REAL estate services firm KMC Mag Group, Inc. sees rosy prospects for the Philippine real estate sector in the next decade against a backdrop of slowing global growth and higher interest rates, but next year’s national election is deemed crucial to sustain the industry’s momentum.
“I still see the market will grow in the five- to 10-year horizon. A lot of that price growth will come from infrastructure development that will increase underlying land values,” KMC Mag Head of Research Antton Nordberg said in a briefing in Makati City on Wednesday.

Without boost from new infrastructure, the real estate market will remain “flat with no capital appreciation,” KMC Mag Managing Director Michael McCullough said in the same briefing.

One of the key factors that determine the future direction of the property sector will be next year’s national election, which may affect investments in real estate if a “candidate not viewed favorably from abroad” wins, Mr. McCullough said.

“There will be some churn. Six years ago, investors put on hold some investments… There was a bit of a pause,” he said.

Despite the weakening global growth, the Philippine property market — considered the “most affordable in the region” — is still expected to be one of the top beneficiaries of growth on the strength of its two main legs: overseas remittances and the business process outsourcing sector, Mr. Nordberg said.

The looming increase in interest rates in the US will have “minimal” impact on the local real estate scene, with a slowing Chinese economy deemed a “key risk” to the Philippine economy.

“Given the healthy external balance sheet, minimal fiscal deficit and limited exposure to external debt, the impact of the Fed interest hike will not be significant,” Mr. Nordberg said.

“China remains a question mark, but as long as the Philippine economy is driven by domestic demand, it will be less vulnerable to outside shocks,” he said.

Meanwhile, KMC Mag said developers are moving to redevelop their existing properties and attract new investors, with the Makati central business district commanding the highest average monthly rental rate in Metro Manila at P979 per square meter.

As written by Krista Angela M. Montealegre and seen on Business World Online

The Philippines is projected to become a $1-trillion economy by 2030, with the information technology-business process outsourcing (IT-BPO) and remittances from abroad as main drivers, said an international analytics firm.
Rajiv Biswas, IHS Global Insight chief economist for Asia-Pacific, estimated that the Philippines, with a gross domestic product of about $292 billion, has the potential to become a $695-billion economy by 2025 and over a $1-trillion economy by 2030.

“Two important growth drivers for the Philippines’ economy are the rapidly growing information technology-business process outsourcing (IT-BPO) sector and the strong flow of remittances from Filipino workers abroad,” Biswas said.
“The rapid growth of the IT-BPO industry is also creating positive transmission effects for the rest of the economy, including rapid growth in demand for commercial floor space, underpinning the development of existing and new office parks in urban centers,” Biswas added.

IHS also cited the Philippines as the only sovereign entity in Asia with improving credit prospects.

IHS, whose reports are used as reference by other organizations including credit-rating agencies, investment banks, and development institutions, cited the trend of improving financial fundamentals, investor confidence, and governance standards in the Philippines.

In its “Sovereign Risk Review” report for the third quarter of 2015, IHS, which also assigns its own credit ratings, said it upgraded its outlook on the Philippines’ credit rating from “stable” to “positive.”
The improved outlook means that the Philippines’ existing credit rating with IHS, set at the minimum investment grade of “BBB-“, has a chance of being raised over the near term.

The Sovereign Risk Review compares and assesses every sovereign worldwide across ratings agencies.

IHS said in the report that what’s more encouraging about the Philippines is that the strong macroeconomic fundamentals are combined with improvements in governance.
“…apart from the clearly strengthened macro-financials over the last few years, the more recent upgrade to the Philippines’ outlook to positive in Q3 rested on improved governance standards and reforms enhancing competitiveness under the Aquino administration,” it said in the report.

The Philippines is the only sovereign in Asia that garnered a positive action from IHS.

IHS recognized the Philippines’ comfortable liquidity as evidenced by sustained surpluses in its current account, as well as continually improving manageability of debt on the back of prudent fiscal management and growing economy.
Investor Relations Office (IRO) Executive Director Editha Martin welcomed the favorable views of IHS on the Philippines, saying they would help in further improving international perception of the economy.

“Although the Philippines now enjoys investment grade sovereign credit ratings from a wide list of international debt watchers, further building confidence on the economy is a never-ending task as we aim for sustainability of gains. The positive assessment of IHS on the Philippines is a welcome development,” Martin said.

She cited the concrete benefits of favorable credit ratings, including lower interest rates on loans as well as business confidence that helps boost investments and job creation.

As seen on Sun Star.

I am delighted to be in Manila for my first official visit to the Philippines as Prime Minister said Malcolm Turnbull who is the Prime Minister of Australia.

My visit has two key aims. First, I am representing Australia at the APEC Economic Leaders’ Meeting – an important event on the global economic calendar.

Now in its 26th year, APEC has proven to be the pre-eminent regional forum for promoting open and transparent markets, economic integration and regulatory cooperation. APEC is especially important for Australia, as its members represent almost three quarters of our goods and services trade.

It is fitting that the Philippines has chosen for APEC 2015 the theme of “Building Inclusive Communities; Building a Better World”. It is a theme that resonates with many of us in the region, as our economies and societies experience rapid transformation.

The Asia Pacific’s growing middle class is creating new demand for services, from tourism to telecommunications, while digital technologies are making it easier to trade services across borders. Progress by APEC on services sector reform will help to unlock new sources of growth.

Australia has worked closely with the Philippines to advance APEC’s goal of creating a seamless regional economy. In particular, I welcome the Philippines’ leadership in placing structural reform and services trade and investment liberalisation at the forefront of the APEC agenda in 2015.

The Asia Pacific of today faces vastly different challenges, and opportunities, to those of 1989 when APEC first met in Canberra. We must continue to grow our economies, but accelerate efforts towards growth that is sustainable, inclusive and resilient to external shocks.

I look forward to a productive Leaders’ Retreat today (19 November) and I thank the Philippines for being such a warm host.

The second purpose of my visit is to mark the formal elevation of the bilateral relationship with the Philippines. Yesterday (18 November) I met President Aquino, a great friend of Australia, to sign a Joint Declaration on the Philippines-Australia Comprehensive Partnership.

The partnership agreement is timely. Next year, Australia and the Philippines will celebrate 70 years of diplomatic relations. The first Australian Consulate-General opened in Manila in 1946, just as the Philippines was emerging as an independent republic. However, our relationship is older than this. As Ambassador Bill Tweddell has written before in these pages, our soldiers stood together in battle and learned the cost of friendship during World War II. Over 4,000 Australians fought beside Filipinos in the campaign to liberate the Philippines. 92 Australians gave their lives and hundreds more were wounded.

From the turmoil and triumph of war, over the last 70 years our friendship has grown into a steadfast partnership grounded in shared values of democracy, economic freedom, respect for human rights, and adherence to the rule of law.

As written by Malcolm Turnbull, Prime Minister of Australia and seen on PhilStar

MANILA, Philippines – Australian Minister for Trade and Investment Andrew Robb and Department of Foreign Affairs Undersecretary Rafael Seguis launched the photographic exhibition, “Philippines and Australia: The First Seventy Years” on November 15, 2015.

The exhibition is the first in a series of events in 2016 commemorating the 70th anniversary of diplomatic relations between Australia and the Philippines. Formal relations between the two countries were established when Australia opened its first Consulate General in Manila on 22 May 1946.

Australia’s Ambassador to the Philippines, Bill Tweddell, said “while our countries will mark its 70th anniversary in 2016, the truth is our friendship goes back further, and our bilateral partnership now spans many areas – trade and investment; education and research; development cooperation; defence, security and law enforcement; and regional cooperation”.

“Today we share a relationship grounded in the shared values of democracy, economic freedom, respect for human rights, and adherence to the rule of law,” Tweddell said.

The photographic exhibition features significant moments in the shared history between Australia and the Philippines: from the involvement of over 4,000 Australian service personnel who fought beside Filipino and allied forces in World War II, to Australian medical mission teams working alongside other Filipino and international humanitarian communities in the aftermath of Typhoon Yolanda.

Through photographs, the exhibition captures the story of the relationship – like the people-to-people links, which continue to grow at an exciting pace. Over 250,000 Filipinos now call Australia home, making up the sixth largest migrant community in Australia, and who continue to make a positive contribution to Australian society.

The ‘Philippines and Australia: The First Seventy Years’ exhibition will be showcased in venues around Metro Manila, Cebu and Davao beginning January 2016.

Press release from the Australian Embassy as seen on Rappler.com

The sustained growth of the local outsourcing and offshoring industry is seen to fuel the continued strong demand in office space over the next two decades, according to property consultancy firm CBRE Philippines.

Rick M. Santos, CEO, chair and founder of CBRE Philippines, said the outlook for the office property sector remained “extremely positive” over the next 10 to 20 years, with lease demand (composed of renewals, new space leasing and preleasing) seen to grow to at least 850,000 square meters (sq m) by 2018. Current demand was estimated at about 600,000 sq m.

Of the 850,000 sq m, about 80 percent is expected to be taken up by business process outsourcing (BPO) companies from the United States, Europe and Australia as the country remained a favored investment destination. Driving this interest in the country as an investment destination would be its economic growth story, young demographics, skilled and English proficient labor pool, and competitive lease rates.

“The Philippine BPO sector will continue to thrive in the coming years. The country provides a conducive environment for foreign investors—an excellent pool and low cost of skilled labor, outstanding customer service, a quality destination, and one of the cheapest rental rates and highest yields in Asia,” Santos said.

“The Philippines is becoming the lifeboat for many US and European companies that need to outsource in order for their businesses to survive and actually preserve jobs back in the US and Europe,” he said.

Apart from new entrants in the local BPO space, existing companies that are beefing up their back office operations here are also boosting demand for office space. A number of outsourcing companies are also focusing more on precommitting space in anticipation of their programmed increase in the number of employees in the coming years, Santos added.

Santos said employment in the BPO industry was expected to continue its uptrend from about 1.3 million next year to 2.23 million by 2025, and 3.3 million by 2035.

Jan Paul Custodio, a senior director at CBRE Philippines, meanwhile pointed out that the revenue growth in the BPO industry was also expected to sustain a strong double digit growth of about 15 percent beyond 2016, surpassing the growth rate of OFW remittances.

Last year, BPO revenue grew by 18.7 percent while OFW remittances rose by only 6 percent.

The Philippines offers alternative locations or the so-called next wave cities for BPO companies. These include Clark, Cavite, Iloilo, Bacolod, Cebu, Davao, Cagayan de Oro, Laguna and Baguio.

As seen on Inquirer.net

“Manila’s office market is witnessing a rapid expansion at the moment… a result of the strongly performing occupier market which is driven by the IT business process outsourcing (IT-BPO) industry,” the property consultancy firm said in its Asian Cities Report: Manila Office 2H 2015 dated Oct. 8.

KMC MAG said the IT-BPO sector, which took up 430,000 square meters (sq.m.) in 2014, is expected to occupy 400,000 sq.m. this year “with no signs of slowing down.” The industry employed 1.03 million Filipinos last year and the IT and Business Process Association of the Philippines said on Oct. 5 that it is “confident of hitting” the 1.2 million employee target for 2015.

This prompted KMC MAG to maintain its “bullish outlook” on Manila’s office sector, with rents and capital values projected to grow by 5-7% over the next 12 months.

“5-7% is comparing rather well to other markets. I believe only Tokyo and Jakarta are posting similar growth rates while majority of other cities are between 1-2%, so it’s among the fastest,” Antton Nordberg, Research and Consultancy Manager at KMC MAG, said in an e-mail interview yesterday.

KMC MAG said other submarkets are “gaining traction,” especially BGC, which will supply half of the 2 million sq.m. new office space in the market until 2018.

“A lion’s share of the supply pipeline will arise in BGC. In terms of growth expectations, I’m more conservative for BGC than for overall in Manila because of the supply pressure,” Mr. Nordberg said.

He noted a 3-5% increase in BGC’s rents and capital values for the next 12 months.

The remainder of the new office space will be “widely scattered” among Metro Manila’s main business districts, as a result of the “increasing pressure on real estate to facilitate all the businesses which the traditional CBDs cannot handle anymore.”

Because the outsourcing industry is “price sensitive,” tenants are willing to move to secondary business districts with cheaper occupancy costs such as Quezon City and the Manila Bay area,” KMC MAG said.

Makati will be able to provide additional stock through the redevelopment of the Ayala Triangle and the City Gate complex, but this will likely be available after 2018, “forcing companies looking for prime space to revert to BGC.”

“Despite the strong demand, the large pipeline is expected to maintain a downward pressure on rental growth and slightly increase vacancies, especially in 2016,” KMC MAG said.

Next year’s office supply is expected to peak, with 630,000 sq.m. to be added to the market.

As seen on Business World

MANILA — Leaders of the Philippine outsourcing industry said Monday they expect a big increase in business as the result of a new, highly detailed medical diagnosis coding system adopted by the US for insurance claims.

The Philippines is the world’s leader in international call center services. Its information technology and outsourced services industry is expected to employ 1.3 million people by 2016, when annual earnings are seen to reach $25 billion. The industry has been growing 15-18 percent yearly, earning $18.9 billion last year.

Dan Reyes, chairman of the IT & Business Process Association of the Philippines, said the new US coding system will open up more processing jobs and the Philippines stands to gain because of its large pool of graduates in medical-related fields.

Earnings have jumped 30 percent a year for the Philippine sector providing medical billing and other services to US companies, making it the fastest growing of outsourced services, said Jose Mari Mercado, the association’s president and CEO. It is followed by information technology, finance and accounting, and contact center operations.

Under the new system, the roughly 14,000 codes used by US health providers to represent diagnoses have been expanded to about 68,000 codes to capture more details of a patient’s chart.

The codes, for example, can now distinguish between whether a goose or a parrot nipped a patient.

The US government said the changes should help health officials better track quality of care, spot early warning signs of a brewing outbreak or look for illness or injury trends.

Mercado said the industry is coming up with a new roadmap from 2017 to 2022 that will consolidate plans for different sectors such as health care, animation, contact centers, finance and accounting, and game development.

The likelihood of maintaining or surpassing current growth rates “is very, very strong,” he added.

The new roadmap will identify opportunities and what needs to be done to address challenges including the lack of infrastructure, the loss of Filipino workers for better-paying jobs abroad, and adjusting to new business models that require more automation and robots, the industry leaders said. (AP)

As seen on Sun Star

The Philippine Economic Briefing at the Philippine International Convention Center on Wednesday (September 30) focused on economic developments and human capital investments.

Officials from the central bank and socioeconomic planning agencies presented key gains in these areas. They pointed out that the country’s economy grew by 6.2 percent on average in the last five years.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said that this makes the Philippines the fastest-growing country in the Association of Southeast Asian Nations-5 (ASEAN-5) — outpacing Indonesia, Malaysia, Singapore, and Thailand.

Tetangco added that growth was achieved despite low inflation in the past five years — at 3.7 percent on average. The governor stressed the need to sustain this growth, as the global economy is expected to remain weak amid volatile financial markets.

Tetangco said that strong macroeconomic fundamentals are not enough, and that sustaining growth requires institutionalizing governance, raising human capacity, and developing infrastructure.

Meanwhile, Socioeconomic Planning Secretary Arsenio Balisacan admitted that the country will grow at around 6% in 2015. This is a downward revision from the 7- to 8-percent goal the government set for this year.

Despite these, the secretary said that there are bright spots. Public investment in social services such as education, health care, cash transfers averaged 12 percent in the last five years, compared to 7 percent in the previous administration.

Overseas Filipino worker remittances, the business process outsourcing industry, and tourism receipts continue to prop up the economy. Key reforms in sin tax, competition, and foreign shipping and foreign banking also boosted the country’s competitiveness, pushing it 5 notches up to 47th out of 140 economies in this year’s World Economic Forum’s Global Competitiveness Index.

Balisacan and private sector representatives also discussed the so-called “youth bulge” in the Philippine economy. This means the economy has more workers than it can employ — mostly young people of employable age, with an average age of 23.

The Philippines is seen to experience the youth bulge from 2015 to 2050. Balisacan said that such a window helped spur the growth of East Asian economies from 1965 to 1985. So, maximizing the Philippines’ growth possibility during this period is crucial.

The panel raised several key reform areas to maximizing the youth bulge. These include matching youth skills with jobs; raising human capital investments in health and education; and policies for reducing dropout rates in high school.

The panel said that the youth should be encouraged to use the Internet to come up with creative business models, like that of Uber and Airbnb. They also recommend investing in workers’ productivity, which could then raise incomes.

As written by CNN Philippines’ Miro Capili

Real estate and property consultancy CB Richard Ellis (CBRE) Philippines underscored the immense growth of the national economy due in large part to the business process outsourcing (BPO) phenomenon in the past decade.

“We are where India was 10 years ago, and the best is yet to come,” stated CBRE Philippines founder, chairman and chief executive Rick Santos.

The company’s report cited Tholons’ list of Top 100 Outsourcing Destinations, with latest figures placing Manila on the second spot, surpassing Mumba, India. The Philippine cities of Bacolod, Baguio, and Iloilo also rose a few notches to number 86, 95, and 91, respectively. Davao and Santa Rosa, Laguna maintained their rankings at 69 and 82, rounding up a total of eight Philippine cities in the top 100 list.

Santos made the statement in light of his company marking two decades of operations in the country this year. “Since we started 20 years ago, the Philippines is now at its peak. We can be considered the call center capital of the world, and this speaks volumes of our success story as a nation,” he explained.

According to Santos, the world has set its sights on the “bright spot of Asia.” With a market of 1.3 million jobs by 2016 and an annual growth of 17 percent, the BPO industry remains the backbone of the Philippine economy.

Of all sectors, the BPO industry tops the list for size and growth trajectory, providing employment opportunities and encouraging foreign investments into the country. More growth is expected outside of Metro Manila as well, as BPO companies are increasingly looking to set up shop in what CBRE dubs as “next wave cities.”

“We are optimistic on the movement of the real estate market, as more investors are flocking in to take part in the opportunities outside the major CBDs like Clark, Iloilo, Davao, and Cebu. The playing field is much more exciting now with the creation of developer and investor-driven CBDs and the strong momentum of the BPO sector in the coming years,” stated Santos.

The BPO industry was not always the hot market it is today, according to Santos. The first contact center in the Philippines was set up by the Accenture Group in 1992, but it was not until 1995 that the Philippine Congress passed the Special Economic Zone Act, which eased restrictions in terms of lowering area requirements for developments and offering tax incentives to lure investors.

Since 2004, revenue has grown from US$1.55 billion in 2004 to US$15.5 billion in 2013, with employment ballooning from 101,000 to 900,000 Filipinos.

The Philippines registers high take-up rates compared to markets like India, Hong Kong and Jakarta, and consistently presents the lowest office rental rates in the region.

On the economic front, the country maintains its resiliency to China’s slowdown as the yuan devaluation spells a huge win for the BPO industry. The highly anticipated APEC business forum in November will also gather global leaders and once again put the Philippines in the global spotlight.

“With ASEAN expected to grow by US$2.78 trillion in 2017, the integration will only ramp up activity and interest in BPOs. There is a wealth of opportunity for the Philippines to establish its seat with the top economies given the growing middle class, robust domestic consumption, rising retail activity, and sustained growth in manufacturing,” said Santos.

“The BPO industry has come a long way from its humble beginnings as a single call center to the mammoth it is today. Only the best is yet to come,” he concluded.

As seen on Manila Bulletin

In a Sept. 18 report, titled “Philippines Monthly: The bright spot in EM” (emerging markets), Deutsche Bank said local financial markets tumbled along with peers last month after the Chinese central bank devalued the yuan.

Despite the sell-off, Philippine markets performed better among emerging economies, the bank noted, citing the country’s strong macroeconomic fundamentals and smaller bond and equity exchanges.

While economic expansion eased to 5.3% last semester from 6.2% a year ago — as against the government’s 7-8% full-year target — the bank said the country “continues to face positive growth prospects just when its Asian neighbors are at risk of slowing down.”

“Private consumption and investments have been strong, fueled by at least $2 billion of remittances every month, better job prospects from the services sector, and more recently, lower commodity prices,” Deutsche Bank said.

“This improvement in incomes can be observed in changing consumption patterns, with expenditures on non-essential items, transportation, education, and health contributing increasingly to overall private consumption growth.”

Deutsche Bank said it expects the economy to grow at 6% this year and 6.5% in 2016 from last year’s below-target 6.1%.

Sustained inflows from overseas Filipino remittances and the business process outsourcing industry also led the Bangko Sentral ng Pilipinas (BSP) to shore up ample reserves that it can tap to cushion the peso from depreciation pressures.

“Its reserves — equivalent to about 14x its gross external financing needs — make the BSP better equipped within EM to protect the economy from external shocks,” Deutsche Bank said.

“The economy also stands as less vulnerable relative to its peers in the face of rising borrowing costs, which could be triggered by the looming policy normalization by the US Fed.”

Government debt has been reduced to below half of the economy while household and corporate borrowings have continued to lag behind those of other Asian emerging markets.

“More worrisome then may be the pace of increase in leverage over the years amid declining borrowing costs. But the adverse impact of rising rates will likely be confined to limited segments of the economy,” Deutsche Bank said.

Going forward, the challenge now lies in the government spending as planned.

“A change in leadership is forthcoming, with elections taking place in May 2016. And this is likely to pressure the incumbent to push for spending, especially towards infrastructure (where there is a substantial deficit), if he wants to leave a favorable mark on the country,” Deutsche Bank said.

A strengthening of the currently brewing El Niño that state weather officials now say could turn out to be worse than the 1997-1998 “strong” event, however, could drag both local output and further weaken farm exports at a time of a slowing Chinese economy and sluggish global trade, the bank said. — Mikhail Franz E. Flores

As seen on Business World Online