More mid-market condos on the rise until 2016

Thursday, December 15, 2011

http://www.bworldonline.com/content.php?section=22&title=More-mid-market-condos-on-the-rise-until-2016&id=43276

NEARLY A third of the condominiums set to rise in Metro Manila until 2016 will cater to the middle-income market instead of affluent buyers previously targeted for such vertical developments, CB Richard Ellis (CBRE) Philippines said.

Around 31% of approximately 135,000 condominium units being tracked for completion through 2016 are considered “mid-market condominiums,” sold at a price range of P40,000 to P80,000 per square meter, with an average floor area of 30 to 40 square meters, the consultancy said in its third-quarter Metro Manila MarketView report.

“Previously, condominium ownership was limited to the upper class given its restrictive acquisition cost. However, the advent of mid-market condominium in the fringe of the business districts across Metro Manila has opened up a broader base market,” the consultancy said.

Acquisition costs have recently eased as the government has moved to provide development loan facilities to developers and cheap end-use loans to borrowers, further boosting their demand.

“Buyers of affordable condominiums can now avail of long-term housing loans to purchase condominium units to as much as P2.5 million per unit with mortgage rates of 11% VAT (value-added tax)-free,” CBRE Philippines said.

“[And] the new trend in housing or accommodation is accessibility.

First-home buyers are now ready to forego ownership of house and lots in the suburbs in exchange for short travel from home to work and any other necessities…” it added.

Most property developers are also recognizing opportunities in the mid-income market, with further growth seen in the coming years.

“Supply of this type of condominium will definitely outpace demand but not to cause a glut similar to the events of the 1997 [Asian financial crisis]. Hence, we expect a growth of this product niche in the near future, particularly in Metro Manila and other key urban centers like Metro Cebu and Metro Davao,” the report read.

Findings of the Global Investor Sentiment Survey..

2011-10-21

Dennis De Vera

Manila Philippines

...by Colliers International show that property market is driven by the strong demand for office space and residential units.

INVESTORS are still optimistic of the property prospects in the Philippines pushed by strong demand for office spaces as well as residential units, findings of the Global Investor Sentiment Survey released by Colliers International.

"In the Philippines, the general sentiment among property investors remains to be optimistic," said Paul Vincent Chua, associate director and head of Advisory and Research Services, Philippines.

"The industry is driven by the continued growth of OFW remittances, which supports private and household expenditures, the growth coming from the offshoring and outsourcing industry, and the current regime of low interest rates."

In Metro Manila, about a million square meters of new office space is intended to complete from this year to end-2013. While in terms of high-rise condominiums, pre-selling projects increase to 90 projects as of the third quarter this year which translates to more than 25,000 additional units.

"Investments on new office developments heighten with the BPAP (Business Process Association of the Philippines) forecast of over a million BPO (business process outsourcing) employees by 2016, makes property investors keen on developing with this prospect of growth," added Chua. "Furthermore, the number of residential units across major CBD’s is expected to reach more than 60,000 units in 2013 at an average growth of 15 percent annually. These two segments are driving the growth in the industry."

The Global Investor Sentiment Survey is an annual survey which takes the pulse of property investors worldwide, measuring their risk appetite, optimism, key concerns and overall market outlook. This year’s survey was conducted in the first two weeks of August 2011 using a series of targeted questions.

In Asia, the majority of investors surveyed remain optimistic in property investment. Sixty-five percent of the overall respondents indicate that they will very likely expand their property portfolios in the next 6 months.

"Office assets in Beijing and Shanghai are the Asian investors’ top preferences," said Piers Brunner, chief executive officer of Colliers International Asia. "This is followed by residential or office property in India, while industrial property in Singapore and China came in third. The findings also revealed that most investors place their bets in their own region."

Despite a willingness to buy, investors in Asia are not compelled to move out of the risk curve in order to achieve superior returns.

According to the survey findings, 35 percent of Asian investors mention that uncertainties surrounding both global and regional economic conditions is a major deterrent in their purchase decision, while 31 percent see a lack of supply of "for sale" property at their target IRR as the main obstacle.

"When asked on their target internal rate of return (IRR) for investments, a vast majority of the Asian respondents (over 75 percent), indicated that they typically aim for 15 percent IRR or higher. This is much higher than the average 40 percent investors globally who concurred to the same IRR target," added Brunner.

"A high IRR target is an indication that Asian investors are currently riding high on their risk adversity by only wanting to invest on properties which are able to generate returns strong enough to offset any possible negativity. This correlates to the survey findings which also revealed Asia to be currently the lowest in terms of risk appetite."

Reduced risk appetite varies across the region, however, according to the survey findings, 69 percent of Asian investors expressed that they felt a tightening of credit as compared to 6 months ago.

"The credit scene in Asia has gone through tremendous changes. Investors face more challenges when it comes to credit accessibility with rising cost of debt and a shrinking loan-to-value (LTV) ratio," Brunner said.

The survey disclosed that 77 percent of Asian investors said cost of debt has increased, while 54 percent pointed out that the maximum LTV ratio decreased.

Emerging trends on obsolete properties and sub-urban office spaces

The survey also revealed two emerging trends in Asia: reducing interests in owning older and more obsolete commercial property and greater anticipation in demand for sub-urban office spaces.

On the former, 65 percent of Asian investors surveyed said owning older more obsolete commercial real estate is a bigger concern today than 10 years ago. These older commercial assets are challenged by competitive new developments equipped with modern functional features.

"The needs of commercial space users have changed, thus rendering older developments functionally obsolete," said Simon Lo, executive director of Research & Advisory, Asia. "Location is no longer the determining factor if the assets’ features are not up to par. This finding is also consistent across the globe."

The latter trend on sub-urban office spaces was clearly indicated by the 77 percent of Asian respondents who anticipate a surge in demand for sub-urban office property over the next 10 years. This will particularly be the case when some of the older buildings situated in urban downtown locations become obsolete.

Looking ahead, Asian investors are confident in the further growth of rents and prices. 56 percent of Asian investors believe real estate rents will exceed the inflation rate over the course of 3 to 5 years.

"Despite key concerns in Asia such as global economic growth uncertainty, geo-political upheaval, the threat attributed to sovereign debt default and changes in local government, Asian investors believe that real estate will continue to be a good hedge against inflation," added Lo. "This is also further boosted by the recent surge in commodity prices - price of construction materials such as steel and cement have increased – which pushed up real estate prices."

In the Middle East and Africa, political risk is a key factor. In Asia, economic uncertainty is seen as the greatest risk. In Australia, the key concern is equity.

Sixty-four percent of Canadian investors and 60 percent of US investors said they are more aggressive than six months ago, a stronger shift in risk tolerance than any other region.

Most investors are interested in buying within their own region. The investors most interested in purchasing outside their own region were from Canada and Asia..

Investors in Asia, Australia/New Zealand and Latin America see increased demand for suburban office space.

Latin American investors were most pessimistic, believing they are at the peak of the market. However, they also noted that there is insufficient supply of properties for sale, suggesting that investors are still interested in buying.

BPO demand high...

2011-11-25

Tessa Salazar

Philippines

...top developers in construction ‘frenzy’

Exactly 35 days before 2011 bids adieu, Inquirer Property has asked analysts to assess the performance of the Philippine real estate industry in 2011. Their unanimous reply:

It has been a banner year for the business process outsourcing (BPO) sector.

The mid-income condo development is in the midst of a “construction frenzy.”

The demand for spaces in the Makati, Bonifacio Global City and Ortigas central business districts was even higher this year compared to last year.

The emerging growth centers like Eastwood and Bonifacio Global City have “arrived” this year.

Leading global real estate services company Colliers International, which claims its research team had been tracking all the residential condominium developments in Metro Manila since 2008, said that in 2010 preselling activities were able to sell 36,000 units, and that in 2011 that number is projected to be surpassed by more than 11 percent to breach the 40,000 units sold mark.

This was revealed by Paul Vincent Chua, associate director for valuation and advisory services and head of consultancy and research.

Top 5

“There are a lot of developers who performed well this year, however, in terms of condominium units sold in Metro Manila, SM Development Corp. remains to be number one. The top five include developers Ayala Land Inc., Century Properties, DMCI and Megaworld,” said Chua.

Enrique Soriano, professor at the Ateneo Graduate School of Business and senior adviser at Wong+Bernstein Business Advisory, also cited Megaworld, ALI, SMDC and Robinsons Land Corp. (RLC) as the top-performing developers in 2011.

Soriano also added that the property sector in 2011 “was single-handledly fueled by private initiatives.”

Soriano also observed “no movement in the high-end condominium segment, and aggressive construction frenzy in the mid-income condo segment representing 80 percent of all residential developments in 2011.”

4% vacancies

Chua said that in terms of commercial space uptake, the demand from the BPO sector is still remarkably high.

“If you look at vacancies in Makati, Bonifacio Global City, and Ortigas, the average vacancy for the third quarter is now less than 4 percent compared to the same period last year, which had an average vacancy rate of more than 6 percent. Even with the (addition of a) number of planned office developments in the next couple of years, we expect vacancies to remain low as the demands for these spaces are still very high.”

Soriano said the industry’s strength was “focused on the vertical developments and the BPOs and the emergence of new growth centers following the success of Eastwood and BGC.”

But have there been any downsides to this year’s flurry of developments? “The singular focus on the mid-income segment, and neglecting other asset classes,” replied Soriano. He reasoned, however, that the property sector was just keeping up with “unmet demand, fueled by buyer demand, especially (from) overseas Filipino workers (OFWs) and overseas Filipino expats (OFEs).

Morale booster

The positive analyses for 2011 and the strength of the Philippine real estate industry this year come as a morale booster, coming at a time when the city of Manila has recently been tagged as “below fair” to “abysmal” by foreign investors in the Emerging Trends in Real Estate Asia Pacific 2011 survey conducted by the Urban Land Institute.

Global real estate investors, who participated in the survey, gave Manila a score of 4.56 points out of a possible 9. Topping the survey in the Asia-Pacific region was Singapore with a score of 5.96 points, followed by Shanghai with 5.87, Mumbai with 5.79 and Hong Kong with 5.70.

Chua countered that the Philippines has been one of the few countries in Asia where foreign land ownership is limited to 40 percent. He urged the sector to look at the brighter side, particularly the lower rental rates compared to other Asia-Pacific countries.

He pointed out that for the office sector alone, with 25 Asia-Pacific cities covered by Colliers International, Makati City offers the third lowest rent, ranking No. 22 on the list with an average net rent of $21.48/square feet. The city that commands the highest rent, Hong Kong, has an average net rent of $185.91/square feet. Looking at the capitalization rate or prime yield of these cities, Makati ranked second with 9.77 percent, following topnotcher Mumbai with 10.6 percent.

Soriano said the low ranking was a wake-up call, and that the Real Estate Investment Trust law must now be implemented in the country, citing Hong Kong, Thailand, Singapore and Malaysia significantly benefiting from REIT. He added that implementing REIT would open more opportunities for investment.

The Other City by the Bay

2011-12-15

Philippines

The Philippine capital proves there’s more to the country than beaches

Though San Francisco has laid claim to the idea of being the world’s preeminent bayside city, Manila is currently on a mission to challenge that notion. Perched on the shores of Manila Bay, the capital of the Philippines holds a distinct and strangely overlooked position in Southeast Asia. A key strategic location for trade as far back as the 15th century, Manila was often the pawn in international power struggles, be it the Chinese, the British, the Americans, the Sultan of Brunei or the invaders that left the most lasting impression, the Spanish. Since being levelled by one of the bloodiest battles of the Second World War, Manila has been rebuilt more than once to make it the increasingly sparkly modern metropolis it is today.

The metropolitan area — which includes Makati, Quezon and Pasay — has a population greater than 16 million, and Manila proper currently ranks as the most densely populated city in the world. The city has a diverse economy anchored by one of the world’s busiest ports and includes heavy manufacturing, textiles, food processing, commodities processing and vibrant cultural industries such as publishing, filmmaking and sport. Relatively new Makati is the financial heart of the country, but Manila’s renowned nightlife (which some say puts Shanghai’s to shame) attracts approximately 1 million tourists each year, though many are en route to the traditional resort hotspots like Cebu, Boracay and Bohol.

The Philippine economy is a relatively strong performer and actually grew over 3 percent in the third quarter of 2011. However, remittances continue to outpace direct investment as a source for foreign currencies (up 6.3 percent in July 2011) and the Philippines’ status as the world’s exporter of labour is well documented — as are its regular political dramas. Things could be better, but they could also be much worse.

Given all those factors, where does Manila’s urban property market sit? “Currently the investment market in Metro Manila is heavily concentrated on residential condominiums and commercial buildings,” explains Paul Chua, Colliers International’s associate director of valuation and advisory services and head of consultancy and research in Manila. As Chua points out, residential sales licensing is improving (44 percent growth in new high rise projects), demonstrating a shift from houses to higher density condominiums. “If you compare the investment climate from the likes of Singapore or Hong Kong, Metro Manila land values are on the lower end of the spectrum. This shows the upside for investments in the Philippines as the property sector is still undervalued compared to other Asian countries.” Does that make it a Hong Kong or Singapore in the making?

Not quite yet. Chua goes on to note that Philippine law makes investment tricky, and concentrated on local investors for the time being. “The main hurdle for foreign investments is that in the Philippines foreigners are only allowed to purchase 40 percent of land holdings. This, together with the unsuccessful launch of the REIT law, keeps foreign investments at a minimum. Although we do see a lot of foreign investments in other industries and investments in some real estate projects the 40 percent rule limits their scope.”

But for patient investors there is indeed a luxury market to tap into. Manila’s burgeoning shopping and entertainment districts like Ermita and Malate have been given substantial facelifts in the last few years, and major developers are starting to notice and plan projects nearby. “This year was a big jump for luxury market in the Philippines,” says Chua. “With the near completion of the Raffles Residences by Kingdom Hotels as well as the announced Trump Tower (under license from Trump Organization) and the near sold-out Milano Residences (partnership with Versace Homes), both by Century Properties, [we] saw the emergence of the luxury segment in branded residential.”

So what might 2012 look like if all legalities remain the same? Depending on what kind of investment one is willing to make and how much control is or isn’t needed, staying in Manila is an option. “We will see a lot more tourism-oriented developments as the government continues to make strides in their infrastructure projects,” begins Chua. “There will be more mixed-use developments as a key strategy for developers as this will maximise the returns on a large plot of land.” With business on the upswing the office sector is the fastest growing segment of the property market — and it will remain that way. Rental rates in Makati are rising across the board and Colliers expects them to continue doing so into 2012. Not surprisingly, Makati’s luxury residential rates are following suit. “My sense is that the market will remain upbeat with residential offerings, I see more low-cost and affordable buildings outside the main business districts … With the minimum VAT threshold for residential units being adjusted for inflation in 2012, residential units will be more affordable next year.”

Affordable condos gain foothold in metro

2011-12-02

Tessa Salazar

Manila Philippines

Will we see more condominiums than house and lots in 2012? What specific locations would condominiums gain a dominant foothold of? Property analysts believe condos will take over the metropolitan areas, while subdivisions will stake their claim in the provinces.

Colliers’ International claims it has been observing this trend for some time now.

Paul Vincent Chua, associate director for valuation and advisory services and head of consultancy and research of Colliers International, a leading global real estate services company, says his team had noticed since 2009 the abundance of affordable, smaller condominium units with stretched payment terms; their growth fueled primarily by the BPO industry, which has spurred the demand for condominium housing in Metro Manila.

“However, the traditional house and lot remains to be preferred, as expected, in provincial cities. Only in key cities are condominiums being preferred over house and lot developments. These are, mainly, Metro Manila, Cebu and Davao. We also saw a decline in HLURB (Housing and Land Use Regulatory Board) licenses to sell for horizontal developments, and a huge increase for vertical developments. It won’t take long until we see former bedroom communities accept condo-living as a substitute,” Chua says.

Enrique Soriano, professor at the Ateneo Graduate School of Business and senior adviser at Wong+Bernstein Business Advisory, says this particular asset class will likely be sustained in 2012. Just last week, Soriano called the condominium take-over in the metropolis a “construction frenzy” of mid-income condominium developments.

This trend (vertical developments in key cities), he added, would also be likely seen in Iloilo, Bacolod and Cagayan de Oro as well as leisure destinations like Boracay and Baguio City.

Alejandro S. Mañalac, National Real Estate Association chair, says subdivisions and housing, especially those targeting first-home buyers, will always enjoy high demand as long as friendly financing continues to be available.

“In fact, that is where the real shortage is. Affordable, family-oriented condominiums will also be very popular next year. You will be seeing a lot of these types of developments in Quezon City and in the fringes of CBDs next year. The good thing about this is that buyers of these types of projects are real end-users,” Mañalac explains.

Leading condo developers

Four months ago, property giant Ayala Land Inc., through its Alveo Land, launched its first mid-rise condominium in Angeles City called the Marquee Residences. Last month, ALI announced its foray in vertical developments through Amaia’s condominium projects with prices ranging from P1.1 to P1.3 million per unit.

Robinsons Land and Federal Land also recently launched the Axis Residences, 150 meters away from the MRT Boni Avenue station. Located on Pioneer Street in Mandaluyong City. Axis Residences stands within the compound of Robinsons Forum (Pioneer Mall) and Robinsons Gateway Residential and Office Condominium Complex. Located not only near a mass-transit system, it lies in the center of the three major business districts: Makati CBD, Ortigas Business District and Bonifacio Global City.

For its part, Megaworld subsidiary Empire East’s mid-income projects include Pioneer Woodlands, which stands just across the Boni MRT Station, and the San Lorenzo Place, at the corner of Chino Roces Avenue and Edsa, just beside the Magallanes MRT station. The Little Baguio Terraces in Greenhills, New Manila offers convenient access to the MRT/LRT2 for residents to gain easy access to any point in the metro. Megaworld also launched Manhattan Garden City in Araneta Center in 2006.

On Sept. 30, SM Development Corp. announced in its website that it has sold the most number of Metro Manila residential condominium units and reached highest sales volumes during the first half of 2011.

Other leading developers of affordable condominiums have been DMCI, which showcases natural lighting and ventilation in its projects; Phinma, which boasts some of the most reasonably priced units between Sucat and Alabang, and First Homes, which is offering the Aurora Heights at the LRT terminal in Quezon City in a relatively low-pollution environment.