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Manila Market Intelligence: December 15, 2020

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Gov’t hikes budget for infrastructure program until 2022

NEWS

The Development Budget Coordination Committee (DBCC) is increasing its infrastructure allocationuntil 2022 as part of its goal to support the Philippines’ economic recovery. The infrastructure budget for this year is now at PHP824.9 billion (USD17.2 billion), up 5% from the PHP785.5 billion (USD16.4 billion) adopted in July 2020. This is still lower than the initial PHP989 billion (USD20.6 billion) target pre-pandemic. The share of the revised budget to the country’s GDP is now at 4.5% from 4.2% based on the July figure. In 2021 and 2022, the government aims to allot PHP1.17 trillion (USD24.4 billion) and PHP1.15 trillion (USD24 billion), respectively. The infrastructure budget for both years will be increasedto help the economy bounce back from recession . DBCC projects the Philippine GDP to contract by up to 9.5% in 2020 before posting a 6.5% to 7.5% growth in 2021 and 8.0% to 10% growth in 2022.

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RESEARCH VIEW 

In our view, the government’s increased infrastructure spending in the next 12 to 24 months should benefit the property sector. Data from the Department of Budget and Management (DBM) showed that the current administration’s infrastructure spending from 2017 to 2019 averaged 5.5% of GDP per annum, higher than previous’ administrations’ spending of 1% to 3% of GDP. Colliers believes that the implementation of infrastructure projects such as roads, railways, and airports has the potential to unlock land values and raise property prices and create business opportunities especially in urban areas outside the capital region. This massive infrastructure development program should also boost the attractiveness of integrated communities, resulting in an aggressive development of office towers, residential units, and other institutional/support facilities.  From 2021 to 2022, Colliers sees the completion of other big-ticket infrastructure projects such as the BGC-Ortigas Link Bridge, NLEX-SLEX Connector, Skyway SLEX Extension, and the new Clark International Airport. Among the emerging locations likely to benefit from the completion of these projects are Cavite, Laguna, Batangas, Pampanga, and other established business hubs within Metro Manila.

LIMA Estate to be expanded

NEWS  

Lima Land Inc, a subsidiary of the Aboitiz Group, plans to expand its 700-hectare (1,700 acres) Lima Estate in Batangas to bring in more industrial locators and create additional jobs. About 100 hectares (250 acres) will likely be developed for new locators while 30 hectares (75 acres) will be redeveloped for office towers and commercial lots. Lima Land also plans to construct support facilities such as schools, hospitals, hotels and dormitories. The expansion of the Lima Estate is scheduled to be completed in Q3 2022. Industrial locators TRC Incorporated and Japanese wire harness manufacturer Leading Co. Ltd are also planning  to expand and start operations by 2021.

 
Data from the Philippine Statistics Authority (PSA) show that total approved foreign investments to the country in H1 2020 reached PHP44.6 billion (USD929.2 million), down 53% from PHP95.6 billion (USD2.0 billion) in H1 2019. We attribute the decline to weak global demand given the impact of the pandemic. Despite the decline, close to 60% of the investments were funneled into the manufacturing, transportation, and storage segments which should support the recovery of the industrial sector once these committed projects materialize We expect manufacturers of essential items such as food, beverage and medical products and other related items to lead industrial space take-up which should offset the slower demand for electronics due to a weak global economy.Developers that plan on expanding their industrial parks should assess the requirements of firms by monitoring the investments approved by the government. Industrial developers should also highlight their facilities located within townships to attract various locators. Given the potential increase in demand for warehousing, developers should consider modernizing and expanding their warehouses. This is also timely given the growing demand for e-commerce and deliveries.

ADB sees PHL economy shrinking 8.5% in 2020

NEWS  


The Asian Development Bank (ADB) now projects an 8.5% GDP contraction in 2020 for  the Philippines, worse than the -7.3% forecast in September 2020. The gloomy outlook is consistent with the 8.5% to 9.5% contraction projected by the Development Budget Coordination Committee (DBCC). According to ADB, the negative outlook is due to the decline in household consumption and investments. Despite the pessimistic outlook for 2020, ADB sees the economy rebounding by 6.5% in 2021. ADB Chief Economist Yasuyuki Sawada believes that the timely delivery of an effective vaccine will likely be critical for the economic recovery of developing economies. Aside from the revised 2020 GDP projection, ADB also raised its 2020 Philippine inflation forecast to 2.5% from 2.4% in September.
 
 
The property sector continues to reel in the impact of the pandemic. For office, Colliers sees the completion of 384,000 sq metres (4.1 million sq feet) of new office space, down 65% from our initial forecast of about 1.07 million sq metres (11.5 million sq feet) at the start of 2020. We project leasing activities to remain subdued in 2020 and we see vacancy increasing to 9.1% from 4.3% in 2019. Meanwhile, the Metro Manila condominium market is also adversely affected by the lackluster office market. By the end of 2020, we see the delivery of 6,000 units, down 59% from our initial forecast of 14,720 units. Due to the anemic office leasing across submarkets, we see vacancy in the secondary market peaking at 15.3%, higher than our previous forecast of 14.6%. In our opinion,  the government-projected economic rebound of between 6.5% to 7.5% in 2021, lower mortgage rates, and the recovery of global economies that outsource services from the Philippines should help  raise demand for office space and condominium units. Office and condominium lease rates as well as residential prices are likely to reboundas a result of the government-forecasted economic recovery in 2021.

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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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