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Chinese appetite for Manila condos grows with warmer ties, weaker peso

Tourism and online gambling are helping to drive record residential sales

This SM Prime Holdings condominium complex near Manila Bay is home to many Chinese who work for offshore gambling companies. (Photo by Jilson Tiu)

MANILA -- In 2013, Hu Liyun, 42, acquired her first condominium in Metropolitan Manila -- a 24-sq.-meter unit for her twin boys, who would be staying there to study English.

Hu, whose family manufactures sofas in Zhejiang, south of Shanghai, soon realized that Manila condos aren't a bad investment. Last year, she purchased her third, a 45-sq.-meter unit near Manila Bay, for 6 million pesos ($115,000).

Recently, she decided to make some more serious real estate investments. Hu and some friends from China are planning to buy up to 50 condo units and transform them into a "condotel" -- a condominium building that provides hotel services.

"We would like to serve Chinese travelers who want Chinese-oriented services that are not provided by hotels here," Hu told Nikkei Asian Review on March 20.

Mainland Chinese like Hu helped drive Metro Manila's residential sales last year, when developers sold 52,600 condominium units, an all-time high, according to Colliers International Philippines, an industry consultant.

The take-ups, the first record high since the 2012 peak, were driven by growing disposable income, low interest rates and rising sales from Chinese, said Joey Bondoc, a research manager at Colliers.

Two major developers saw their 2017 sales surge, thanks to Chinese buyers. Ayala Land, the country's largest real estate company, said 49.4% of its international sales, which accounted for 34% of its total 122 billion pesos in total sales, came from Chinese buyers. The share of American and Singaporean buyers trailed at 15.2% and 5.4%, respectively. In 2016, Chinese made up around 10% of the company's international sales.

At SM Prime Holdings, the nation's most valuable real estate company, Chinese comprised 10% of international sales in 2017, up from "less than 5%" in 2016, according to Chief Financial Officer John Ong.

Developers said the reason is clear.

"You've seen what has happened in the last two years with the warming of relations between the Philippines and China," Ayala Land CEO Bobby Dy told reporters last month. "We see it in office take-ups from offshore gaming companies ... and also in the tourism numbers. We're also seeing a lot of Chinese investors buy property."

Hu Liyun visits a model unit of a Robinsons Land condominium project in Metro Manila. She is one of the mainland Chinese who purchased condos in the Philippine capital last year. (Photo by Cliff Venzon)

Ong, for his part, said: "You can attribute that to the growing relations between the two countries."

Upon assuming the presidency in 2016, President Rodrigo Duterte has made it a priority to repair diplomatic ties with China, which were damaged by the South China Sea territorial dispute. Duterte has effectively shelved the dispute and China has returned the favor by agreeing to fund billions of dollars worth of infrastructure projects.

But while large-scale railway and bridge projects are waiting for take-off, a clear windfall from the revitalized ties has been seen in tourism and immigration, which has helped the online gambling industry boom and thereby fuel demand for office and residential space.

Last year, 968,447 Chinese visited the Philippines, dislodging the U.S. as the second-largest source of foreign visitors after South Korea, and posting the fastest growth of 43.33%. Meanwhile, 53 Philippine online gaming operators, or POGOs, are dominated by Chinese. In 2016, when POGOs were launched by the Duterte administration, the number of Chinese who sought working permits rose to 18,920, from 5,412 in 2013, according to the Department of Labor and Employment. The figure surged last year as more Chinese offshore gambling companies started up.

Because of the massive office space requirement of POGOs, the marked slowdown in business process outsourcing investments, a major economic driver, was barely felt by the office sector. Metro Manila still saw record office take-up of 775,000 sq. meters last year, with POGOs contributing 30% of the demand, up from 9% in 2016. In contrast, the share of the outsourcing sector during the same period shrank from 39% to 65%, according to Leechiu Property Consultants.

The boom in online gaming perked up the residential market.

"In the Manila Bay area, much of the take-up is driven by offshore gambling companies, who would occupy one to two floors in a condo," said Colliers' Bondoc, adding that the Makati central business district saw similar demand.

"In some projects, they would easily take the 40% legal requirement," he added, referring to the constitutional restriction on the foreign ownership in condominiums.

Jing Zhou, a senior area manager for China at Robinsons Land, said a growing number of POGO employees -- which she estimates at around 100,000, including those who are undocumented -- are discovering that condos are good investments.

"Before, they remitted their money to China, but since the peso is depreciating they use the money to buy condos," she said. "They want to buy here because the prices here are cheaper than in China and the payment terms are very flexible."

The Philippine peso is trading at its weakest level in over a decade, and many analysts see further depreciation partly due to the expanding trade deficit. Meanwhile, residential yields in Metro Manila have remained healthy at 5.3% -- better than Bangkok, Shanghai, Hong Kong and Guangzhou, according to Colliers.

The year 2018 is shaping up to be another banner year for Chinese condo sales.

The real estate arm of DMCI Holdings, a major condominium builder in Metro Manila, said over 50% of its international sales in the first quarter are from Chinese, with mainland investors snapping up units. "If we don't control them, it could go up to 90%. No kidding," DMCI President Isidro Consuji said early this month.

DMCI has imposed a self-restriction of "one buyer, one unit."

"Our worry is that if we have too many absentee residences, you might have what you see in Shanghai or Beijing -- totally sold buildings but nobody is living there. It's also out of our objective of selling to end users -- preferably local end users," Consunji said.

The recent surge of Chinese workers and tourists is a result of the recent thaw in diplomatic ties, which could not easily be reversed by the next administration after Duterte's term ends in 2022, according to analysts, who cited economic benefits. 

"I think as long as we are in good friendly relations with China, this industry will continue to grow," David Leechiu, CEO at Leechiu Property Consultants, said, referring to online gambling, which is illegal in mainland China.

Chinese are undoubtedly favoring Duterte. "I like the new president. He is very open-minded, especially on his views toward the Chinese government. He is open to change," said Hu, who recently opened a Filipino-Chinese buffet in Metro Manila, in a sign of the improved relations between the two Asian neighbors.

SM Prime Holding's residential arm SMDC saw condominium sales from Chinese buyers doubling in 2017. (Photo by Jilson Tiu)

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