Archive for the ‘Economy and Real Estate Markets’ Category

« Older Entries

A Vote Of Confidence For The Philippines

Monday, May 13th, 2013

Today, the entire Filipino nation will exercise the right of suffrage — the much anticipated midterm and local elections, marking the start of the second half of the current administration. This momentous event coincides with the recent good economic news that has come the way of the Philippines.

The Philippines posted impressive GDP growth of 6.6% in 2012 and is expected to post a continued growth streak in 1Q13, as two of the pillars of economic growth — remittances from overseas Filipinos and tourist arrivals — posted strong growth in the first few months of the year. Remittances from overseas Filipinos grew by 6% y-o-y to USD 1.682 billion in February 2013 from USD 1.587 billion in the same period in 2012. Tourist arrivals for the first three months of 2013 reached 1.27 million, a growth of 10.76% from the 1.15 million tourist arrivals during the same period in 2012.

Just last week, the Philippines achieved its second investment rating upgrade from Standard & Poors, the result of continuing improvement in the economy, manifested in stable consumer prices, a better fiscal position and a strong external balance sheet. This came after the investment rating upgrade by Fitch Ratings in late March 2013, which highlighted the resilience of the economy amidst a weak global economy, improvements in fiscal management and a strong policy-making framework.

These investment rating upgrades are expected to improve the flow of investment into the Philippines in the medium- to long-term. One of the sectors of the economy that could clearly benefit from the potential surge in investments is the real estate sector. The investment rating upgrade could potentially boost the confidence of investors in various property products and investments because of stable market conditions and property yields.

While the potential increase in the level of investments in the property sector will also likely increase the level of risk due to speculative foreign investors, the government, through the Bangko Sentral ng Pilipinas (BSP), has implemented new measures to ward off short-term investments and speculators in the property sector. The BSP is set to refine its existing regulations to include stricter provisions to limit the loans extended by banks to the property sector, including housing loans granted to individuals, credits extended to property developers and holdings of securities issued by real estate firms.

These two coinciding events — improvement in the investment rating and the local and midterm local elections — show the level of maturity of some of the country’s institutions. As the relevant institutions continuously adapt to the highly dynamic economy, the fruits of the investment rating upgrades and the credible results of the election will project even stronger confidence in the market.

About the author
Claro Cordero Jr is the Head of Research, Consulting & Valuation Advisory Services for Jones Lang LaSalle in the Philippines.

Posted in Economic Research, Economy and Real Estate Markets, Investment Research, Philippines | No Comments »

Are Savings Just Thin Air?

Thursday, April 25th, 2013

On a trip back to Scotland a couple of weeks ago, what jumped out at me was how much better the air quality was in comparison to Hong Kong.

This is far from a new topic, but realistically how do we address air quality in emerging Asia? In thinking of the interest groups and stakeholders involved this reminded me of the dilemma originally raised by ecologist Garrett Hardin. His theory tackled the socio-economic dilemma of a group of individuals when sharing a common resource. Known as “the tragedy of the commons,” this theory can be applied to a myriad of scenarios when society shares a common resource – in this case the wider environment.

In its simplest sense, the theory references the practice of medieval common grazing by herdsmen for their cattle. It goes something like this. Any single herder will have a personal motivation to add one more cow to his herd, because even if the results of adding additional cattle to his herd cause overgrazing and damage to the pastures, the herdsman receives all the economic benefit of adding those additional cattle, whilst the damage to the lands is shared by all.

Now, I’m not going to solve the air quality issues in Hong Kong in 500 words, but what is clear is that we all have a stake and responsibility in tackling these issues and this applies as much to real estate professionals just like myself. With a significant proportion of energy consumption being taken up by real estate, globally we have a duty and a responsibility to drive forward change to improve the impact we have on our “pastures.”

Now what Hardin did not address in his paper was technology. Technology provides solutions to problems. Yes we can legislate, but the winning argument in relation to real estate in this debate in my mind is simply the bottom line. When businesses start to see the savings and benefits to their bottom line of adopting more sustainable new technologies in real estate, adopting new best practice will just become the natural course. Technology is already moving fast and the real estate industry has some brilliant technologies at hand already.

The savings from sustainability are very real, not just on the impact we have on our “pastures” but on the bottom line. A great example is our new LEED Platinum office in Hong Kong. Our new office consumes 13% less energy per sq ft and better air quality has greatly improved the environment, indeed we’ve seen a 32% reduction in absenteeism.

I’m not saying technology has all the solutions now and that the payback times and the investment are not prohibitive at times. However, what is true is that the more it’s adopted, the more the costs will come down making it a more viable option.

A project we undertook in New York on the Empire State Building is a great example of how savings can be made even today. Not only did we deliver a project to improve sustainability which would pay for itself in three years by saving US$4.4m per annum in energy savings, the energy reduction and thus the impact on the planet, was in the region of 38%.

So the lesson is this, not only is the technology here to save us from a similar “tragedy of the commons,” but it’s improving every day. The savings to the bottom line are real and it’s up to us as real estate professionals to promote best practice in our industry. We can’t solve transport and factory pollution; however, with a little effort from all stakeholders, there will be some very tangible benefits for the wider environment and also the bottom line of developers, tenants and landlords – our clients.

About the author
Roddy Allan is a Director, Asia Pacific Research for Jones Lang LaSalle, based in Hong Kong.

Posted in Affordability, Air Quality, Asia Pacific, Asia Pacific Economy and Property Markets, Commercial Property, Corporate Real Estate, Economic Research, Economy and Real Estate Markets, Finance, Hong Kong, Occupier Strategies, Pollution, Real Estate Research, Sustainability, Technology, Urban Issues, Workplaces | No Comments »

Mitigating The Effects Of Peso Appreciation In The Philippine Real Estate Industry

Tuesday, March 12th, 2013

The continued appreciation of the Philippine peso, which has been led in part by a surge of “hot money” from foreign investors seeking higher returns, has raised concerns about the stability of the country’s economic growth path and subsequently, the continued expansion of the real estate industry over the medium term.

The ill effects of infusing “hot money” into the economy can easily be remembered from the situation in 1997, which triggered the collapse of the stock market and consequently caused investors to be less confident about the economy. Subsequently, crucial economic sectors were negatively affected by the situation, especially the real estate industry. Recently, the Bangko Sentral ng Pilipinas implied that due to the depressed global economic conditions, “hot money” was being pumped into the system by speculative foreign investors scouting for markets with higher returns.

The recent appreciation of the Philippine peso is anticipated to affect the local real estate industry. The strong local currency is likely to have an effect on the major sources of demand – the foremost of which are offshoring and outsourcing (O&O) companies and the remittances of overseas Filipinos (OFs). The continued appreciation of the currency may cause operating costs to rise, which could be an additional burden on O&O companies. OFs must continually send money home to support their families (education, sustenance and housing costs). Given this, the strong Philippine peso is likely to adversely affect OFs and their families.

However, by examining recent trends, the adverse effects of the continued appreciation of the local currency could be minimised or stopped over the long term. Upon looking at the basic reasons why O&O companies establish operations in the Philippines and how Filipino labourers are regarded overseas, it seems that the appreciation of the Philippine peso can only affect the industry to a certain extent. Aside from fixed operating expenses, the quality of an area’s labourers – namely, highly skilled, English-speaking workers that reduce training and retention costs – drive O&O operations to relocate. On the other hand, the remittances of OFs managed to grow strongly by 6.3% to USD 20.1 billion in 2012 and are expected to continue increasing over the medium-term due to the rising demand for skilled Filipino workers abroad. As the global economy recovers, it is highly probable that both the O&O sector (as companies intend to further outsource non-core services) and the remittances of OFs (as the demand for highly skilled labourers continues to increase) will continue to exhibit a trend of further growth.

The best way to fend off the adverse effects of the currency appreciation is to ensure that the basic competitive advantage of the country’s economy – the highly skilled Filipino labour force – is sustained and constantly developed. Strategy and significant monetary and fiscal policies should be coupled together to create a well-balanced market that can curb speculative growth, properly channel the inflow of investments into the economic system and ensure lasting economic development and real estate growth.

About the author
Claro Cordero Jr is the Head of Research, Consulting & Valuation Advisory for Jones Lang LaSalle in the Philippines.

Posted in Economic Research, Economy and Real Estate Markets, Philippines | No Comments »

Yangon Heats Up

Monday, February 18th, 2013

As the de facto centre for much of Mainland Southeast Asia, our Bangkok office has received an increasing number of enquiries from offices around the world seeking information or analysis on the real estate markets and opportunities in Myanmar over the past twelve months. Ongoing government reforms there have continued to draw a flood of interest given the perceived high potential for growth in a country with a population of 50 million, rich in natural resources and in proximity to many other high growth markets. Should the necessary legal and policy framework be put in place and sustained, the real estate markets in Myanmar, and particularly in Yangon, will need to evolve quite quickly to accommodate new demand generated by rapid expansion of investment, consumption and global trade.

Even in these initial stages of reform, where activity is mostly exploratory, real estate development of all types whether it be office, hotels, retail or residential is in short supply. Relatively isolated for a few decades, new development has only recently emerged. Although the capital was relocated to Nap Pyi Daw in 2006, Yangon is likely to remain as the commercial hub given its history, the fact that most of the large domestic companies are headquartered here, and infrastructure for manufacturing is most ready in proximity. Having said this, many issues pertaining to development will need to be resolved before it can proceed in a large scale.

While passage of the foreign investment law sets the stage for foreign capital to help finance new real estate development, other laws and regulation directly related to real estate development are lacking. Among these is a town plan for Yangon, which when complete, should provide a picture of how the city will evolve over the coming decades. Furthermore, zoning, building codes and restrictions determining what should and can be done in various parts of the city do not exist either. Finally, the lack of alternative investment class means that capital and wealth has been tied up in land across the city driving up prices. The current perception of land value is often well above the real economic value based on the various types of development that should be undertaken. All of these are likely to slow down a rapid spate of new real estate development.

Meanwhile, occupiers, manufacturers and tourists will have to make do with the limited options that are available at office, residential rents and hotel room rates that are well above those in the rest of the region. Given the interest that has already been shown in real estate investment, a supply response should arrive as the political reforms prove credible and the necessary laws and regulations are put into place.

About the author
Dan Tantisunthorn is the Head of Research for Jones Lang LaSalle in Thailand.

Posted in Economy and Real Estate Markets | No Comments »

A Brief Look Behind The Philippine Real Estate Market’s Growth In 2012

Thursday, January 17th, 2013

The past year has once again showed the resiliency of the Philippine real estate market amidst the uncertain global economic conditions. The robust performance of the Philippine economy, along with the positive performance of such key real estate demand drivers as the offshoring and outsourcing (O&O) industry and remittances from overseas Filipinos, continued to sustain the property sector’s growth momentum.

In 2012, the Philippine economy experienced various challenges and risks. Foremost among the threats was the fragile global economic environment caused by the sovereign debt crises in the Eurozone and the US debt and fiscal cliff problems. Moreover, the continued unrest in the Middle East, particularly Syria’s bloody civil war, threatened to affect remittances sent by overseas Filipinos (OFs) from these areas. Despite all these, the Philippine economy was strong in 2012 and many were pleasantly surprised when the 1Q12 GDP recorded growth of 6.4%. This momentum was maintained throughout the year, with 3Q12 GDP growth at 7.1%. In addition, the country’s credit rating was upgraded in 2012. Standard & Poor’s and Moody’s both raised the country’s rating to just one notch below investment grade. These upgrades are positive signs that an investment grade may be achievable before the current administration ends its term. The backdrop of a healthy domestic economy and encouraging investor environment buoyed the property market in 2012.

The O&O industry remained the primary driver of demand in the office market. The O&O industry continued to expand in 2012, bringing total office take-up in Metro Manila over the 400,000-sqm mark. Despite the large office supply completed during the year, average vacancy across business districts in the metro remained low at approximately 5%.

Meanwhile, OF remittances continued to grow in 2012, despite economic difficulties in such source countries as the US and Europe. For the first ten months of 2012, personal remittances grew 5.9% y-o-y to USD 19.5 billion. The sustained inflow of remittances supported the retail sector and demand for residential housing throughout the year. The growth of consumer spending buoyed by remittances attracted more international and local retailers to expand in the country. In the residential market, OF remittances continued to support the healthy sales rate of major projects.

The projected growth of the O&O industry and OF remittances, coupled with the country’s strong economic fundamentals and overall positive investor sentiment, is likely to carry the real estate market through 2013, despite the global headwinds. If the Philippine Stock Exchange index (PSEi) reaching the 6,000-level early this year is any indication, then the outlook for the local economy and the real estate market looks bright.

About the author
Jessica Mae Go is an Assistant Manager for Jones Lang LaSalle in Philippines, based in Manila.

Posted in Economy and Real Estate Markets, Offshoring and Outsourcing, Philippines, Real Estate Research | No Comments »

A Good Start To The Year

Monday, January 7th, 2013

Asia fared better than other regions last year, but it too has not been immune to what’s been happening in the world’s economies over the last 12 months. This is evident given the new economic data from Singapore which shows that Singapore narrowly missed slipping into a recession in the fourth quarter with economic growth of only 1.8% (Q-o-Q annualised) in the fourth quarter.

So, now with 2012 in the past, what will 2013 have in store?

Well, certainly if the start to the New Year is anything to go by, things globally are looking a little rosier. Before I’d even set foot back into the office, the US fiscal cliff deal had bolstered equities markets around the globe; the FTSE was over the 6,000 mark for the first time in 18 months, and the Hang Seng up over 3%. Indeed as at the 4th of January, these bourses are up considerably on a y-o-y basis, nearly 12% and 30% respectively.

Being in the research business I understand just how important quality information is. Our clients buy the Real Estate Intelligence Service (REIS) for a reason, sometimes they need concrete historical data and forecasts, sometimes they need access to observations and people on the ground.

On this basis, and given I’ve just completed my busiest time of the year out and about meeting up with clients and potential clients to discuss their plans for the year ahead, I thought I’d bring you some of my take-aways. Hopefully some of these high level observations may provide a little insight as to what may be in-store for us in Asia Pacific’s real estate markets in 2013.

By observation, there seems to be an air of confidence regarding Asia Pacific going into 2013. The region in general is very much on investors’ radars, possibly even more so than before. Interestingly, South East Asia which had not been in the sights of some clients, seems to be back on the agenda. China is still very much in favour and I continue to see increased interested in our REIS services for this market – something which I think bodes well given that this is a potential leading indicator for where clients may deploy capital.

Clients new and old alike, seem to be focusing their sights and refining their strategies – especially on the debt and investment front. For some investors 2011/2012 was a period of restructure, however with these restructures mainly worked through and now with tighter leaner teams at the fore, these investors are now in better shape to move forwards in 2013.

Indeed, if the latest RMB billion land transaction in Beijing is anything to go by, the highest premium paid at auction in two years, then the sun is still shining!

A Happy New Year, may it be good to all of us!

To access a taster of some of the key real estate indicators available through REIS, download our NEW mobile site to your handset at www.joneslanglasalle.com/datatouch.

About the author
Roddy Allan is a Director, Asia Pacific Research for Jones Lang LaSalle, based in Hong Kong.

Posted in Asia Pacific, Asia Pacific Economy and Property Markets, Capital Markets, Commercial Property, Economy and Real Estate Markets, Investment Research, Real Estate Research | No Comments »

A Look Back At 2012

Friday, December 21st, 2012

Another year has flown by…while the world economy has slowed further. Asia Pacific certainly hasn’t been immune from the global challenges, but it has held up relatively well this year all things considered. As I look back on the last twelve months, here are a few of the highlights:

  • 2012 regional growth is expected to come in at around 4.8%, or almost three times higher than the rest of the world. While the region’s exporters have been hit by weak demand from the West, growth has been bolstered by stronger domestic sectors.
  • Once again, China has been the regional outperformer with expected GDP growth of close to 8%, and recent data suggest a bottoming out of the slowdown there.
  • The prize for “emerging star” goes to Indonesia, while South East Asia generally has proven to be quite resilient over the course of 2012.
  • Across the region’s property markets, we’ve seen a divergence between leasing and investment activity levels this year. Corporates have remained cautious about expansion plans while investors, mainly cash rich locals, have continued to seek out acquisition opportunities.
  • Top of the office market rankings in terms of rental and capital value growth have been Beijing and Jakarta – not surprising given the economic performance and demand-supply fundamentals of these markets.
  • These results are in keeping with our latest global real estate transparency findings published in mid-2012. The biggest improvers in Asia Pacific over the last two years have been the South East Asian countries, led by Indonesia. China also recorded good progress.

    • The AP research team trusts that you’ve found our research to be of value in your decision making and we hope that you’ve enjoyed our blog series this year. We’re taking a short break from blogging and will be back in the new year.

    On behalf of the team, I would like to wish our readers a happy festive season and all the best for 2013.

    About the author
    Dr Jane Murray is the Head of Research, Jones Lang LaSalle Asia Pacific.

    Posted in Asia Pacific, Asia Pacific Economy and Property Markets, Economic Research, Economy and Real Estate Markets | No Comments »

    Will There Be A “Scrooge Christmas” In The Philippine Real Estate Market?

    Thursday, December 13th, 2012

    The year-end holiday season usually signals an upbeat performance by the Philippine real estate market. Despite the strong economic performance of the Philippines since the beginning of 2012, there exist a number of market trends that may possibly threaten the festive mood of the holidays. Thus, it is worthwhile to examine these factors that may significantly alter the growth path of property demand and hint on a “Scrooge Christmas” scenario in the property sector.

    Growing residential supply

    The unprecedented volume of vertical developments and the pace of the construction of upcoming residential condominiums, particularly in the mid-end market, have raised concerns over whether a bubble could be potentially growing in the residential sector. However, the recent mandate by the Bangko Sentral ng Pilipinas on banks’ additional disclosure regarding their real estate exposure is expected to allay fears in the market. Furthermore, seasonal demand is projected to buoy the market as residential sales normally peak during the season on the back of increased spending. This is further encouraged by flexible Christmas promos by developers seeking to capitalise on the higher spending. Also, majority of lease transactions are closed within December as landlords and tenants prepare usually aim to finalise their housing requirements before the coming year.

    Strong local currency

    The Philippine peso has continued to gain strength over the US dollar, reflecting the country’s positive economic performance. While the strong local currency may seem positive, it also means that the value of remittances will be lower. The stronger peso may affect the budget and purchasing power of overseas Filipinos (OF) households which may slightly impact their demand for retail goods and residential housing during the holiday season. Nonetheless, the sustained growth of remittances is forecast to offset the effects of the stronger currency. This is supported by the improved financial services and channels that facilitate the efficient transfer of remittance inflows.

    In the office market, the strong Philippine peso vis-à-vis the US dollar may lower the offshoring and outsourcing (O&O) industry’s competitiveness. The strong local currency may inflate the operational costs of local O&O firms. Even so, the Philippines is expected to remain competitive, overall, especially with other key competencies of the country such as the quality of English accent, scalable and large talent pool, and occupancy costs.

    Moving forward

    Overall, the Philippine property market is forecast to remain in a position of growth moving forward. The country’s strong economic fundamentals accompanied by the growth of property demand drivers, such as the O&O sector, OF remittances and the tourism industry, are projected to be sustained and offset the headwinds from the potential “Scrooges” in the Philippine real estate market this Christmas season.

    About the author
    Janlo de los Reyes is the Senior Research Analyst for Jones Lang LaSalle in the Philippines.

    Posted in Economy and Real Estate Markets, Philippines | No Comments »

    Averting The Property Bubble In The Philippines

    Thursday, November 22nd, 2012

    I am often asked if there is a property bubble developing in the Philippine property sector, specifically in the residential condominium segment. The anxiety brought on by this question is allayed by the recent activity that has been seen in other mature markets, such as Singapore and Hong Kong, where the government has played an active role in curbing the excessive escalation of property prices.

    In the Philippines, the Bangko Sentral ng Pilipinas recently ordered banks to provide additional details about their real-estate exposure, requiring them to provide details on: (1) the investments in debt and equity securities that fund property ventures and the loans given to property developers; and (2) the ancillary services relating to the construction and development of real estate projects such as the buying, selling, renting and managing of these real estate properties.

    Some market players saw this move as a pre-emptive measure to curb any property bubble that might be developing as a result of the unprecedented amount of building seen in the country, especially in the high-rise condominium market. There are currently around 130,000 luxury-to-mid-end residential condominium units in Metro Manila, and over 1.2 times or some 150,000 units are expected to complete within the next five years.

    In terms of asset performance, the bigger picture indicates a fairly moderate growth. The compound average annual growth rate of resale capital values between 2009 and 2012 has been 11%, in a sample of the existing luxury and high mid-end condominium developments in the Makati CBD and Bonifacio Global City. Additionally, the average sale prices of new developments have exhibited a similar trend during the same period.

    The hard lessons learned during the 1997 Asian Financial Crisis have prompted local regulators and developers to promulgate measures to prevent a property bubble from developing. Further, the regulators are motivated to prevent further disruptions in the market (which are likely to be brought by a property bubble) as the economy is set to receive upgraded credit and investment ratings from reputable rating agencies.

    The challenge today is for both the regulators and the key market players to work together in analysing the sector by ensuring that the market information they provide is transparent and reliable. Hence, we believe that a more in-depth study of the various factors affecting the growth in the high end residential segment should be conducted to accurately determine the situation and aid the regulators in prescribing a more targeted preventive measure to avert any property bubble from developing.

    About the author
    Claro Cordero Jr. is the Head of Research, Consulting & Valuation Advisory for Jones Lang LaSalle in the Philippines.

    Posted in Economy and Real Estate Markets, Philippines, Real Estate Research, Residential Research | No Comments »

    Curtains Closed On 18th National Communist Party Of China Congress

    Monday, November 19th, 2012

    The closing of the 18th National Congress of the Communist Party of China marks a significant milestone for the change of leadership at the top-most echelons of the world’s second largest economy. Although the government leadership handover will only take place during the National People’s Congress in March next year, the change of guard within the Party’s leadership has already removed the bulk of political uncertainties. We think that investors can be relieved that over the near-to-medium term, not much has or will change in terms of policy inclinations.

    In his maiden speech as the party’s new Secretary-General, Xi Jinping revealed little about ideologies and focused more on pledging his commitment to serve the people, improve their livelihoods and stamp out corruption. The next window of opportunity to get a better handle on where policy direction is headed would be during the Central Economic Work Conference next month, when the government sets the policy tone for the new year. Data in recent months has shown that China’s economic growth has stabilised and is rebounding slightly. With that in mind, we would not be looking out for new stimulus measures to be introduced but would expect existing growth supportive measures to remain in place. Little direct reference was made to the residential sector. But allusions to improving livelihoods of people and social inequalities would suggest that the current restrictions in place are not likely to be lifted any time soon.

    In terms of economic reform efforts, initiatives that have already gathered momentum – expansion of services sector, liberalisation of RMB, increased access to credit by SMEs, expansion of pension and health care coverage, improvement of infrastructure and development of social housing etc. – are expected to continue and will remain very much the focus of the new government. Correspondingly, China’s real estate fundamentals can be expected to remain well supported by these structural drivers.

    However, China’s economic transformation process is a complex one that would require tackling many other areas. In particular, reforms in the areas of financial markets, public finance, role and structure of SOEs, hukou system etc. would need to be accelerated in order to complete the economic growth transition. Although not new, driving further urbanisation was mentioned as a key area of development in Hu Jintao’s keynote speech during the Congress, suggesting that a lot more needs to be done in this area. These are very challenging issues where relatively less momentum has accumulated. As such, we do not expect to see major policies in these areas until a time when the domestic economic recovery is on a stronger footing at the very least. Furthermore, as with other new governments in the world and arguably more so in the case of China, a period of time is needed for the new leaders to consolidate their influence and power before any meaningful progress can be made in these difficult areas. For more clues on how these areas will develop, we would probably need to wait until the plenary sessions of the new CPC Central Committee next year or even later.

    About the author
    Mark Ho is the Local Director for Jones Lang LaSalle in Beijing.

    Posted in China, Economy and Real Estate Markets | No Comments »

    « Older Entries