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Manila Market Intelligence August 24 2020

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BSP Eases Rules on Real Estate Loan Limits of Banks

NEWS

The Philippine central bank has eased rules on real estate loan limits of universal, commercial, and thrift banks. According to the Philippine central bank the Monetary Board’s decision intends to support growth in real estate activities and should encourage bank lending for the acquisition or development of residential properties. Prior to amending the central bank’s rules on real estate loan limits, banks were required to comply with a real estate loan limit of 20% of their total loan portfolio, net of interbank loans. This has been raised to 25%.

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RESEARCH VIEW

In our opinion, the easing of rules on real estate loan limits should help raise demand in the residential sector. Colliers Philippines data showed that in the Metro Manila pre-selling condominium market, only 10,000 units were sold in Q1 2020 and this lower than the 13,400 units recorded in Q1 2019 and 12,200 units in Q4 2019. We believe that much of the take up in Q1 2020 was due to spillover demand from end-2019 as well as affordable and attractive packages and payment terms extended by developers. We are likely to post lower take up in Q2 2020 especially with the impact of the pandemic and lockdown becoming more apparent. The record-high unemployment, slower BPO and POGO expansion, dip in OFW remittances, and closure of some businesses contributed to the slower demand in the condominium market. The central bank’s decision provides a much needed shot in the arm for residential sales for the remainder of 2020.

PHL consumer spending seen declining 7.8% in 2020 — Fitch

NEWS

Fitch Solutions Country Risk and Industry Research sees household spending dropping by 7.8% in 2020, a reversal from its initial 3.4% growth projection issued in May 2020. The group expects a gradual recovery or a 5.5% growth in 2021. Michael Langham, Senior Asia Country Risk Analyst for Fitch Solutions, noted that the pandemic has affected several factors including the labor market, remittances, and consumer confidence. Citing data from Google, the group added that shopping, recreation, and travel mobility also declined by about 53.6%. Despite the easing of restrictions from June 1 to July 19, 2020, mobility for grocery shopping and pharmacies also declined by 23.5%.

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RESEARCH VIEW

For the remainder of 2020, we expect a muted retail demand as households skimp on non-essential retail due to a potential rise in unemployment and decline in Overseas Filipino Worker (OFW) remittances. Colliers projects vacancy peaking at 12% by the end of the year, from 10% in Q1 2020. Once the pandemic is contained, the gradual recovery of the sector will likely be led by retailers under the essential goods segment. Data from the Philippine Statistics Authority (PSA) showed that in Q1 2020, food and non-alcoholic beverages covered 34% of household consumption, up from 32% in Q1 2019. We expect the sector to lead the demand in H2 2020 as consumers continue to spend on essential goods. We recommend that retailers  boost their marketing efforts and explore alternative channels such as online deliveries. This should help make their products more accessible to consumers.

Liberalized retail trade still gov’t priority

NEWS

The Department of Trade and Industry (DTI) said it wants to improve the investment climate in the country by allowing more foreign businesses to open shop as most Filipino mom-and-pop stores are struggling to pay rent amid the pandemic. One of the bills that the Philippine Congress  has yet to pass is the measure amending of the Retail Trade Law. Under the law, foreign retailers are only allowed to enter the country if their minimum paid-up capital investment is at least USD2.5 million (PHP123 million). The Congress proposes to lower the  minimum paid-up capital to USD200,000 (PHP10 million).

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RESEARCH VIEW

In our opinion, the passage of the bill will likely be beneficial to the retail sector as the entry of foreign retailers will likely help mall operators fill their vacant spaces as well as promote competition among retailers. In Q1 2020, Colliers saw vacancy among Metro Manila malls rising to 10% from 9.8% in Q3 2019. Due to the lockdown and implementation of physical distancing, Colliers projects that only about half of the new leasable space due to be completed in 2020 will likely be absorbed, raising vacancy to 12%. Aside from the government-projected economic recovery, Colliers believes that liberalizing the retail sector will also likely help in raising consumer confidence and  should allow mall operators to diversify their offerings post-pandemic. In 2019, Colliers saw the entry of foreign retailers Panda Express, Popeyes, Shake Shack and Elephant Grounds.

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Related Experts

Joey Bondoc

Associate Director

Research

Manila

Prior to joining Colliers in March 2016, Joey worked as a Research Manager for a research and consutancy firm where he handled business, political, and macroeconomic analysis. He took part in a number of consultancy projects with multilateral agencies and provided research support and policy recommendations to key government officials and top executives of MNCs in the Philippines.

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