti-Money Laundering Council and the Bangko Sentral ng Pilipinas are being asked to thoroughly examine activities of online gaming firms. It has become a bilateral concern, too, with China’s planned crackdown and its request before the Philippine government to ban online gaming altogether.
Inquirer Property polled several industry experts to further shed light on this debacle, as well as explain if any further restrictions on Pogos will make a significant dent on the real estate industry—or at the very least, if there are ways to offset a possible demand slowdown.
One thing that is clear though is that everyone remains optimistic. While the office and residential sectors will surely take a hit should
Pogos exit the country, the effect will be short term. Experts opined that this is just a temporary hiccup, that there is more to Philippine real estate than Pogos, and that the demand can be offset by the traditional growth drivers.
A slowdown from the Pogo segment is by no means a doomsday scenario for real estate: in time, prices are set to normalize, and eventually, it will be back to “business as usual.”
Life after offshore gaming
Enrique Soriano
Former program director for real estate of the Ateneo Graduate School of Business, and executive director for the Wong+Bernstein Advisory Group
In just two and a half years, online gaming has become a multibillion-peso industry. Pagcor has earned almost P12 billion over the past two years and is expected to earn another P10 billion this year alone. The government is also keen in collecting as much as P32 billion in income taxes from Pogos and their workers including value-added tax.
Additionally, the burgeoning industry has created a spike in property prices near gaming sites and a windfall for developers in the office, commercial and residential sector. Pogos are the reason why real estate values have gone up. Property consultants are reporting exponential increases in specific locations where Pogos are located.
Sellers of condominiums are reporting brisk sales as well. And in just two years, an estimated P20 billion in rent from Pogo-related activities directly benefited the office, residential and retail sector. In a survey conducted by W+B Real Estate, close to a million square meters of office space will end up being leased to Pogos by the end of the year. No doubt about it, the sheer contribution of Pogos has a huge economic impact to the otherwise listless commercial real estate industry that for the last 20 years has seen heavy reliance on the business process outsourcing (BPO) industry.
One of the top stories that came out last week was the pronouncement of China requesting the Philippines to ban online gaming. Will China’s repudiation and about-turn hurt the Philippine property sector?
Certainly, with the halt in licenses, we can naturally expect gaming revenue growth to churn in a flat performance in the last quarter and will continue to slide in 2020. Real estate transactions will likewise slowdown in the residential and office sectors as gaming operations will likely wind up operations.
With China’s pronouncements and the likely scenario of the country acquiescing to their call to ban Pogos, we can expect demand to decrease but at the same time anticipate supply increasing. With this likely scenario happening next year, we can expect a sharp drop in rents and price points across several fronts.
Is this a doomsday scenario for real estate? Absolutely not.
In time, prices will normalize and it will be business as usual with price points back to normal levels. The economy is definitely resilient to weather this temporary setback.
Fundamentally, this is a healthy detox exercise for the property sector. For major players, this is a temporary hiccup and expectedly everyone will come out of this episode unscathed. These behemoths are so diverse and therefore too big to fail.
Pogos as No. 1 demand driver
Monique Pronove
President and CEO of Pronove Tai International Property Consultants
In terms of office take-up, Pogos account for approximately 9 percent of the total Metro Manila office stock.
Traditional offices and the IT-BPM sector are at 54 percent and 35 percent, respectively. The restrictions will definitely impact the office market and could even cause a double-digit vacancy in the metro. If this happens, vacancy could reach its highest level in 10 years.
Pogos were Metro Manila’s No. 1 demand driver in the second quarter of the year, dislodging the IT-BPM in the first place for the first time in 17 years. Bay Area and Makati City will particularly be impacted as both districts host the majority of Pogos at a combined 67 percent.
Considering the Peza moratorium in Metro Manila and the impending Trabaho Bill, it will be very challenging for our usual demand driver IT-BPM to offset the office take up.
Offsetting potential losses
Janlo de los Reyes
Head of research and consultancy at JLL Philippines
As of the first half of 2019, we estimated Pogos to occupy at least 160,000 sqm of office space and a sizeable take-up of majority of residential condominiums, particularly in the Bay Area. It’s worth noting though that aside from Pogos, mainland Chinese investors are driving up residential demand to which the ban may have limited impact.
The office and residential sectors will certainly take hit in the short term, contained within the areas with heavy presence of Pogos. Nonetheless, we foresee the market to maintain its growth in the medium to long term as we are seeing rising potential from other sectors such as industrial and logistics, hospitality, and alternatives such as co-working and co-living.
Apart from Pogos, we still have other demand stemming from mainland Chinese investments, namely, real estate, financial services, professional services, industrial and retail, among others. There remains solid investor interest from other markets and prospects for other asset classes such as industrial and logistics, hospitality and alternatives that could offset the potential loss stemming from the ban on Pogos.
Filling the void
Joey Roi Bondoc
Research manager at Colliers International Philippines
At present, Pogos occupy about 970,000 sqm of office space across Metro Manila and we see this breaching the 1 million-sqm mark before end-2019. That’s about 8 percent of total leasable space in Metro Manila.
But there are other demand drivers that could fill the void such as the traditional and non-BPO tenants (government agencies, engineering and construction firms, banks, flexible workspace operators) as well as demand from BPOs moving forward. These demand drivers may not easily fill the additional 8 percent vacancy but given the sustained pace of take up, vacancy should be at sub-10 percent.
To sustain take up from non-Pogo demand drivers, some key measures should be implemented by the government:
Consider lifting the moratorium on approvals by Philippine Economic Zone Authority (Peza) in Metro Manila to enable further expansion from BPOs;
Provide a more concrete stance on Trabaho-2, or agree on the version Rationalization of Fiscal Incentives bill to pass;
Support amendments to Foreign Investments Act and Public Utilities Act which should open more economic sectors to foreign participation, and which can result in greater absorption of office space.
Pogo is just another segment
Elizabeth Ventura
President of Anchor Land Holdings
Pogos have again put the Philippines in the outsourcing map as we deliver properties that answer the needs of foreign clients—and in this particular case, China.
While it has contributed a lot in the local real estate landscape, Pogo is just another segment. There is a lot more to Philippine real estate than Pogo. This industry offers a myriad other ways, perhaps even stronger ones, in securing sale and investments. Rental income, for instance, is I think the investment opportunity that presents the most potential.
Let’s look at the Bay City as an example of a lucrative avenue for passive rental income.
It is considered as the country’s biggest tourism and business district. It also offers an impressive collection of properties for the entertainment, leisure, shopping, dining and trade and economics sector.
The rapidly growing business in this area is opening up new opportunities such as high demand for properties that are designed to be halfway homes for businessmen or accommodation for travelers. Many growing families are also looking for lifestyle upgrade and units that are designed for the ultra rich. It is just a matter of targeting the right audience.
In our 15 years in the industry, we have developments that cater to the different segments of real estate. Our experience and expertise attest that real estate is indeed a lucrative endeavor because it is a viable source of sales and investments and it is not limited or reliant in a particular trend like Pogo.