POGO ban may expedite exit from ‘gray list’

The recent ban on Philippine offshore gaming operators (POGO) would help expedite the country’s exit from a global financial watchdog’s “gray list” of jurisdictions under increased monitoring for money laundering risks, the central bank governor said.

“With the POGO ban, we do see a drop in money laundering, which should help us exit the gray list,” Bangko Sentral ng Pilipinas (BPS) Governor Eli M. Remolona, Jr. said.

Last week, President Ferdinand R. Marcos, Jr. ordered a total ban on all offshore gaming operations due to their ties to illicit activities such as financial scams, money laundering, prostitution and human trafficking.

Mr. Marcos directed the Philippine Amusement and Gaming Corp. (PAGCOR) to shutter all POGO facilities by the end of the year. 

This comes after the Financial Action Task Force (FATF) in June kept the Philippines in its gray list for a third straight year.

The global watchdog said the country still needs to address three remaining action items, one of which is “demonstrating that supervisors are using anti-money laundering and counterfinancing of terrorism (AML/CFT) controls to mitigate risks associated with casino junkets.”

Mr. Remolona earlier said the Philippines would likely exit the gray list by next year as it still needs to address the remaining deficiencies cited by the FATF.

From 2018 to 2023, the Philippines was among the top five countries in Southeast Asia with money laundering activities added over the five-year period, earlier data from Moody’s showed.

The number of money laundering events added in the Philippines jumped by 45% from 2022 to 2023, it said.

Chester B. Cabalza, founding president of Manila-based International Development and Security Cooperation, said Mr. Marcos’ order to ban POGOs would encourage more “legitimate” investments to enter into the country.

“With the expected ban, the Philippines may be relieved with the gray list tag and re-strategize for fulfilling more legal and moral entertainment investments for the inclusive growth of the country,” he said via Facebook Messenger.

Bienvenido S. Oplas, Jr., president of a research consultancy and of the Minimal Government Thinkers think tank, said the POGO ban would be a “big push” for tourism in the country.

“When POGOs are banned, then gamblers from China will be forced to travel to the Philippines and do their gambling in big casinos,” he said.

Mr. Oplas noted that the POGO ban should not be rushed due to its impact on the property market.

On the other hand, Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said there are still many other sources of money laundering aside from POGOs.

“(POGO) might not even be the main vehicle for money laundering in the Philippines,” he said via Facebook Messenger chat. “POGOs offer online gambling catering to a foreign country, specifically China. But what about online gambling within the Philippines? What about the proliferation of physical casinos in the Philippines? Money laundering thrives in said activities and places.”

Mr. Sta. Ana noted that there are many sectors that are vulnerable to money laundering.

“There are many ways to launder money — real estate, mineral extraction, setting up shell companies, establishing low-key businesses, purchasing artworks, jewelry, luxury automobiles, etc. A major step to get out of the gray list is to lift the strict secrecy rules on bank deposits.”

IMPACT ON BANKS

In a separate report, Fitch Ratings said the Philippine financial system is resilient enough to withstand the spillover effects of the POGO ban.

“The government’s ban on POGOs may hurt Fitch-rated banks’ asset quality and performance, but their loss-absorption buffers will be sufficient to withstand associated losses, which are likely to be limited in scale,” it said.

Banks have ample buffers to “absorb POGO-related losses without pressuring their current standalone viability ratings.”

“Moreover, banks’ record-high margins and higher loan growth — the key drivers of our ‘improving’ sector outlook for Philippine banks — are likely to compensate for higher credit costs associated with potential new impairments from the POGO ban,” it added.

The Philippine banking industry’s net income rose by 2.95% to P92.107 billion at end-March, latest data from the central bank showed.

Separate data showed that bank lending grew by 10.1% in May to P12 trillion, the fastest in 14 months.

Fitch Ratings noted that POGOs’ influence on the property market has waned due to tighter regulations. Travel restrictions also affected the sector, which is heavily dependent on workers from China, it added.

“One property consultant, Colliers, has indicated that POGOs currently occupy 3.5% of Metro Manila’s office stock, down from 10% in 2019, with most large developers’ leasing portfolios having at most a 5% exposure,” it said.

It also said real estate developers have been limiting their exposure to POGOs. The expected vacancies from the ban “may also pressure rental yields, with broader impacts on real estate firms.”

“Most of these large players have diversified real estate portfolios, so these effects could also be offset partially by better residential sales if interest rates fall as we expect in the second half of 2024 and 2025.”

With this, Fitch said banking-asset impairments from real estate companies would be “relatively contained.”

Fitch data showed that the residential mortgage nonperforming loan (NPL) ratio improved to 7% in the first quarter of 2024 from 9.6% in the third quarter of 2021, though this was still higher than pre-pandemic levels.

It said this “reflects in part a fallout from speculative activity and more lax housing loan credit standards during the POGO boom years in 2016-2019.”

“Since then, many banks have become more averse to lending to POGO workers, given high policy risk,” it added.

Property-related losses due to closures from the ban are also not expected to be significant for banks.

“Even in the event of a greater impact than we anticipate, regulations require banks to demonstrate common equity Tier 1 (CET1) and total capital ratios of 6% and 10%, respectively, after writing off 25% of their real estate exposures. This should ensure that loss-absorption buffers are aligned with their exposure to the sector,” it added.

Source: Business World

Could a ban on POGOs hurt the property market?

Amid the Alice Guo saga and continued raids on illegal Philippine offshore gaming operators (POGOs), calls to completely ban these enterprises have been gaining political traction. But from an economic perspective, could a ban on POGOs hurt the property market that it once caused to thrive?

In the short term, a ban on POGOs will certainly still bite, but the office and residential sectors no longer seem as “ultra-dependent” on the industry as it was before.

“The question there is how dependent are we, the market, on them? Today, the amount of square meters that they’re taking up is negligible compared to the take-up they had [before],” Leechiu Property Consultants commercial leasing director Mikko Barranda told Rappler.

Data from Leechiu Property Consultants (LPC) show that POGOs now make up less than 11% of total gross demand for office space in the country, which is already lower than the nearly 16% in the first half of 2023.

Industry share of office sector

Based on gross demand for office space in square meters

It’s also a far cry from pre-pandemic figures when POGO operations were at its peak. At one point, POGOs were a main driver of leasing demand in Metro Manila. Barranda said that in 2019, POGOs made up “easily a quarter” of demand for office space – around 300,000 square meters or 7 to 8 times what they have today.

All that changed after the pandemic hit. POGOs packed up their operations and workers fled the country, leaving offices empty in their wake. In the third quarter of 2020, office vacancy rates in Manila climbed to 7.1%. At the time, POGOs vacated 277,000 square meters of space, leading to P1.4 billion in office rent losses.

By October 2022, LPC estimated that the figure had ballooned to a total of 630,000 square meters of vacated POGO office space since the onset of the pandemic in the first quarter of 2020.

Even as the pandemic sizzled down, China was slow to ease travel restrictions. Meanwhile, the Philippine government under the Marcos administration began to crack down on POGOs and tighten regulations. This meant that many of the POGOs that initially fled when the pandemic hit never returned.

The effect of all this? A ban on POGOs would “still be a dent,” the property expert said, considering that they still account for about 75,000 square meters in gross demand for office space. However, much of the “shedding” of POGO office space has already happened, leading the market to recalibrate around their absence.

For instance, the DoubleDragon Plaza in the Bay Area used to predominantly cater to POGOs. The 11-story office complex had over 130,000 square meters of leasable space that could have been at risk of sitting empty. But LPC observed that the property has successfully pivoted to serving government and private sector offices.

“Because their [POGOs] take-up has been negligible, it’s good to also reassess that we’re not ultra-dependent, meaning the market’s still good because other demand drivers are helping the market,” Barranda said.

But the POGOs that have remained within Metro Manila – largely concentrated around the Bay Area in Pasig and Parañaque – seem to be going strong. Unlike in previous quarters, no POGOs terminated their office space leases in the second quarter of 2024. Some even expanded into other buildings in the Bay Area.

Still, Barranda described POGOs as “similar to any other business now.”

“They need to grow, they take space. But unlike before where they were taking space speculatively – meaning they will lease an entire building and then find a way to fill up that building – now they take space according to what they need,” Barranda said during Thursday’s media briefing.

Moving forward, it seems unlikely for POGOs to make a major comeback in the office market anytime soon. LPC’s live demand data – which combines inquiries, site inspections, and ongoing negotiations – show that only a few POGOs are looking for new office spaces. Of the 298,000 square meters of live demand in Metro Manila, 51% of that is from traditional companies, 41% from IT-BPM companies, and just 8% from POGOs.

And unlike the previous administration, the government under Marcos is no longer extending a welcoming hand to POGOs. National Economic and Development Authority Secretary Arsenio Balisacan argued that the Philippines may be better off without POGOs, since its social costs outweigh the billions in revenues that the sector brings in.

“It may be a big number, but the cost, particularly the social cost of POGOs are quite high. We are trying to position our country as a legitimate place for business. We are trying to attract investors to come, tourists to come. The least that we want is to have a reputation that criminals are here, things like that,” Balisacan said.

“The social cost, the way we view at NEDA, may not be worth those revenues. Because if you succeed at generating those jobs anyway, we will get much more than what we lost,” he added. “There are a lot of other opportunities for the country, for the economy, and for our workers.”

POGOnomics: Weighing the costs and benefits of POGOs

POGOs disrupted Bay Area residential prices

When it comes to residential properties, it seems that those who were riding on the POGO phenomenon have already begun to cut their losses.

“While most of the investors who bought units to house the POGOs are local Filipino-Chinese investors, they have already started selling these residential units. It’s a large decline, and if the POGO sector starts to shrink further, then it will likely impact these locations,” LPC research and consultancy director Roy Golez Jr. said, specifically referring to the Bay Area, and parts of Alabang and Makati.

The exodus of POGOs has already disrupted rent and property prices in the Bay Area, where entire buildings were built and sold to investors looking to rent them out to POGO workers.

“The [rent] yields are all over the place. Near the casinos, better yield. Where there were POGOs before, bad yield,” Golez told reporters.

The business districts of Makati and Bonifacio Global City or BGC will be “largely impervious” to any changes to the POGO sector, Golez added.

Where is growth in property market coming from?

Even without POGO money fueling property development and leasing like in days past, LPC views the market as “resilient.”

Demand for the Philippine office market continued to grow in the first half of 2024, with a 24% increase in transactions compared to the same period in 2023. Occupiers are either expanding or relocating from old buildings to newer ones.

Growth in the office market was particularly strong in the information technology and business process management (IT-BPM) sector and government sector. Transactions for IT-BPM rose by 13% from first half of 2023 to first half of 2024, while leasing activity for government agencies increased by over sevenfold in the same period.

The historically POGO-dominated Bay Area is also continuing to diversify, with 68% of office leasing demand in the Bay Area coming from the government sector in the second quarter of 2024, according to LPC.

Sales for residential condominiums in Metro Manila also went up by 6.5% in the second quarter of 2024 after shrinking for the past three quarters. However, LPC still advises a “cautious stance” for condominium project launches in the metro, with developers still needing to address inventory concerns. Around 3% of ready-for-occupancy units and 21% of pre-selling units remain unsold.

More opportunities may also lie a stone’s throw beyond the National Capital Region, particularly in townships south of the metro near expressways. Listed below are the compound annual growth rate or CAGR of property prices in different townships in Cavite and Laguna, as gathered by LPC:

1. Forresta: 14.8%

2. Ciela at Aéra Heights: 11.4%

3. Southmont Lanewood Hills: 13%

4. Southmont Verdea: 7%

5. Maple Grove: 17.8%

6. Arden Botanical Phase 1: 20%

7. Arden Botanical Phase 2: 10%

8. Riverpark: 26%

9. Nuvali Arcillo: 7%

10. Rockwell South: 15%

11. 
    

“It’s indicative that the price growth for residential communities south of Metro Manila has been growing almost all in two digits,” Golez said.

Source: Rappler

Property consultancy firm estimates POGO exit losses

Property constancy firm Leechiu Property Consultants, Inc. (LPC) said the complete exit of the remaining Philippine offshore gaming operations (POGO) would exacerbate the constraints placed by the pandemic on the real-estate sector.

David T. Leechiu, LPC chief executive officer, said the full exit of the POGO industry will bring a higher incidence of foreclosures for the office sector as well as drop rental rates in the country.

“A full exit of the POGO industry is expected to not only accumulate further losses in sources of income and tax but also increase office vacancies and push rental rates further down than the pandemic,” Leechiu told reporters in a briefing.

Based on industry data, the cumulated losses of the office space segment already amounted P45 billion since the pandemic began in 2020.

If the government decides to ban POGOs in the country, around 1.05 million square meter additional official space will be vacated by offshore gaming firms, resulting in another P18.9 billion in rental fee losses.

Moreover, Leechiu said around P28.6 billion in annual housing rentals from POGO’s 2.4 million square meter residential space will also be lost from the exit.

Aside from the property sector, other industries, such as utilities, services, and the government, would also feel the pinch from failing POGOs.

Leechiu noted that for electricity alone, a full POGO exit would cost power distribution companies about P9.8 billion in unrealized income.

For the services sector, the estimated loss was at P11.4 billion, representing POGO’s spending on commissary meals. Another P952 million in daily spending will also be incurred.

Contractors for fitting out office buildings would also suffer an estimated annual loss of P52.5 billion, Leechiu said.

For the government, Leechiu said the Philippine Amusement and Gaming Corp. will forego P5.25 billion in regulatory fees, while the Bureau of Internal Revenue (BIR) is poised to lose P5.8 billion in taxes.

In addition, Leechiu said the BIR could no longer collect around P54.3 billion to P57.1 billion in income taxes from foreign POGO employees.

Local employment will also be affected, as about 347,000 Filipino jobs rely on the POGO sector, he said.

“We’re going to get another economic driver, the POGO sector, which is so critical also to the economy, and we’re going to try to shut them down,” Leechiu said. “This is not the time to shut things down. This is the time to increase the momentum of the economy.”

He admitted that illegal POGOs bring in some social ills to the country, “but I think the hardest social ill is joblessness, underemployment and underpaid workers.”

Instead of a total POGO ban, Leechiu suggested that the government should strictly enforce the law .

“Shutdown or process those illegal POGOs to make them legal. Enforce drug enforcement. Don’t allow people to get kidnap, I don’t know how you do that, maybe better technology to secure the population,” he said concluded.

Source: Manila Bulletin