PH at risk from structural weaknesses, political row

Structural weaknesses and political volatility could pressure the Philippines' economic and fiscal performance, Fitch Ratings said on Wednesday.

The country's credit rating — an investment-grade "BBB" with a stable outlook — is being constrained by low GDP per capita, it also said in a report.

"Governance standards are weaker than at peers," the debt watcher noted, but added that World Bank indicators "somewhat overstate this."

Gross domestic product growth has slowed from a post-Covid pandemic rebound, it said, and will likely expand by 5.7 percent this year — up from 2023's 5.5 percent but below the government's 6.0- to 6.5-percent target.

Domestic demand will drive 2024 growth, Fitch said, and this will likely improve to 6.2 percent next year due to interest rate cuts, spending on infrastructure, and trade and investment reforms.

This outlook falls within the government's 6.0- to 8.0-percent goal for 2025 to 2028.

Fitch said the Philippines' rating reflected "strong medium-term growth" that would support the size of the economy — said to be large in relation to its "BBB" peers — and a gradual reduction in the debt-to-GDP ratio.

The latter is expected to fall from next year due to strong growth and lower fiscal deficits. The central government deficit was forecast to hit 5.7 percent of GDP this year and hit 4.9 percent in 2026 after averaging 5.1 percent as of end-September.

While higher than the government's target, these still are an improvement from 6.2 percent in 2023 and the 8.6-percent peak hit in 2021.

"Our narrower general government deficit forecast of 4.4 percent of GDP for 2024 reflects social security and local government surpluses," Fitch added.

It warned, however, that escalating political conflicts ahead of next year's midterm elections "could, if sustained, weigh on macroeconomic and fiscal performance."

Fitch noted that the support of Vice President Sara Duterte and her father, former president Rodrigo Duterte, was instrumental in President Ferdinand Marcos Jr.'s landslide win in 2022.

Both campaigned on a unity platform that clearly cracked this year with Sara — under investigation for misuse of public funds — threatening to have Marcos killed.

Externally, policies to be implemented by incoming US President Donald Trump pose risks for the Philippines along with other economies.

A further strengthening of the dollar from US trade protectionism could put further pressure on the peso, which has fallen nearly 5 percent as of October, and inflation.

"The Philippines would [also] be vulnerable to a change in US immigration policy, given the importance of remittances for domestic consumption," Fitch said.

Monetary policy, however, is a bright spot, and Fitch said that the Bangko Sentral ng Pilipinas had made strides in managing inflation, which at 3.2 percent as of end-November was down from 6.0 percent a year ago and within the 2.0 to 4.0 percent target.

"We forecast inflation to stay around these levels in 2025-2026, leading to a further 100 bps (basis points) of rate cuts in 2025," it said.

"A credible inflation-targeting framework and flexible exchange rate regime contribute to a sound economic policy framework and support the country's rating," Fitch said.

Source: Manila Times

15 PPP projects up for approval this year

Around 15 public-private partnership (PPP) projects are expected to be submitted to the National Economic and Development Authority (NEDA) Board for approval this year, according to the PPP Center.

Speaking at the SGV Knowledge Institute’s Philippine Economic Outlook forum, PPP Center executive director Cynthia Hernandez said there are 117 PPP projects in the pipeline worth P2.5 trillion as of February.

“Out of the 117 projects, there are 15 that are expected to be approved this year,” she said.

Hernandez told reporters the 15 projects would be submitted to the NEDA Board chaired by President Marcos for approval.

Those in the advanced stages are the Metro Manila Subway operations and maintenance (O&M), North-South Commuter Rail O&M, construction and O&M of the San Ramon Newport at the Zamboanga City Special Economic Zone, University of the Philippines Philippine General Hospital Diliman, Cagayan Valley Medical Center – Hemodialysis Center and the National Capital Region EDSA Busway O&M.

Also part of the PPP pipeline to be submitted for approval this year are solicited projects, including the Cebu Bus Rapid Transit, Davao City Bypass project, Metro Rail Transit Line 3, as well as Light Rail Transit Line 2.

Meanwhile, unsolicited projects expected to be submitted for government approval this year are the Puerto Princesa International Airport rehabilitation and O&M, New Bohol International Airport upgrade and O&M, Iloilo International Airport rehab and O&M, long term water source development for Metro Manila, and Philippine Identification System O&M.

According to Hernandez, the government wants to start the procurement process for the O&M projects relatively early for proper turnover and operations.

“This will reduce interface risk. The government really doesn’t have the capacity to operate the projects when they finish,” she said.

For 2025, Hernandez said 13 projects in the early stages of development would also be submitted for approval.

“The preliminary studies are expected to be completed. Once completed, these can be submitted by the implementing agencies for approval by 2025,” she said.

With the enactment of the new PPP Code, which aims to provide a more competitive and enabling environment for the implementation of projects undertaken with the private sector, Hernandez said the government expects to receive more unsolicited proposals.

As PPPs are being pushed for the implementation of infrastructure projects, she said the PPP Center is encouraging Japanese firms to be more involved in PPPs through direct investments.

Source: Philstar

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