Philippines upgraded in international property investors’ report card

How time flies, and circumstances change. In 2011, the local property industry received sobering news that Manila had been ranked “below fair” to “abysmal” by foreign property investors, according to the Emerging Trends in Real Estate Asia Pacific 2011 survey conducted by the prestigious Urban Land Institute (ULI). Global real estate investors then gave Manila 4.56 points out of a possible 9.

But in the latest report, the ULI Emerging Trends 2012 Asia Pacific upgraded Manila from the bottom of the list to No. 18 in Investments.

The 2012 ULI study said Manila’s progress in commercial investment prospects boosted its ranking from 20th place in the 2011 survey to 18th place (out of 21) for the 2012 report. It also said that “a new government and a surge in foreign investment in the business process outsourcing (BPO) market—back office and call centers, for the most part—have helped the commercial real estate market, boosting the city’s 2012 investment prospects.”

Included in the survey are 360 international renowned real estate professionals, including investors, developers, property company reps, lenders, brokers and consultants.

Simon Treacy, the South Asia head of the Urban Land Institute, told Inquirer Property that several factors were instrumental in the two-place improvement, including the new leadership in government—the promise of change, skilled people, opening up of markets and the “very exciting” demand in the business process outsourcing (BPO) market.

He said, “The world is starting to understand that the Philippines is back in the game.”

Fast-emerging market

The ULI study is a publication of ULI and Pricewaterhouse-Coopers. It described the Philippines as a “fast-emerging market.” Part of the report read, “In the past, perceived problems with bureaucracy and corruption have deterred foreign investment—‘The Philippines is on our do-not touch list,’ one fund manager commented—but a recent change in government has now improved political stability and created a more pro-business environment. Rapid growth in the BPO sector—currently responsible for 90 percent of office take-up in the country, according to investment bank CLSA—has led to mushrooming demand for office space. According to one locally based investor, ‘The Philippines is doing 300,000 square meters per year, and we’re thinking maybe 360,000 may not be unachievable.’”

The report also said, “As with most developing markets, foreign investment in real estate is regulated. Foreigners are barred from taking a majority interest in land, although (unlike in India) they may own buildings or leaseholds relating to it. Banks are willing to provide 60 to 65 percent LTVs, and interest rates are described as ‘very livable: fixed-term five-year money is available at something like 6.5 percent to 7 percent.’

“Bureaucracy continues to be an issue, but interviewees compare the Philippines favorably to other emerging markets in terms of transparency and, perhaps most significant, the availability of options for existing investments in the rapidly evolving BPO sector, which in the voice segment is now larger than that in India.”

The ULI study about the Philippines concludes: “The fact that so many multinationals are now setting up their own in-house facilities increases opportunistic possibilities because ‘if you have a multinational-profile tenant roster, then you can attract (core) funds.’ Investors are looking for returns of 20 percent plus, according to one fund manager, whereas ‘if you buy the building from me and it’s 100 percent or 95 percent occupied, you might be looking at a 10- to 12-percent return.’”