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Manila Market Intelligence: January 19, 2021

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Ayala Land’s AREIT ventures into industrial space leasing

NEWS

AREIT Inc. acquired a 9.8-hectare (98,000 sq metres) land in Laguna Technopark for PHP1.1 billion (USD22.9 million). The land was sold by Technopark Land Inc. and is currently being leased by Integrated Micro-Electronics. In a disclosure to the Philippine Stock Exchange (PSE), AREIT Inc. said that the acquisition will contribute to the earnings generated by its current buildings which will likely increase the distributable income to its shareholders. AREIT’s portfolio is now at 344,000 sq metres (3.7 million sq feet) of leasable space, twice its initial 171,000 sq metres (1.8 million sq feet) when it went public in 2020. The firm noted that the latest acquisition will likely increase AREIT’s total property value to PHP37 billion (USD770.8 million). Based on the group’s investment strategy, it aims to conduct a follow-on offering in 2022 and achieve a 10% to 12% total shareholder return in the next three years.

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RESEARCH VIEW

Property developers such as Ayala Land have been aggressive in acquiring income-generating assets for their REIT portfolio despite the pandemic. To take advantage of REITs, Colliers recommends that developers use REIT proceeds to renovate and reposition assets such as offices, warehouses and malls. Aside from the traditional real estate assets, developers should also consider potential public-private partnership (PPP) projects that include hospitals and toll roads as these assets generate recurring income. We also encourage developers to use REIT proceeds to upgrade their warehouses to keep up with the demand for logistics facilities as the lockdown economy has been raising the demand for deliveries and online shopping. In our view, the government-projected economic rebound of between 6.5-7.5% in 2021 should support the property sector’s recovery as well as REIT’s potential to draw interest from local and foreign investors.

Moody’s: Philippines to grow by 7%

NEWS

Moody’s Investors Service expects the Philippines to grow by 7% in 2021.  The forecast is within the Development Budget Coordination Committee’s (DBCC) projection of a 6.5% to 7.5% growth this year. China and Malaysia are expected to grow at the same pace. The Philippine economy is expected to expand at a faster pace compared to Cambodia’s 5.9%, Indonesia’s 4.7%, Thailand’s 4% and Taiwan’s 3.7%. The debt watcher said that high unemployment rate will continue to hamper domestic consumption growth. The firm noted that travel restrictions will also affect deployment of migrant labor and remittance inflows.

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RESEARCH VIEW

Government officials and credit rating firms are projecting a faster economic growth in 2021. Colliers believes that a recovery in remittance inflows, office leasing, and consumer spending is likely to benefit Philippine property in the next 12 months. In our view, the rebound in residential take up should be led by sustained appetite for house and lot and Lot only projects outside Metro Manila. The stable inflow of remittances should also buoy residential and retail demand. Low inflation and competitive mortgage rates should support recovery of these property segments.

BSP to keep interest rates low for ‘next few quarters’

NEWS

Philippine central bank Governor Benjamin Diokno said that interest rates will remain low for the next few quarters. Governor Diokno added that further lowering of current rates will likely depend on inflation rate. In 2020, cumulative rate cuts reached 200 basis points (bps) which resulted in overnight reverse repurchase, lending, and deposit rates to decline to record-low 2%, 2.5%, and 1.5% respectively. Despite the low interest rates, lending growth in October 2020 only reached 1.9%, the slowest since September 2006. Governor Diokno mentioned the potential reduction of the reserve requirement ratio (RRR) of banks as he previously committed to cut the RRR to a single digit by the end of his term. Meanwhile, analysts believe that the central bank will likely go for an RRR cut depending on the results of the Q4 2020 GDP. The Q4 and full year 2020 GDP figures are scheduled to be released on January 28, 2021.

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RESEARCH VIEW

Data from the central bank’s Q4 2020 Consumer Expectation Survey (CES) showed that the percentage of households that considered Q4 2020 as a favorable time to buy big-ticket items such as real estate properties dropped to a record low of 11.4% since Q1 2007. The central bank attributed the decline in buyer’s sentiment to the shift in spending priorities and insufficient income caused by the pandemic. Despite the subdued residential demand, Colliers sees Metro Manila condominium launches and take-up in 2021 reaching 25,000 and 35,000 units respectively, slightly higher from our projected launches and take-up of about 22,000 and 33,000 units in 2020. In our opinion, developers planning to tap the pent-up demand in 2021 should consider attractive price segments and locations for pre-selling developments. Colliers believes that the recovery of office leasing and OFW remittances, low mortgage rates, and the likely rebound in take-up from end-users and investors should help prop up demand in the residential sector in 2021.

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