The rise of revenge property investing in PHL

We've heard of revenge spending and dining in 2022 and 2023 and how personal consumption expenditures helped sustain Philippine economic growth the past two years. Filipinos also did a lot of revenge travel in the past 24 months, resulting in a substantial increase in domestic tourists, local visitor receipts, average daily rates and hotel occupancies across the Philippines.

But what appears to be becoming mainstream now is revenge investing. And massive property investments are not just trickling in from the affluent market but also from the young and millennial workforce. In fact, some developers are actively targeting this young segment given their rising purchasing power and the potential of their disposable incomes to further surge in the years to come.

What’s also quite surprising is that these young buyers of residential units are acquiring properties not just for end-use but also as investments, banking on the properties’ live-work-play-shop features, proximity to public infrastructure, and the units’ attractiveness as possible sources of passive income once turned over.

Understanding Demand for Luxury Units

While the millennial buyers help fuel the demand for affordable to lower mid-income residential units and have become a key segment to target for some developers, we cannot deny the fact that the demand for the upscale to luxury units remains strong, with take-up mainly coming from the affluent market.

Colliers has seen the upscale and luxury segments’ resilience even at the height of the pandemic in 2020 and 2021. Now that the property market is rebounding, especially the residential market, developers are lining up their luxury projects to tap demand from an affluent and discerning segment.

Over the past few years, local developers have aggressively partnered with foreign firms and we see more pronounced joint ventures (JV) with foreign property firms moving forward.

Take-up  for upscale to luxury projects remains strong with demand focused on major business districts such as Fort Bonifacio, Makati CBD and Ortigas Center. Colliers believes that the luxury and ultra luxury segments will likely remain resilient amid the rising interest and mortgage rates. We attribute it to investors mainly banking on the capital appreciation potential of these upscale and luxury residential projects.

Room for Price Acceleration

Colliers sees the rising interest rates as among the headwinds in the residential market, especially their potential impact on mortgage rates.

Despite higher interest rates, Colliers has seen a stable demand for upscale to ultra luxury condominium projects in Metro Manila. Over the past few years, we have also recorded a healthy level of price increases for these residential projects. 

Colliers Philippines believes that the increase in prices will only result in investors and end-users looking for greater amenities as well as innovative facilities.

Due to Metro Manila traffic, there will be greater demand for connectivity to master planned communities and topnotch concierge services.  With more luxury and ultra luxury projects being launched in Metro Manila, Colliers Philippines sees the rise of more discerning buyers. Hence, developers need to further innovate and differentiate in a highly competitive luxury residential segment.

Based on regional prices, it appears that there is still room for further expansion of Metro Manila prices on a per square meter basis. What we can conclude based on this regional comparison is that the Philippines is barely scratching the surface. The price per square meter of Metro Manila’s most expensive condominium units is much cheaper compared to the most expensive ones in more affluent cities such as Hong Kong, Tokyo, and even Bangkok.

Sustained Growth to Fuel Property

Overall, we are optimistic with the Philippines’ strong macroeconomic fundamentals. The Philippine economy continues to expand despite soaring commodity prices and global geopolitical headwinds. The country remains one of the fastest-growing economies in Asia, primarily backed by resilient personal consumption and private investments.

Sustained recovery is likely to benefit major economic sectors including property development. The luxury and ultra luxury condominium segments showed resilience during the pandemic. Hence, it won’t be startling to see these developments proliferating in the near to medium term as the Philippines recovers from the pandemic.

The luxury and ultra luxury projects are also likely to benefit from the reopening of Philippine tourism and the return of foreign employees. Affluent investors are likely to continue buying luxury units as they upgrade, bank on potential price appreciation, and look for a viable hedge against inflation.

Cashing in on Property's Viability as an Investment Option

Revenge property investing is likely to persist, especially for the Philippines where investors do not have several options to choose from. Colliers sees young buyers and the affluent investors continuously looking for residential units that have strong rental prospects and potential for price appreciation.

Colliers Philippines believes that developers should highlight their projects’ attractiveness for lease or potential for capital value growth, whether targeting local buyers or foreign investors.

With tempered launches and availability of substantial number of ready for occupancy (RFO) units in Metro Manila, we expect aggressive marketing initiatives from property firms over the next 12 months. Developers should also curate promotions and offerings based on their target markets, whether overseas Filipino workers (OFW), young local investors, or the experienced and fluent buyers.

Source: Business World

Philippine property to benefit from REIT expansion, diversification

Colliers Philippines has been seeing exciting and innovative developments in the Philippine real estate investment trust (REIT) sector.

Property firms are maximizing REIT benefits and we see more property firms utilizing REITs to fuel their expansion within and outside Metro Manila as well as extend their exposure into other property segments.

The Philippine REIT market is primed for further diversification and developers should be on the lookout for other assets that can be divested into their REIT companies.

Colliers believes that the further diversification of the Philippine REIT market bodes well for property firms, investors, and the Philippine property market in general.

Moving forward, Colliers sees an aggressive expansion of REIT companies in the Philippines. We even see some firms exploring the feasibility of divesting other asset classes including business parks, data centers, as well as co-working and co-living facilities. We even recommend that firms explore the viability of infrastructure and renewable energy projects.

In our view, further expansion and diversification of the Philippine REIT landscape is likely to benefit the country’s infrastructure development plan. We even see it supporting the Marcos administration’s push to ‘Build, Better, More.’

REIT firms and stakeholders should be mindful of the regulatory environment that they are operating in and should be updated of the proposed amendments to the REIT Law and how new measures and provisions are likely to stall or advance the sector.

Colliers encourages property firms to further test the market to capture opportunities from a constantly evolving and developing Philippine REIT sector. Diversification will be the name of the game.

Colliers encourages the government to be more supportive of developers’ REIT undertaking. The challenge for lawmakers and members of Executive department is to foster an accommodating and inclusive regulatory framework to ensure that  Philippine REITs become among the most competitive in the region. The advancement of Philippine REIT should not be stalled by any regulatory gridlock.

MONITOR REIT LAW AMENDMENTS

The House of Representatives has approved on third and final reading a bill seeking to amend the REIT Law of 2009. The bill’s features include requiring REITs to reinvest their proceeds “within one year from receipt of proceeds realized by the sponsor or promoter.” REITs are also required to submit a reinvestment plan to the Securities and Exchange Commission and Philippine Stock Exchange and secure a certification annually to prove that it is compliant with its reinvestment plan.

Colliers encourages REIT developers to constantly monitor the progress of these proposed amendments. A counterpart bill has yet to be filed in the Senate.

DIVERSIFY PORTFOLIO

Developers with REIT firms have been divesting other asset classes into their REIT vehicles to take advantage of the property market’s rebound. At the height of the pandemic, developers only divested office assets. As the government relaxed COVID-related restrictions and more economic segments reopened, other property sectors such as retail, hotel, and industrial also saw gradual recovery, making them viable asset classes to be utilized for REIT listing.

Non-traditional asset classes such as infrastructure projects (including toll roads), cold and self-storage facilities, data centers, and hospitals can also be infused into the property firms’ REIT vehicles to further attract more investors.

Developers should also explore the viability of other asset classes that generate recurring income such as co-working spaces and co-living facilities. Firms in other Asian countries even infuse business parks into their REITs and the feasibility of this asset class should also be explored moving forward.   

ASSESS OPTIMAL REIT PORTFOLIO MIX

Colliers believes that developers should assess the ideal portfolio mix that will provide the optimal yield for investors. Property firms should consider divesting asset classes that will provide highest dividend to investors based on these asset classes’ performance in the market.

Office and industrial are usually part of developers’ portfolio mixes but property firms should also look at other viable assets in the future, including retail and hotel.

LAUNCH OF RETAIL REITs

Colliers believes that property developers with retail footprint should consider divesting malls into their REIT portfolio especially now that the retail segment is recovering.

Malls generate recurring income and are now a viable REIT asset class as vacancies are declining and lease rates are starting to increase.

In our view, developers should carefully assess which retail outlets to add to their REIT portfolio and should consider projected mall space absorption as well as profiles of retailers willing to take up brick-and-mortar spaces.

Developers should take advantage of renewed interest from foreign retailers as well as continued growth of Philippine economy, mainly driven by personal consumption.

Source: Business World

Gov’t urged to invest in offshore wind projects

The Government needs to consider coming in as an investor in offshore wind energy projects, an industry official said.

“Offshore wind is a big undertaking. Maybe the government wants to also have a stake there because… it’s huge in scale,” Jose M. Layug, Jr., president of the Developers of Renewable Energy for Advancement, Inc., said on the sidelines of a launch event last week.

Mr. Layug noted that PNOC Exploration Corp., a subsidiary of the state-owned Philippine National Oil Co., holds a 10% interest in Service Contract 38, or the Malampaya gas field development project.

“Maybe, government might want to be part of that first offshore wind project. I raised that earlier so the government could consider it,” he said.

Asked to comment, Energy Secretary Raphael P.M. Lotilla said any government venture into offshore wind would depend on the availability of funds.

“It depends on the availability of financing, but there are other ways where government can assist,” he said at the same event.

Mr. Lotilla said that the government can assist in terms of rights acquisition for users of submarine resources, the sea floor, and offshore areas.

“Where government can facilitate, we should be open to consider facilitating,” he said.

The Department of Energy (DoE) has awarded 82 offshore wind energy service contracts, with a potential capacity of 63.359 gigawatts (GW).

These projects are located in the north of Luzon, west of Metro Manila, north and south of Mindoro, Panay, and the Guimaras Strait. All these projects are currently in the pre-development stage, with proponents conducting assessments on resource volumes, site suitability, and project viability.

The DoE and the Asian Development Bank initially identified at least nine ports which can be upgraded or repurposed to service offshore wind operators.

Under the Philippine Offshore Wind Roadmap, the Philippines has an estimated potential capacity of 178 GW from offshore wind resources.

This is expected to help the Philippines achieve its aim of increasing the share of renewables to 35% by 2030 and 50% by 2040.