“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

 – Franklin D. Roosevelt, 32nd President of the United States of America


By Realttorney


Makati City will be hosting the 2nd Annual  Development Conference on May 27 to 28 at the Ascott Hotel. One of the keynote presentations during the first day is “Exploring the investment opportunities of mixed-use projects in Asia.” It will be delivered by Arch. Romolo V. Nati, CEO of Italpinas, Philippines.

The Philippines is not a stranger to mixed-use development projects as there are several in the National Capital Region (NCR). As this model has been a success, there are other similar projects in the pipeline from the major developers like Ayala Land.

FROM: http://www.philstar.com/business/ 2014/09/05/1365407/us-firm-hikes-phl-growth-forecast

With the strong economic growth experienced by the Philippines in the past 2 years, we ask the question: is the Philippines a more acceptable destination of foreign capital to fund mixed-use and other real estate projects today?

Today, the essay by Victor Calanog, PhD, who is the Chief Economist for Reis, Inc. based in New York City, gives us a perspective as to how investment decisions are made by foreign entities studying the local real estate environment. The essay is entitled “Global Capital Flows and the Philippine Real Estate Market.”

“Every year, PriceWaterhouseCoopers and the Urban Land Institute publish a document they call ‘Emerging Trends in Real Estate’ – the report is the result of one of the more comprehensive surveys available that covers investment and development prospects across geographies and property types.[1]

“The 2014 edition points out an interesting discrepancy about how senior real estate professionals who allocate capital across different countries view the Philippine real estate environment: Manila moved up to fourth when ranked by investment prospects, but was stuck in eighth place for development prospects. Why the difference?

“The key issue facing foreign investors who are thinking of providing capital to Philippine real estate projects is duration: how long will assets under management be tied up, and how quickly can they exit from an investment if market conditions change?

“With relatively strict foreign ownership laws governing property investment, entry and exit options are both somewhat constrained. If the project requires a longer germination period before investments begin earning steady cash flow – like development of a mall on land that needs to be reclaimed, for example – then investors begin worrying about whether a change in the political climate will impede economic growth (which has been spectacular in the last few years).

“Foreign investors therefore appear to prefer investing in existing properties given shorter durations, versus committing to longer term development projects.

“As a result of such skittishness and relatively limited capital inflow, property values remain firmly in emerging market category. Analysts worry about asset bubbles forming,[2] but sovereign wealth funds like Singapore’s Government Investment Corporation (GIC) find it challenging to derive scale economies from their Philippine investments.

“‘We just spent USD1.7 billion on acquiring part of an office building in central Tokyo,’ said a GIC senior officer that was in charge of Asia-Pacific investments. ‘We have a much smaller presence in the Philippines, but the cost it would take to monitor our investments in the Philippines would be similar to our Tokyo play.’[3]

“These realities are neither ‘good’ nor ‘bad’ – they are simply observations of where the Philippine real estate market is at this point in its development. Should the government implement tax exemptions to encourage the formation of REITs and the inflow of more foreign capital, at the expense of allowing ‘hot money’ to flow more easily out of the country in case of a regional scare like in 1998?

“Local property developers benefit from market knowledge and beneficial ownership laws – foreign investors must often partner up with them. Any change to the policy environment is a political decision – modifying ownership laws will require a constitutional amendment – that will have its winners and losers.

“The issue then from a policy perspective is whether the Philippines wishes to compete more fiercely for a larger share of global capital flows. Development and investment will be slower if the country relied mostly on domestic players.

“One of the net benefits of greater foreign participation would be greater transparency and faster, higher quality growth if competition imposes more stringent international requirements for disclosure. But opening up borders to foreign investment also carries some risks that need to be managed carefully.”

Policy makers in government will learn a lot from the insights of Dr. Calanog. It is succinct and direct to the point. His insights should also be considered in light of the upcoming ASEAN Economic Integration. For the Philippines to compete for a larger piece of the foreign investment pie, reforms and changes still have to be pursued and made.

In the future, we will post articles on the insights of high-level policy-makers in government – both in the Executive and Legislative branch ­– as they pertain to the real estate industry. Make sure to subscribe to our newsletter to get updates on real estate investing in the Philippines.



Our Guest Contributor and Friend:

Victor CalanogVictor Calanog is the Chief Economist for Reis, Inc, a commercial property research firm based in New York. His assessments of market conditions regularly appear in the Wall Street Journal, the Financial Times, and other publications; recent client engagements include credit risk analyses for major financial institutions and regulatory agencies. The author of over 100 articles and papers on real estate fundamentals and investing, he serves on the editorial and advisory boards of the CRE Finance Council, the Real Estate Research Institute, and the Counselors of Real Estate®.  He earned his MBA, MA and PhD from the Wharton School of the University of Pennsylvania, and his undergraduate degree from the Ateneo de Manila University.


[1] Disclaimer: The author of this article contributes to the ULI/PwC research project, so cannot be considered completely unbiased when it comes to assessments of its relative quality.

[2] “Record Manila Land Sales Stoke Frothy Valuations,” Bloomberg News, November 6, 2014.

[3] Conversation with the author; November 2014.