The ban imposed on Philippine Offshore and Gaming Operators (POGOs) is not expected to have much of an adverse impact on the real estate industry, according to the Department of Finance (DOF).
According to the DOF’s memo to the President regarding its position on POGOs, the move to put an end on POGO operations would bring more benefits to the economy.
“The pull-out of POGO operations will not derail the real estate industry,” according to the memo signed by finance secretary Ralph Recto.
“A report from Colliers notes that the condominium market, which also serves the POGO sector, remains resilient and is most likely on the recovery path due to the gradual return to traditional offices by both local and foreign employees,” Recto added.
On the sidelines of the post-SONA discussions held in Pasay City yesterday, National Economic and Development Authority (NEDA) secretary Arsenio Balisacan said the POGO industry contributed less than one-half of one percent of the country’s gross domestic product in 2022, which takes into the account the impact on the property sector.
“That’s what we’re likely going to lose. On the other hand, we are likely also losing due to the presence of these POGOs. For example, in tourism, China has made it clear that cross-border tourism are likely to be regulated by them for countries that host POGOs,” Balisacan said.
“If we take that into account, the losses to our GDP is in the order of one percent,” the NEDA chief said, adding the benefits of banning POGOs outweigh the costs.
Estimates from the DOF showed that the net cost of POGO operations reached around P99.52 billion annually.
The POGOs’ estimated total economic benefits only amounted to P166.49 billion per year, significantly lower than the estimated total economic costs of P265.74 billion annually.
The economic benefits took into account government revenues, such as tax revenues from the Bureau of Internal Revenue as well as Gross Gaming Revenues from the Philippine Amusement and Gaming Corp. (Pagcor).
The DOF memo estimated income from housing rentals from POGOs amount to P27.8 billion per year and income from office rental is just P2.66 billion.
Transportation benefits P3.09 billion per year.
Stocks retreat
POGO-related realty stocks retreated yesterday following the announcement of the ban.
DDMP REIT Inc. led the decline losing 5.17 percent or P0.06 of its share price in yesterday’s trading to close at P1.10. This was followed by SM Prime Holdings Inc., whose share price retreated 2.45 percent or P0.75 to P29.90. Robinsons Land Corp. (RLC) was down 2.09 percent or P0.32 to P14.98.
Megaworld Corp. dropped 1.6 percent or P0.03 to P1.8. RL Commercial REIT Inc. (RCR) dropped 0.71 percent or P0.04 to P5.56 while Ayala Land Inc. (ALI) declined 0.94 percent or P0.30 to P31.60.
Filinvest Land Inc., was the only POGO-related realty firm to stay resilient, closing unchanged at P0.69
Stockbroker Unicapital Securities Corp., said for DDMP REIT, 48 percent of its total GLA are rented out to POGOs and Pagcor-accredited tenants based on its 2023 financial report.
Unicapital said Filinvest Land only has 7 percent of its office portfolio occupied by POGOs and Megaworld, 4 percent.
“Others such as Ayala Land Inc., SM Prime Holdings Inc. (SMPH), Robinsons Land Corp. (RLC), and RL Commercial REIT Inc. (RCR) have minimal exposure of only 1 to 2 percent of office spaces,” Unicapital said.
Unicapital estimates POGO accounts for 11 percent of total gross demand for commercial office space in the Philippines.
“However, this is down from last year and from 2019 peak at 25 percent of total demand,” it said.
Online stockbroker Colfinancial.com said the decision is likely to negatively impact average occupancy rates of the industry, in turn imposing pressure on lease rates given the supply glut.
“The most that will be affected are stand-alone projects given their less-attractive value proposition compared to buildings inside an estate or township,” Colfinancial said.
It downplayed the impact on the residential segment given that most of its impact has been experienced through sales cancellation by Chinese buyers in 2022.
No property crisis
Stockbroker Abacus Securities Corp. said any adverse impact n will be cushioned by other positive development like better sales due to the reduction in interest rates.
“There has been talk of a property crisis if all POGOs and related companies leave or close.
But remember that the office vacancy rate in Metro Manila was only 3 to 4 percent in 2019 and ballooned to the high teens last year. Sure, it resulted in stagnant lease rates and revenues for the major developers but there has been no property crisis. Even if occupancy levels fall another 5 to 6 percent by yearend, it will be a setback but it should be more than offset by prospects for better residential sales as interest rates fall,” Abacus said.
“Nevertheless, there will probably be a knee-jerk reaction with selling concentrated on the most exposed stocks – DDMP, DoubleDragon, Filinvest Land and Megaworld. The worst part of DDMP/DoubleDragon is that POGO tenants are in arrears and so collectibility may be an issue moving forward,” it added.
Exodus during COVID
Sheila Lobien, chief executive officer at property consultant Lobien Realty Group (LRG), said during its heyday before the pandemic, the POGO industry occupied about 2 million sq.m.
Lobien said now that is down to just 30 percent or about 600,000 sq.m. as a lot of POGOs have left during COVID. Most of the vacated office spaces have been repurposed and occupied.
However, LRG expects higher vacancy rates in the office space, now at 18 percent, and in turn soften further rental rates by an additional 10 to 12 percent.
Office space rents currently average at P990 per square meter (sq.m.)
“No more new demand is then expected even from those licensed POGOs. Residential market, especially condominiums and single detached in gated villages will also soften.
There will be some impact in commercial retail as there will be less spend from POGO employees,” she said.
“Overall, the real estate industry will be negatively affected in terms of vacancy and rental rates for the office and residential submarkets,” Lobien added.
Joey Bondoc, head of research at Colliers, the substantial impact has already been felt in 2020 and 2021.
“That was a double whammy – pandemic and exodus (of POGOs),” Bondoc said.
He said any further deterioration in the residential segment will be marginal given the worst impact of the POGO exit has felt between 2020 and 2022.
“Even before the order, POGOs have been leaving,” Bondoc said.
Bondoc said between 2017 and 2019, POGOs were snapping 10,000 to 20,000 sq.m., of office space in a single transaction which also necessitated leasing residential spaces for its mostly foreign staff. Angela Celis, Ruelle Castro and Irma Isip