President Marcos’ 3rd SONA: What’s in it for PHL property

President Ferdinand R. Marcos, Jr.’s third State of the Nation Address (SONA) highlighted crucial issues that will have a direct or peripheral impact on Philippine property. From the improvement of the country’s infrastructure network to the upskilling of potential workforce,

Colliers believes that these pro-business reforms will play a pivotal role in resuscitating Philippine property post-pandemic. While challenges remain, including business registration bottlenecks, President Marcos’ last SONA infuses much-needed optimism, particularly in stoking the property segment, which is being positioned as one of the key job and livelihood-generating sectors of the Philippine economy.

Tourism was also highlighted, which has great potential to employ Filipinos living in the countryside. What’s encouraging is that the president also addressed the country’s costly electricity and measures that can be implemented to plug power shortages. This should play a key role in revivifying the Philippines’ manufacturing competitiveness, which should enable the country to attract much-needed foreign direct investments.

IMPROVEMENT OF PHYSICAL AND DIGITAL INFRASTRUCTURE

President Marcos committed to infrastructure development that is ‘sustained, strategic, and on schedule.’ We expect the president to continue allotting 5% to 6% of the country’s GDP to infrastructure. Previously, he ordered ‘full speed ahead’ to amplify his administration’s goal of ramping up and hastening infrastructure implementation across the country.

This is basically a continuation of the level of spending implemented under the previous administration. The strategy is definitely not just Metro Manila-centric. Based on the projects mentioned by the president, among the provinces likely to benefit from this infrastructure program are Bulacan, Cavite, Laguna, Batangas, Pampanga, Zamboanga, Lanao del Norte, and Misamis Occidental.

Colliers previously highlighted the importance of infrastructure projects in raising the attractiveness of office and residential projects, especially outside Metro Manila. This is likely to be supported by decentralization, which the president previously stressed.

We also highlighted the importance of infrastructure in raising land and property values as they improve people’s mobility. We believe that this infrastructure blueprint will play a crucial role in guiding developers’ landbanking and expansion plans. Hence, developers should be on the lookout for the progress of these projects.

UPSKILLING OF FILIPINO STUDENTS

The president emphasized the need to focus on technical-vocational education and training (TVET). This is important in ensuring that the Filipino workforce is globally competitive. The Department of Education, Commission on Higher Education, Department of Labor and Employment, and Technical Education and Skills Development Authority have incorporated TVET into the Senior High School curriculum to further boost the employability rate of students.

This should be complemented by the president’s earlier push to use English as our medium of instruction. In our view, these are important in retaining our edge in the outsourcing sector, especially for higher value services or Knowledge Process Outsourcing. This should also support the government’s goal of attracting more BPO investments and generating more employment opportunities.

More BPO investments could potentially raise the demand for office space in Metro Manila and other key urban areas such as Cebu, Iloilo, Bacolod, Davao, and Clark in Pampanga.

The new Education Secretary should ensure the implementation of a curriculum that will help bridge job mismatch and ensure that college graduates are equipped with skills that will make them employable after graduation.

MULTI-FACETED STRATEGY IN PROMOTING TOURISM

President Marcos highlighted the important role that tourism plays in generating jobs, especially in the countryside. He stressed the need to improve roads and international airports to enable the Philippines to accommodate more tourists. In 2023, the tourism sector contributed about 8.6% to the country’s GDP, lower than the pre-pandemic level of 12.8% in 2019 — the year when the Philippines attracted the most number of foreign tourists at about 8.2 million.

Colliers believes that the gradual recovery of tourism augurs well for the country’s economy, including property players that have established their own leisure-related businesses. In our view, the modernization of airports and development of access roads should guide developers that are planning to build hotels and Meetings, Incentives, Conferences, and Exhibitions  facilities outside the capital region.

The improvement of infrastructure should also boost the Philippines’ international travel and tourism competitiveness, and this should entice more foreign investors to invest in the country’s leisure sector.

CONTINUED SUPPORT FOR OFWS

President Marcos also highlighted his administration’s programs for Filipinos working abroad. During his SONA, he mentioned that partnerships with like-minded states have resulted in increased investments and strengthened national security, but also quality jobs for Filipinos seeking employment overseas. This should support the continued deployment of migrant workers and sustain the inflow of remittances.

Colliers sees the growth in remittances partly supporting the demand for horizontal units, particularly projects that are within the affordable to mid-income (P2.5 million to P7 million) price segments, and projects located within the Central Luzon and Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon) regions, which accounted for about 29% of deployed overseas Filipino workers (OFWs) in 2022. We have observed sustained take-up for house-and-lot and lot-only units in provinces including Pampanga, Bulacan, Cavite, Laguna, and Batangas.

EASE OF DOING BUSINESS AND ADDRESSING COSTLY AND INSUFFICIENT POWER

President Marcos highlighted that the government’s efforts to improve the ease of doing business through the digitalization, integration, and streamlining of government services have produced ‘multiplier effects’. The government has also set in place policies and programs to create a conducive business environment through reforms in the capital markets and the implementation of ‘green lanes’. These measures should enable the country to attract greater interest from foreign firms, including manufacturers that take up space and warehouses in industrial parks.

We recommend that developers highlight the advantages of locating within an industrial park to potential locators. Industrial parks are flexible or easily reconfigured and have zoning regulations tailored for industrial uses. They also have modern infrastructure design such as well-maintained road networks. Locating in an industrial park could also be more cost-efficient as utilities, including water and electricity, are managed systematically.

According to the Department of Energy, electricity rates in the Philippines continue to be some of the most expensive in Southeast Asia. In our view, this will likely be a challenge, especially in attracting locators from power-intensive industries such as data centers.

BANNING OF POGOS

President Marcos has ordered the banning of POGOs. This created a lot of noise, especially in the property market, given that some developers aggressively chased the additional demand from this sector from 2017 to 2019. As my colleagues from Colliers Philippines’ Office Services-Tenant Representation team highlighted through their latest release ‘PBBM bans all Philippine Offshore Gaming Operators’, the share of office space occupied by the POGO sector has been dwindling.

At the peak of POGO demand in 2019, these offshore gaming firms from China occupied about a tenth of the total leasable office space in Metro Manila. This is down to only about 3.5% as of this writing. The latest office deals from POGOs have been ‘sporadic’ at best. It appears that the POGO sector is no longer a major player in terms of office space take-up in Metro Manila, with the latest Colliers Philippines commentary stressing that future absorption will likely come from IT-BPM firms, MNCs, and traditional occupants including government agencies.

Source: Business World

More investments in infrastructure development needed to ensure growth

More investments in infrastructure assets are needed to unlock faster growth rates for emerging Asian economies like the Philippines, S&P Global said.

“A marked improvement in infrastructure and logistics will support the next leg of growth for the emerging markets of Asia,” it said in a report.

“Economies can unlock higher growth rates through accelerated investment in infrastructure assets on top of infrastructure efficiency gains.”

S&P Global said that efficient and improved infrastructure will underpin robust growth in emerging Asia-Pacific, excluding China.

If infrastructure projects are accelerated, it said the Asia-Pacific region can nearly double its economy to $11.4 trillion by 2033 from $6.6 trillion in 2023.

“This translates to an annual real growth rate of about 5.5%. Our baseline forecast incorporates improved infrastructure as a cornerstone supporting these strong growth outcomes,” S&P Global said.

In the region, several governments, such as the Philippines, Indonesia, India, Malaysia and Vietnam, are prioritizing infrastructure development in their policies and reforms.

“The National Economic and Development Authority (NEDA) coordinates flagship infrastructure projects such as a new airport in Manila, a heavy rail project linking ports in Subic, Manila, and Batangas, and several highway projects,” it said.

Infrastructure is one of the Marcos administration’s priority investment areas. The NEDA Board has so far approved 185 infrastructure flagship projects with a total value of P9.5 trillion.

The flagship projects cover physical and digital connectivity, water resources, agriculture, health and energy, among others.

The government targets to spend 5-6% of gross domestic product (GDP) on infrastructure annually.

Latest data from the Budget department showed that infrastructure spending jumped by 18.2% to P335.7 billion as of end-April.

Meanwhile, S&P Global said the public sector usually undertakes more infrastructure projects, since the return on investments are spread over two or more decades “meaning duration risk for the private sector is high.”

Infrastructure operators may also find it difficult to turn a profit on these projects, putting more onus on the public sector.

“This does not rule out a role for the private sector. The private sector favors bottom lines and is hence better at innovating and can typically operate faster and more efficiently.”

“Private capital can ease the capital outlay burden on cash-strapped governments already committed to wide-ranging spending priorities. Still, the durations, regulated rates of return, and other project risks mean that the public sector dominates the space.”

S&P Global noted that the region’s public assets relative to economic size “have not been deepening significantly.”

It said that public fixed-investment assets are “relatively low” in the Philippines and Indonesia.

“However, in the Philippines and Indonesia public-private partnership (PPP) capital assets are higher than global averages. In the Philippines they are about 6.7% of GDP; in Indonesia it is about 4.2% of GDP, which would add to the available total public assets,” it added.

The government has also been pushing for more PPP projects. In December, President Ferdinand R. Marcos, Jr. signed the PPP Code, which seeks to streamline the framework for PPPs.

S&P Global said that the logistics sector has shown improvements in recent years.

“India and the Philippines have seen the largest improvement since 2014 whereas Vietnam, Thailand, and Malaysia saw more modest improvements. In Indonesia, the logistics performance score declined marginally.”

Antonio A. Ligon, a law and business professor at De La Salle University in Manila, noted that the government is “doing its best” to implement the necessary reforms to attract investments in infrastructure.

“However, the implementation of these measures must be strengthened. For example, an efficient implementation of the ease of doing business (and) effective marketing showcasing areas where infrastructures development can be done,” he said in a Viber message.

Nigel Paul C. Villarete, senior adviser on PPP at the technical advisory group Libra Konsult, Inc., said local government units (LGUs) must increase support to fast-track infrastructure projects.

“Oftentimes the National Government (NG) machinery is somewhat cumbersome rolling our projects,” he said in a Viber message. “Many of the upcoming projects may be achieved through PPP with the LGUs.  This will also free up the NG to just deal with the major ones.”

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said that infrastructure investments “have always provided a backdrop for economic growth in other areas of the economy.”

“New routes will have faster travel times, and economic efficiencies such as lower fuel costs may translate to lower prices of goods,” he said via e-mail.

“Resolving the traffic gridlock, whether through better and more railways or more efficient transport systems, allows commuters to spend more time doing other productive or economy-impactful activities instead of being stuck in traffic,” he added.

POWER

In a separate report, S&P Global also noted the need to increase investments in the power sector amid expectations of more demand.

“Power demand over 2024-2025 will grow 5-7% in India, Indonesia, and the Philippines, (and) about 3% in Singapore, Malaysia and Thailand.”

S&P Global said that increasing investments for the energy transition will “keep capital expenditures and leverage elevated.”

“Moderating fuel costs provide some relief to lagging generation and distribution firms,” it added.

In his State of the Nation Address on Monday, Mr. Marcos said that he expects the country’s power supply to “increase at a steady pace to meet our growing demand in the next few years.”

“Nonetheless, we are continuously diagnosing and urgently addressing power shortages, as well as the systemic causes of blackouts in unserved and underserved areas,” he added.

The government is aiming to increase the share of renewable energy in the country’s power mix to 35% by 2030 and 50% by 2040.

Source: Business World

Private construction still faces issues

National Economic Development Authority (NEDA) Secretary Arsenio Balisacan said on Friday that the country's private construction industry had not yet fully recovered after the pandemic, with investors pointing to right-of-way issues and the high cost of electricity as the biggest reasons for holding out.

"Construction has not yet fully recovered since the Covid-19 pandemic struck with the share of private construction declining relative to public construction. We need to substantially improve the investment climate for the private sector," Balisacan said during the Build Better More Infrastructure Forum held at New Clark City in Tarlac.

The socioeconomic planning chief attributed the slowdown to several factors.

"First, we expected some investor hesitation owing to initial policy uncertainty brought about by the elections in 2022. On the other hand, lingering and persistent inflation, and a challenging external environment, particularly a strong dollar in the past two years, led to the elevated interest rates we see today," he said, adding they will continue to invite foreign investors in the infrastructure.

Other factors are right-of-way issues when acquiring private lands for public use, the high cost of electricity and the ease of doing business.

It is for this reason Balisacan is pushing for Congress to pass the Right-of-Way bill into law to ensure infrastructure products are completed on time with an emphasis on the provision concerning the valuation of property, seen as a game changer in resolving conflicts between the government and private owners.

"We have gone back to Congress regarding the Right-of-Way law and through the Ledac (Legislative Executive Development Advisory Council) they agreed to pass that law within the remaining term of this administration. So with that, I think many of the problems we are encountering in the quick implementation of infrastructure projects will be resolved," he said.

The NEDA chief expressed confidence that by 2025, private construction would spike back to its pre-Covid numbers, if not more.

"But with public investments coming in strongly, that will be the signal for the private sector to come in, too, especially that regional and global community investment climate is improving, notwithstanding these geopolitical tensions, because that's another factor that can matter," Balisacan said.

Source: Manila Times