Jones Lang Lasalle: Philippines remains a challenge for foreign investors

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Category: Properties

27 May 2014

 

Written by Rizal Raoul Reyes

EVEN if its ranking improved by 25 points from 133rd spot in 2013 to 108th in 2014, the Philippines still has a lot of work to do to attract more foreign capital, according to brokerage and consultancy firm Jones Lang Lasalle (JLL) Philippines.

In a recent press briefing held in Makati City, JLL Philippines Country Head and Director David Leechiu said investors still find the Philippines a challenging area because of restrictions on ownership, limited leasing terms, high corporate and personal income-tax rates and absence of a substantial master planning.

“Although the country has achieved major strides in the ease of doing business based on the study of the World Bank, we still got a long way to go,” said Leechiu.

Singapore topped the list followed by Hong Kong. Other Asian countries which made the elite bracket are Malaysia (sixth), Taiwan (16th), Thailand (18th) and Japan (27th).

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 In the transparency index done in 2012, the Philippines achieved 2.86 points, which was under the transparent category—behind countries that made it to the highly transparent group. These are the United States (1.26), the United Kingdom (1.33), Australia (1.36), Hong Kong (1.76), Singapore (1.85), Malaysia (2.32), Japan (2.39), Taiwan (2.6) and China (2.83).

 Leechiu said the ownership restriction for foreign investors to 40 percent has become a major obstacle for the country to attract much-needed capital to stimulate the economy. To elucidate his point, Leechiu said countries that allowed 100-percent foreign ownership attracted huge amount of foreign capital in 2012. In the Association of Southeast Nations (Asean) bloc, Singapore was the biggest beneficiary with $56.6 billion followed by Indonesia ($19.6 billion), Thailand ($10.6 billion), Malaysia ($9.7 billion) and Vietnam ($8.3 billion). The Philippines received $2.7 billion.

Although Thailand generally limits a foreigner to 60-percent ownership, it allows 100-percent ownership based on treaties and other foreign investment acts. Foreigners are prohibited to own land in the Philippines.

He said there is also a need to review the corporate income-tax structure of the country currently at 35 percent of the taxable income, higher than the rate in bigger economies such as Australia (30 percent), China (21 percent) and Japan (25.5 percent).

To attract a bigger share of the foreign capital inflows, Leechiu said the country must allow foreigners a bigger stake in their investment. “We must increase foreign ownership of corporations to at least 50 percent,” he said.

“A 100-percent ownership would be unrealistic because of the strong opposition of the nationalist sector,” he added.

 The country, according to Leechiu, must increase length of lease to 80 to 90 years to enable foreign investors to stay for the long haul. He cited the case of Hong Kong where it continues to attract a huge number of investors even though it has been turned over to the Beijing government in 1997.

 Leechiu also stressed that the country must provide sensible master planning to maximize the value of the lands and achieve sustainability in the economy.

 Although the Philippines has been highly regarded in the international community, Leechiu said it still needs to implement reforms to get a bigger share of the investment pie.  In Asia Pacific, transactional values reached $127 billion in 2013.

“The Philippines should take advantage of the favorable climate to effect structural, economic and constitutional reforms that will lead to sustainable long-term growth,” said Leechiu.