COLLIERS RADAR

Manila, April 11, 2018 - In a recent radar report entitled “China’s One Belt One Road: The Dragon Spreads Its Wings over Asia”, Colliers International notes that China’s “One Belt, One Road initiative,” (OBOR) coupled with its firm economy and strong renminbi, will drive Chinese investment in emerging South East and South Asian markets including the Philippines. China’s USD1 trillion OBOR project intends to get about 60 economies to invest in infrastructure to develop land and maritime routes which comprise the old Silk Road network that once connected Beijing to Central Asia and European economies. 

Colliers believes that although the Philippines does not lie directly on the two major routes in China’s OBOR initiative, there appears to be plenty of room for cooperation that would benefit the Philippines. In fact, the warmer relations between the Chinese and Philippine governments have been benefiting the Philippine economy with growth trickling down to property segments such as office, residential, hotel, and industrial. A more active participation of China into the Philippines’ ambitious infrastructure development program should help sustain growth in the local property sector over the medium to long term. 

In recent years the BPO sector has accounted for 60-70% of total office space demand. That abruptly declined to about 25% to 30% last year. The drop in BPO transactions was covered by higher demand from offshore gambling firms, which accounted for 35% of total office space transactions in 2017. We expect these Chinese companies to sustain office demand as inquiries picked up again in 4Q 2017. Some firms are requiring between 20,000 sq m and 30,000 sq m per site. Chinese offshore gambling firms have started to open shop in Cebu, accounting for almost 25% of recorded transactions last year. 

The strong offshore gambling sector is also driving residential condominium sales especially in the Manila Bay Area where office buildings are developed alongside residential towers. Chinese investors accounted for 10% of SM Prime’s international condominium sales in 2017 from less than 5% in 2016 while Ayala Land noted that the Chinese buyers accounted for nearly 50% of its international sales last year. The take up from Chinese investors helped propel Metro Manila condominium sales to a record-high 52,600 units in 2017 from 42,500 in 2016.  

Chinese tourists have also been growing. In 2017, the Philippines welcomed more than 960,000 visitors from China, up 43% compared to the previous year. China is now the Philippines’ second largest tourist market after South Korea. We are seeing the aggressive development of two and three-star hotels in the Manila Bay area and the fringes of Makati CBD due to continued surge of Chinese tourists. Double Dragon is planning to build more Jinjiang hotels in the country’s capital and other urban areas as it intends to more than double its room count to about 2,000 by 2020. Jinjiang is popular among Chinese tourists and business executives given its brand recall and convenient booking platform. Colliers believes that the influx of more Chinese visitors will play an important part in sustaining hotel occupancy of between 65% and 70% across Metro Manila over the next 12 months. 

Among the crucial deals signed during the ASEAN summit in Manila in 2017 is the Memorandum of Understanding (MOU) between the Philippine and Chinese governments on industrial park development. This should raise industrial supply in the country particularly now that major developers are heading north of Manila. Chinese industrial park developers are aware of the rising demand for industrial space in the Philippines given the country’s expanding manufacturing and export base. 

Data from the Philippine central bank reveal that foreign direct investments (FDIs) from China more than doubled to USD28.8 million last year from USD10.8 million in 2016. While still not among the major sources of foreign inflows, Colliers believes that the country’s improving stature as an ideal investment destination should encourage more Chinese firms, including those into property development, to aggressively invest in the Philippines in the next few years.  

This was evident on the sidelines of the Boao Forum for Asia in China where President Duterte witnessed the signing of USD9.5 billion worth of investment deals with Chinese businessmen. Among the investment pledges signed that we see benefitting the property sector are the following:

- USD3.46 billion project with Shangai GeoHarbour Group that involves land reclamation and development projects; 
- Development of large tourism projects and electronic industry parks with Zhongfa Group; 
- Construction of China-Philippines International Techno-Industrial Zone with China National Heavy Machinery Corp; and
- Development of infrastructure and construction projects with Haocheng Group.

Colliers sees greater foreign participation in funding major infrastructure projects that should prop up land values across the country. Among the infrastructure projects that are up for possible financing are the Davao City expressway, Panay-Guimaras-Negros Inter-Island Bridge, Subic-Clark Railway, and the Laguna to Bicol passenger rail. All projects are outside of Metro Manila, lending support to the government’s decentralization thrust. Colliers believes infrastructure implementation and decentralization should provide a favourable backdrop for a thriving Philippine property market.


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