Forecasts and predictions on the Philippine economy and real estate industry

from various industry experts and Colliers International Philippines.

Ten Predictions for 2014

– Owing to the recent calamities that hit the country,

analysts have revised their GDP forecast for the

country.

– The World Bank has lowered its outlook for 2014

from 6.7% to 6.5%. On the other hand, Nomura

and Citigroup are in unison in raising its GDP

forecast for 2014. Nomura adjusted their forecast to

6.7%, while Citigroup increased its outlook to 7.3%

from 6.9%.

– Moody’s Analytics also sees that “The Philippines

continues to outperform and will remain one of the

world’s fastest growing economies in 2014”.

– Analysts cited that rehabilitation and reconstruction

efforts in areas hit by the calamities will spur

economic growth in 2014.

1. Philippine economic growth in 2014 seen at 6.5 – 7.5%

Forecasts made by: Nomura, World Bank, Citigroup, Moody’s Analytics

Ten Predictions for 2014

2. Historically low interest rates to start climbing due to tapering

Sources: Business World, Business Mirror, Barclays, BSP

Ten Predictions for 2014

– The U.S. Federal Reserve has announced that they will

begin to taper its quantitative easing program in January

2014, as it reduces asset purchases by US$ 10 billion.

– While the U.S. Fed has not decided to directly alter

interest rates, most analysts expect long-term interest

rates to gradually increase as the effects of tapering is

felt.

– BSP Gov. Amando Tetangco has recognized that an

increase in local interest rates due to tapering is

“possible”, but some analysts such as Barclays believe

that the central bank will hold its interest rates until the

second half of 2014 due to the recent calamities.

– An increase in interest rates will be felt in the residential

real estate sector, which has been very active due to

historically low mortgage rates.

– The US dollar is anticipated to appreciate further against the Philippine peso.

Higher employment data reports and the tapering of the USD 85 billion asset

purchase program are seen as the main factors for the stronger dollar.

– BDO predicts that the exchange rate will play between P43 and P44 levels until

1Q 2014 due to an improving US economy.

– As a result of this, Manila will remain as the cheapest capital city to set up an

office in the Asia Pacific region.

3. US Dollar to strengthen further against the Peso

Forecast made by: BDO, Colliers International Philippines Research

Ten Predictions for 2014

– Condominium development in Metro Manila had a

banner year in 2012, with approximately 52,000

units sold. However, 2013 has seen a slowdown in

takeups, largely due to the pullback of several

developers in launching new projects. HLURB

license applications for high rise development for

the entire country have fallen by 36% from January

to July 2013. Interestingly, sales takeup levels have

exceeded new launches in the first nine months of

2013, indicating that demand is still strong.

– A possible increase in interest rates due to the U.S.

Federal Reserve’s tapering will have an downward

impact on residential sales, as mortgages would be

less accessible. Condo investors may also be

dissuaded once banks start offering higher deposit

rates.

– End-2013 levels are expected to be at around

45,000, with similar numbers seen in 2014.

4. Metro Manila condominium launches to remain at conservative levels

Forecasts made by: Colliers International Philippines Research

Ten Predictions for 2014

– Worsening traffic congestion in Metro Manila has

made the metropolis more unlivable. While the

economic impact of traffic is estimated at P140 billion

in wasted gasoline, productivity and medical issues,

the intangible cost such as lost time spent with loved

one is incalculable. Climate change has also brought

about more periodic flooding, which typically brings

life in the city to a standstill.

– Because of this, Transit Oriented Developments are

seen to be more popular, as these developments

allow people to live near mass transit that would

easily bring them to and from work. Several

developments that have access to light rail stations

have proven very successful.

– Mixed use developments and townships in or close

to central business districts (CBDs) would also

continue to be popular because of this shift in

lifestyles.

5. Transit Oriented Development (TOD’s) to continue as successful development formats

Sources: JICA, Colliers International Philippines Research

Ten Predictions for 2014

• The BPO industry continues to absorb most of

the new office supply being developed.

• The Business Process Association of the

Philippines (BPAP) estimates that by the end

of 2013, the industry would employ a total of

960,000 workers nationwide. This translates to

a demand for office space of about 2.8 million

sqm.

• Despite a substantial amount of new office

space being developed in the next three years,

vacancy rates are still seen to be low because

of the continuous strong demand.

• Expansions will continue in the Next Wave

Cities where labor pools are sustainable.

6. BPO industry to keep driving the Office sector

Forecasts made by: BPAP; Colliers International Philippines Research

Ten Predictions for 2014

– The emergence of Metro Manila, and to a

lesser extent Metro Cebu, as non-stop, 24-hour

cities is mainly due to the growth of the BPO

sector. With employees working the night shift,

support services such as restaurants and

convenience stores should also be available for

this emerging niche market.

– The emerging casino district known as Pagcor

City will also drive the transformation into a 24-

hour city, promoting entertainment and tourism

in the Manila Bay Area.

– Because of these trends, public services such

as traffic management and security should also

be active day and night.

7. Metropolises transforming into 24-hour cities

Forecasts made by: Colliers International Philippines Research

Ten Predictions for 2014

Prediction made by: Colliers International Philippines Research

– The Philippine manufacturing sector saw a resurgence in 2013 as some

manufacturing outfits decided to locate in the country, reviving an industry that

has been in the doldrums since the Asian Financial Crisis.

– Rising labor costs as well as growing regional territorial disputes have

prompted some manufacturers to move out of China and seek more

hospitable locations in Southeast Asia.

– More industrial park development is seen in Calabarzon as well as in the

Angeles-Clark area.

– A weaker Philippine Peso will benefit exporters and drive up manufacturing

activity even further.

8. Industrial property sector to accelerate growth

Ten Predictions for 2014

Prediction made by: PPP Center, Colliers International Philippines Research

– One of the criticisms on the Aquino

government is that the rollout of the public-

private partnership infrastructure programs

have been painfully slow.

– The government’s PPP Center have recently

announced that they are now targeting to

award 15 new PPP projects before the end of

Pres. Aquino’s term in 2016. Seven of these

projects should be completed by the time the

President steps down.

– Some of the projects that are anticipated to

have a direct impact on real estate

development are the Cavite-Laguna

Expressway and the LRT-1 extension

projects, which are seen to promote suburban

development south of Metro Manila.

9. More Public-Private Partnerships until 2016

Ten Predictions for 2014

– Colliers repeats this trend first mentioned in

2013, as extraordinarily strong typhoons and

earthquakes continue to be the new norm.

– Residential developments that are located in

safer districts would be in high demand,

especially those in areas with a low risk of

flooding and storm surges and far from fault

lines.

– Architectural and structural design will lean

towards those that would not only withstand

these natural calamities, but would also

minimize the buildings’ impact on the

environment that leads to these calamities in the

first place. The tenets of green building will be

valued more than before.

10. Homebuyers to continue seeking safer and higher ground

Prediction made by: Colliers International Philippines Research

Ten Predictions for 2014

Thank You

Romeo Arahan Research Analyst

Research & Advisory Services

Main +632 888 9988 ext.4030

Fax +632 845 2612

Email romeo.arahan@colliers.com

Julius Guevara Director

Research & Advisory

Main +632 888 9988 ext.4024

Fax +632 845 2612

Email Julius.Guevara@colliers.com