PH still lagging in Asean tourism revival

The Philippines continued to be a laggard in the Asean (Association of Southeast Asian Nations) tourism recovery amid muted return of Chinese visitors, Bank of America (BofA) said, and the situation would unlikely take a turn for the better anytime soon following President Ferdinand Marcos Jr.’s order to ban China-centric online casinos.

In a commentary sent to reporters on Tuesday, Kai Wei Ang, economist at BofA, said the Philippines’ “underperformance” partly stemmed from the exodus of Philippine offshore gaming operators or Pogos during the COVID-19 onslaught in 2020. These gaming operators mostly employ Chinese nationals to cater to punters in mainland China, where gambling is banned.

Ang said Chinese arrivals in the Philippines were “still below 20 percent of 2019 levels.” This is because the pandemic-induced departure of Pogos coincided with the slow return of Chinese tourists after China reopened its economy much later than other Asian countries.

“The Philippines is lagging considerably behind [in Asean], with tourist arrivals below 70 percent of 2019 levels,” he said.

At his last State of the Nation Address, Mr. Marcos ordered gaming regulators to shut down Pogos, which flourished during the term of his predecessor Rodrigo Duterte.

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The presidential order was the final nail in the coffin for Pogos after the pandemic and tighter tax rules forced many to relocate at the height of lockdowns. The move heeded loud calls from various sectors to ban the industry that had been linked to various crimes like money laundering and human trafficking.

Transport data compiled by BofA showed outbound seats from China to five Asean destinations are expected to grow in the second quarter of this year through October, except in the Philippines.

“The Philippines is an outlier, with outbound seats [from China] falling to 46 percent of 2019 levels,” Ang said.

For this year, the Bangko Sentral ng Pilipinas (BSP) forecasts tourism receipts—a source of dollars for the economy—to grow by 40 percent. That would contribute to the projected $1.6 billion dollar surplus in 2024 which, if realized, would be smaller than the $3.7 billion windfall recorded in 2023.

Elsewhere in Asean, BofA said Vietnam is the “clear leader” in the tourism recovery because of its more relaxed visa rules, while Singapore is middling as the one-time big boost in international arrivals due to Taylor Swift concerts faded.

Meanwhile, Malaysia could expect bigger Chinese arrivals, with inbound travel seats from China expected to beat prepandemic level, the Bank added

Source: Inquirer

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

USA: This Homebuying Season Is A Dud

Hopes were high for the housing market this year, until mortgage rates unexpectedly rose.  Home buyers on the hunt in Dallas, who have been waiting for mortgage rates to drop, are finally returning to the market, says Re/Max agent Todd Luong. But it isn’t enough to make a difference overall in home sales in this North Texas metro area.

Despite a strong start to the year, sales there have dragged behind 2023 levels through much of the spring even as listings rose in the double digits, according to Zillow data. Run-ups in mortgage rates, home prices, property insurance, and taxes make homeownership “very unaffordable right now,” says Luong. “That’s a big issue.”

The homebuying season traditionally ramps up after the Presidents Day holiday in February, with buyers and sellers inking contracts through the spring and much of the summer. Hopes were high for housing this year, until mortgage rates unexpectedly rose. Now, it has turned out to be the worst season in more than a decade.

From February through May, existing- home sales, which represent closings, were at their slowest pace for that period since 2011, according to a Barron’s analysis of monthly data from the National Association of Realtors. Applications for loans to purchase a home between mid-February and mid-June are the lowest for that period since at least 2000, according to an analysis ofMortgage Bankers Association data. And yet, the market could be on the verge of a turnaround, with much better prospects for buyers.

Frustrated buyers and unmotivated sellers can blame the favorite boogeyman: mortgage rates. Rates from the middle of February through the final week of spring averaged about 7%—the highest in comparable periods since 2001, FreddieMac data show. The timing couldn’t have been worse. Rising rates squeezed buyers at the time when most house hunters typically start looking.

Many sellers kept their homes off the market, having secured historically low mortgage rates. New home sales, which are a minority of all transactions, have held up better. It wasn’t supposed to be this way. At the end of last year,Wall Street priced in five to six Federal Reserve rate cuts for 2024, which would have driven mortgage rates lower.

“There was a certain amount of optimism,” says Rob Dietz, chief economist for the National Association of Home Builders. “Some of that optimism proved to be misplaced.” But after a painful reality check— rate-cut expectations dwindled to one or two after economic data came in stronger than expected, sending mortgage rates higher—good news could soon outweigh the bad.

Traders’ expectations are more closely aligned with the Fed’s own rate-cut forecast, and recent inflation readings have softened. The 10-year Treasury yield, a benchmark for mortgage rates, has dropped in response. It was recently down nearly half a percentage point from its 2024 closing high reached in April, according to Dow JonesMarket Data. Once lower rates arrive, they will shake up almost every corner of the housing market.

As buyers and sellers re-enter the market, sales will pick up, and existing-home prices will stagnate or drop as supply expands. Lower mortgage rates will take some pressure off monthly payments, allowing some buyers to join the hunt. The magic mortgage rate for unlocking the housing market is about a percentage point lower than recent levels, says Dietz.

The builders trade group expects mortgage rates to average below 6% in the last quarter of 2025. And when they do, there will be plenty more options. The lock-in effect, a term for the financial incentive mortgage holders have to remain in place, has kept supply low relative to demand. It’s a phenomenon National Association of Realtors chief economist Lawrence Yun refers to as the “golden handcuffs.” Lower rates will allow supply to ramp up since “the strength of the golden handcuffs also diminishes,” says Yun.

The number of homes for sale has already started to climb as some owners choose to move regardless of rates, though it remains low relative to historic norms. More existing homes on the market means builders face more competition. Home-builder stocks had a strong run in 2023 as buyers turned to new construction to fill the void. Worries about rising supply, combined with still-high mortgage rates, have pressured shares this year.

The iShares U.S. Home Construction exchange-traded fund that tracks the industry is up 1.3% so far this year, while the S&P 500 index is up 14.2%. Competition fears are overblown, says John Lovallo, a UBS analyst covering the sector. He has Buy ratings on five of the seven builders he covers, including D.R. Horton, KB Home, Lennar, Meritage Homes, and Toll Brothers.

While previously owned homes are typically cheaper than new homes, that difference has eroded. “You’re getting a newer product with all the bells and whistles…and you’re getting it at a price point that’s not much higher than the existing home side,” Lovallo says. And builder stocks could get a boost from rate cuts.

“The trend for rates is probably lower from here,” he says. “That should be very good news for these stocks.” Ongoing gains in supply could shift the existing-home market back in buyers’ favor. Supply growth could soften price gains for these homes or even bring about declines in some markets, says the builders group’s Dietz. Once more owners list their homes, they will “have to do the same kind of price discovery that, quite frankly, builders did over the last two years,” he says.

Builders kept sales going by offering incentives including mortgage rate buy-downs, or price cuts. For now, both sides can be at odds over a home’s price tag. Buyers want deals that largely haven’t materialized, while sellers expect the multiple offers and fast sales of the frothy years during the pandemic, says Northern California– based Rainy Hake Austin, president of international brokerage The Agency. “You’ve got buyers who think it’s 2008, and then sellers who still think it’s 2020,” she says. 

Source: Barron's