The Emperor’s old clothes | Bilyonaryo Business News
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The Emperor’s old clothes

By RAFAEL A. S. G. ONGPIN

It is no secret that the Metro Manila property boom in the early years of the Duterte administration was driven by the Chinese offshore gaming industry, or POGOs. Now that the POGO demand has evaporated due to the pandemic, 

is there anything left in the market? Leechiu Property Consultants, in their first-quarter 2021 report, says: yes.

Let’s look first at history. The Pagcor Offshore Gaming Operations, or POGOs, had ignited a dramatic and unexpected boom in the local property market. In 2016, that market was on a gradual down-cycle, as the biggest players had overbuilt, as they have done several times since the 1990’s. There then occurred an influx

of hundreds of thousands of mainland Chinese POGO employees, as the Duterte administration relaxed entry requirements, which also led to the notorious “pastillas” immigration bribery scams.

The non-premium office leasing market exploded. While the initial Chinese loca- tors were able to take up spaces on and near Ayala Avenue, for example vacated by erstwhile First Cagayan operators, they soon realized they did not need premium central business district locations, just premium broadband. Soon, they were leas- ing entire buildings in secondary districts from the North to the South of the city, and even to the East, in Rizal province. At their pre-pandemic peak in the first quarter of 2020, the POGO sector accounted for a huge 1,636,000 sqm of office space in the country, speculatively worth around PhP15-  20 billion in rentals annually.

All of these employees needed somewhere to live, medium to long term, as their extended stays did not justify hotel rooms. They were willing to pay well over the odds, compared to local residents. 

Initially, many of the Chinese firms rented houses in gated subdivisions, and packed their employees in densely, sometimes 8 or more to a single bedroom. They were often hot-bunking, which meant that one shift would sleep in the beds at night, and another shift would take their place during the day. These arrangements were, of course, in violation of most homeowners’ association rules. 

The local property players quickly stepped up, leasing existing condominium inventory, and soon erecting entire new buildings to house thousands of mainlanders. 

When the pandemic happened, by the third quarter of 2020, a mass exodus of POGO employees returned to China. The office leasing and condo market quickly collapsed, and many units are now empty. 

At the end of the first quarter of 2021, Leechiu reported that the market, while not exactly recovering, has slowed the decay.

Office leasing demand is up 22.5% to 109,000 sqm, compared to 4Q 2020, and driven by information technology (IT-BPM) and e-commerce. Contractions have slowed by 19%, PEZA buildings are still full. Leech- iu predicts 2021 demand will exceed 2020. 

The POGO sector has vacated 396,000 sqm of office space, 47% of total 851,000 vacated offices, and 23% of its 1.636 million peak. 53% of this vacated space was in PEZA zones. The growing IT-BPM sector quickly snapped up most of this. Nevertheless, the remnants of the POGO players continue to lease a formidable 1,240,000 sqm. 

However, 36% of office space, or 501,000 sqm, has been delayed, either deferred to 2021, or put on hold indefinitely. Since very few are building in PEZA zones, Leechiu predicts very few vacancies until 2023, and no vacancies in 2024 and 2025, which will raise rents.

Interestingly, the strongest IT-BPM growth has been in Iloilo, accounting for 43,000 sqm, 0r 22.5% of total, outstripping even Makati’s 35,000 sqm. The BPO sector as a whole continues to grow globally, and one Philippine locator, TaskUs, registered 41.5% growth.

Residential unit sales are up 5.7% since the dismal previous quarter, and upper mid- dle to luxury segment is recovering strongly. Leechiu predicts that lower interest rates, and better access to funding will also drive recovery in mass housing.

Indeed, sales are now at around 60-70% of 2019 levels. Lot prices and property values have continued to appreciate, not decline, despite the crash in sales. Condo developers are offering better financing terms, but not lower prices. 

Leechiu attempts to paint an optimistic picture for the recovery of tourism, saying the “online search interest for Philippine destinations... is returning to pre-COVID levels”, and showing the endorsements from major travel influencers, but the reality is that the sector is still in a major slump. Many hotels have closed, and Philippine Airlines is filing for Chapter 11 in the U.S. The light at the end of this particular tunnel has not manifested.

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