MANILA, Philippines—The exodus of Philippine offshore gaming operators (Pogos) will not only shed tax revenues but also leave behind sizable office and condominium spaces empty, which was last seen during the Asian financial crisis over two decades ago.
“Last night, I got a call from one of the owners of a building in Makati, who’s saying that his Pogo and service provider-clients have started cancelling their lease contracts for lack of business,” Finance Secretary Carlos G. Dominguez III told senators on Wednesday (Sept. 23).
Dominguez said China was clamping down on money transfers, while Pogos in the Philippines were lacking in operators as the Chinese government was also cancelling the passports of workers from the mainland.
READ: No exodus of POGOs: Palace says only over 20 left PH
The Bureau of Internal Revenue (BIR) earlier told the Inquirer that “plenty” of Pogo workers—mostly Chinese—were returning home as they were afraid of the high number of COVID-19 infections in the Philippines.
An industry source told the Inquirer on Wednesday that thousands of Pogo workers, including Filipinos, had been laid off in the last two months as online gaming had weakened due to tougher times amid China’s “bad” economy as a result of the COVID-19 pandemic.
The source said Pogos were operating at only about 30 percent of their capacity, while still spending a big amount of money on housing and food for Chinese workers, who stay in enclosed facilities to prevent them from getting infected with SARS Cov2, the virus that causes COVID-19.
Citing estimates from the state-run regulator Philippine Amusement and Gaming Corp. (Pagcor), the source said employment in the Pogo sector had a ratio of three foreigners (mostly Chinese) per one Filipino, which means it was likely that thousands of Filipinos had been laid off by Pogo licensees and service providers here.
Pagcor data as of Sept. 8 showed that the number of registered Pogos was whittled down to 55 from 60 at the start of 2020, while only 29 had been given authority to resume operations after paying correct taxes and complying with health protocols.
Also, only 99 accredited local gaming agents and service providers had been allowed to resume operations, compared to as many as 218 service providers employing about 130,000-150,000 people at the start of 2020.
Even if Pogos flee the Philippines, Dominguez said all their taxes must be settled first.
“Before a Philippine-registered entity can close its business, it is required to get a clearance from the BIR. This triggers an audit where the BIR can determine if they have paid the correct taxes,” Dominguez said in a text message.
Dominguez said income taxes and value-added tax (VAT) from consumption being collected from Pogos will be hurt as the sector reels from the COVID-19 crisis.
In 2019, the government collected P6.42 billion in taxes from “errant” Pogos, or 169-percent more than 2018 collections, Dominguez told senators.
But for Dominguez, “the issue is not so much on Pogo revenues but more on the impact to real estate values and businesses.”
Joey Bondoc, senior manager of property advisory firm Colliers Research, told the Inquirer on Wednesday that “in case all Pogos leave, we will see a double-digit office vacancy in Metro Manila.”
“As of the second quarter of 2020, Pogos covered an estimated 11 percent of total leasable office space in Metro Manila, or about 1.34 million square meters,” Bondoc said. “In the second quarter, office vacancy in Metro Manila stood at 5 percent. Hence, if all Pogos leave, we will see a 16-percent office vacancy—leased space by Pogos plus vacancy as of the second quarter,” he said.
Bondoc said the last time that Metro Manila suffered double-digit vacancy in office space was when the Asian financial crisis left 12 percent of offices vacant in 1999 while their lease rates dropped by 16 percent.
”We are seeing the impact of slower Pogo absorption on lease rates,” Bondoc said.
“Subdued leasing and early lease terminations, including from Pogo firms, have created a supply and demand imbalance,” he said.
“Colliers is projecting average lease rates to drop by 17 percent in 2020. For business districts and office buildings that mainly cater to Pogos, we project deeper rental correction, ranging between 20 percent and 30 percent,” Bondoc said.
“Office supply and demand figures are reverting to pre-Pogo levels as well,” he added.
“From 2017 to 2019, when Pogos played an important role in driving office leasing,” Bondoc said. At that time, he added, “average annual office demand reached about 910,000 square meters and an annual supply of about 980,000 sqm.”
“For 2020, due partly to slower absorption from Pogo firms, demand is likely to be less than 200,000 sqm while supply will likely be between 400,000 sqm and 500,000 sqm,” Bondoc added.
Not only office space but also residential units—especially in condominiums where the Chinese workers used to live—will take a hit
“Slower office take up from Pogos is also resulting in slower condominium sales and leasing,” Bondoc said.
“Colliers sees a rise in vacancy among completed or ready-for-occupancy (RFO) condominium units in Metro Manila, especially those that mainly cater to Pogo firms and investors,” Bondoc said.
“We see vacancy rising to 14-15 percent by end-2020 from 11.8 percent in the second quarter of 2020,” he said.
“In our opinion, the impact of the COVID-19 pandemic on the secondary residential market was not yet apparent in the second quarter. However, the latest economic indicators point to a more precarious condominium market for the remainder of 2020,” Bondoc said. “Aside from subdued Pogo demand, these include disappointing GDP [gross domestic product] and employment figures,” Bondoc added.
Amid a COVID-19-induced economic recession wherein GDP shrank by an average of 9 percent in the first half of 2020, the unemployment rate climbed to a record-high of 17.7 percent in April before easing to 10 percent in July, although still much higher than pre-pandemic levels.
He said as a result of “dampened demand for condominiums,” his company expects developers to be “more aggressive in offering bigger discounts and offer more flexible payment terms for pre-selling residential projects.” Discounts could range from 10 to 15 percent of total contract price.
“In the secondary market, which covers completed units, Colliers is projecting average prices to soften by 13.8 percent in 2020,” Bondoc said.
For Bondoc, “business districts that mainly cater to Pogo firms are likely to feel the pinch for the remainder of 2020.”