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Manila Market Intelligence: November 26, 2020

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BSP cuts policy rate to record low

NEWS

The Bangko Sentral ng Pilipinas (BSP) or the central bank cut interest rates anew due to the impact of recent typhoons and the rising number of COVID-19 cases. The central bank reduced interest rates by 25 basis points (bps) putting the overnight reverse repurchase, deposit, and lending rates at 2%, 1.5%, and 2.5%, respectively. Since the start of the year, the central bank has trimmed interest rates by 200bps. According to central bank Governor Francisco Dakila, the latest monetary easing will likely support the country's economic recovery by increasing bank lending. Given the projected slowdown of the economy in 2020, economists believe that the central bank will further cut interest rates in 2021.

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RESEARCH VIEW

Results from the Q3 2020 Consumer Expectations Survey of the Bangko Sentral ng Pilipinas (BSP) or central bank showed that the percentage of households that plan on buying properties in the next 12 months reached a record-low of 3.3%. The gloomy sentiment is partly due to the shift in spending priorities and insufficient income given the impact of the pandemic. Due to the subdued local and foreign demand, we project take-up in the pre-selling market to reach 33,000 units in 2020, down 30% from 47,000 units in 2019. We also expect a 13% correction in prices in 2020 which will likely gradually recover starting 2021 on the back of improved buyer sentiment and macroeconomic fundamentals. In our opinion, investors that still plan on acquiring property should take advantage of the lower mortgage rates being offered in the market. Investors should also consider projects located in areas offering above-market discounts such as the Bay Area and the Southern part of Metro Manila. Overall, Colliers believes that the central bank’s decision to cut policy rates should help prop up spending in the domestic market and support the government-projected economic rebound in 2021. In our view, this recovery is likely to spill over to the property market.

BSP data: Strong dollar remittances in Sept keep PH economy from sinking

NEWS

Data from the Bangko Sentral ng Pilipinas (BSP) or central bank showed that personal remittances from Overseas Filipino Workers (OFWs) reached USD2.89 billion (PHP138.72 billion) in September 2020, up 9.1% from USD2.65 billion (PHP127.20 billion) in the same period of 2019. Personal remittances in 9M 2020 reached USD24.30 billion (PHP1.17 trillion), down 1.4% YOY. This is slower than the 2.6% contraction recorded as of the end of August 2020 and the central bank’s initial forecast of a 5% decline in 2020. The United States accounted for 40% of total remittances followed by Singapore, Saudi Arabia, Japan, United Kingdom, United Arab Emirates, Canada, Hong Kong, Qatar, and Taiwan.

 

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RESEARCH VIEW

In our view, the effects of the pandemic on OFW remittances will likely affect residential and retail demand. In Metro Manila, OFWs partially drive the demand for affordable (PHP1.7 to PHP3.2 million or USD35,400 to USD66,700) to mid-income (PHP3.2 million to PHP6 million or USD66,700 to USD125,000) residential units. Anecdotally, the stable demand for House and Lot and Lot Only projects is partly attributed to sustained remittances from Filipinos working abroad. The central bank now projects a slower decline in remittances of about 2% in 2020 compared to the earlier estimate of some analysts of a  10% to 20% decline or about USD3 billion to USD6 billion drop in remittances. Meanwhile, the slowdown in remittances is also likely to affect consumer confidence and purchasing power. In our opinion, the subdued retail spending will likely result in higher mall vacancy across Metro Manila. In Q3 2020, retail vacancy reached 12.5% and we expect this to increase further to 14% by the end of 2020, matching the vacancy posted in 1999 during the  Asian Financial Crisis (AFC).

SM shifts to China-style mixed retail

NEWS

SM Investments Corp. is further adopting omni-channel retailing as seen in malls across China. The concept is a mix of online and in-store services to cater to consumers given the mobility limitations brought about by the pandemic. SM Supermalls President Steven Tan said that the group is offering personal shoppers, delivery and pick-up services, and has started to expand its e-commerce presence. In October 2020, the group opened its virtual mall for Metro Manila which they plan to expand nationwide. SM Investments’ Timothy Daniels highlighted that social media transactions account for 11% of SM department store sales. Sales of mall tenants improved and reached 60% to 70% of pre-pandemic levels, up from only 20% during the re-opening of malls in May and June. Foot traffic is also at 40% of pre-pandemic levels and the group plans to gradually start rent collection from tenants in 2021. Tan believes that tenant sales will likely revert to pre-pandemic levels by Q3 2021.

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RESEARCH VIEW

In our view, the pandemic has caused a significant disruption to the Philippine retail sector. For 2020, Colliers sees retail rents dropping by about 10%, up from our previous forecast of a 5% decline due to subdued consumer spending, lower consumer traffic, and slower absorption of physical mall space. This is worse than the 7.3% decline recorded during the Global Financial Crisis (GFC) in 2009. Given the bleak retail landscape, Colliers projects rents to decline by another 2% in 2021 before recovering in 2022. To attract consumers, we recommend that mall operators implement curbside pickups, personal shopping services for essential needs, and ramp up offline-to-online strategies. Meanwhile, retailers should start differentiating by aggressively rolling out their own online platforms and partnering with app developers to maximize consumer insights and preferences.

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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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