frolands blog

RA 11569 to give a second chance in settling Tax Amnesty Delinquencies until July 14, 2023

By | chiaras blog, frolands blog

By Chiara Axibal and Froland Tajale

Real Estate Research Analysts | TFA News


On July 30, 2021, President Rodrigo Duterte signed into law RA 11569, amending RA 11213 (The Tax Amnesty Act) to extend the validity of the tax amnesty for another two years. The deadline of applications has been postponed from June 14, 2021 to June 14, 2023.

The law is considered vital to the recovery of the economy as government-imposed lockdowns took away significant filing time from potential filers for estate taxes, resulting to not fully completing the estate tax amnesty process for the entire period allowed by the law. The new law was published in the Official Gazette on June 30, 2021 and took effect in July 15, 2021.

Revisiting RA 11213


An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable Year 2017 and Prior Years with Respect to Estate Tax, Other Internal Revenue Taxes, and Tax on Delinquencies.

RA 11213, otherwise known as the “Tax Amnesty Act” of 2019 is aimed at giving a “one-time opportunity to settle tax obligations through an estate tax amnesty program that will give reasonable tax relief to estates with deficiency estate taxes,” Section 2, Clause (a) reads. It is a window of opportunity for taxpayers to settle their unpaid internal revenue taxes for all taxable year 2017 and the years prior. The Estate Tax Amnesty only covers the Estate Tax Amnesty and Tax Amnesty on Delinquencies, not the General Tax Amnesty.


RA 11213 took effect on February 14, 2021 and was published in the Official Gazette. It became effective on April 24, 2019. The Implementing Rules and Regulations of Tax Amnesty on Delinquencies was released on April 5, 2019.


The Estate Tax Amnesty includes the estate of decedents who died on or before December 31, 2017, whose estate taxes remained unpaid or have accrued as of December 17, 2021. Exceptions to this rule are stated in Section 9 of the republic act:

  • estate tax cases which shall have become final and executory; and
  • properties involved in cases pending in appropriate courts.

Tax rate

The estate amnesty tax is set at the rate of 6% based on the decedent’s total net estate at the time of death, except when the estate tax return was previously filed, in which case the tax base shall be 6% of the net undeclared estate.

How to Avail of the Estate Tax Amnesty

The estate administrator, lawful heirs, or beneficiaries who wish to avail of the Estate Tax Amnesty must file a Sworn Estate Tax Amnesty Return within two (2) years from the effectivity of the Implementing Rules and Regulations (IRR), dated April 24, 2019. It should be filed and paid simultaneously at the Revenue District Office of the Bureau of Internal Revenue (BIR) which has jurisdiction over the last residence of the decedent.

Immunities and Privileges of Availing the Estate Tax Amnesty

The payment of the estate tax amnesty shall be “immune from the payment of all estate taxes, as well as the increments and additions thereto, arising from the failure to pay any and all estate taxes for taxable year 2017 and prior years,” the law reads. Those who avail of the estate tax amnesty also have the privilege of immunity from civil, criminal, and administrative cases and penalties.



Philippine National Authority:

Official Gazette:

RA 11569:

RA 11213:

Post-SONA Priority Business Legislation

By | frolands blog

Post-SONA Priority Business Legislation

July 27, 2021 | Froi M. Tajale


President Duterte’s term-ender State of the Nation Address (SONA) on Monday, July 26, 2021, highlighted the Administration’s misses on its common legislative agenda (CLA) set by the Legislative-Executive Development Advisory Council’s (LEDAC) during the 17th and 18th Congresses. Only 11 months remaining in the Office, the Duterte Administration has enacted 24% or 14 out of the 58 CLAs identified as of the President’s last SONA, surprisingly despite the fact that members of the President’s party list—PDP-Laban, constitute a supermajority in the House of Representatives.


Enacted Priority LEDAC Legislation

18th Congress

1 General Appropriations Act (GAA) for Fiscal Year (FY) 2021 RA No. 11518, signed December 28, 2020
2 Financial Institutions Strategic Transfer (FIST) Act RA No. 11523, signed February 16, 2021
3 Amendments to the Anti-Money Laundering Act RA No. 11521, signed January 29, 2021
4 Coconut Farmers’ and Industry Trust Fund Act RA No. 11524, signed February 26, 2021
5 Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act RA No. 11534, signed March 26, 2021

17th Congress

1 Free Higher Education Act RA No. 10931, signed August 2, 2017
2 Comprehensive Tax Reform Program RA No. 10963, signed December 19, 2017
3 Philippine Qualifications Framework RA No. 10968, signed January 16, 2018
4 Amendments to the NIA Charter RE: Free Irrigation Act RA No. 10969, signed February 2, 2018
5 Ease of Doing Business Act/Fast Business Permit Act RA No. 11032, signed May 28, 2018
6 National Mental Health Care Delivery System Act RA No. 11036, signed June 21, 2018
7 Strengthening the Balik-Scientist Program RA No. 11035, signed June 15, 2018
8 Unified National Identification System Act RA No. 11055, signed August 6, 2018
9 Occupational Safety and Health Hazards Compliance Act RA No. 11058, signed August 17, 2018


While the remaining 44 CLAs are getting hurdles in the House of Representatives, President Duterte called on the Congress to expedite the passing of 12 legislative measures before his term finally ends at noon on June 30, 2022. These include:

  1. Unifying the system of separation, retirement, and pension for uniformed personnel
  2. Free legal assistance for police and soldiers
  3. Foreign Investments Act amendments
  4. Public Service Act amendments
  5. Retail and Trade Liberalization Act amendments
  6. Creation of a Department for Overseas Filipinos
  7. E-governance Act
  8. Creation of the Philippine Center for Disease Prevention and Control
  9. Creation of the Virology Institute of the Philippines
  10. Creation of a Department of Disaster Resilience
  11. Law mandating evacuation centers in provinces, cities, and municipalities mandatory
  12. Modernization of the Bureau of Fire Protection

Of the listed measures, one is focused on providing an inter-agency digital infrastructure for the national and local government and their attached agencies, a common internal records management information system and information database, and digital portals for the delivery of public services through the e-Governance Act.

Another is proposed to create a Department for Overseas Filipinos to streamline all agencies that serve as helpdesks for the overseas Filipino workers, while two are aimed at strengthening the benefits received by the uniformed and armed personnel of the Philippines, and at providing legal assistance to them when faced with legal actions in performance of their duty.

Eight reforms, however, are expected to have a long-term effect on the business sectors in the country. These are hoped to be the legacy reforms that the Duterte Administration will provide to the ailing economy following the impact of the pandemic. These are as follows:

Pandemic mitigation and disaster response

While legacy policies and achievements of the Duterte Administration were emphasized in his speech, including that of increasing the infrastructure spending of the government to 5% of its gross domestic product (GDP) from an average of 2% of the previous administrations, the battle against the proliferation and usage of illegal drugs, the validity extension of Philippine passports and driver’s license, and pinning down of oligarchs and anti-state rebel groups, among others, the SONA was rather lacking in providing adequate direction for combating the pressing battle of the country against the COVID-19 virus and its variants in the President’s final year in office.

The creation of additional bed spaces and quarantine facilities may gain accolades, but the necessity to contain the viral contagion is still left to the ostensible effect of community lockdowns should another surge of cases occur. This may impose risks on labor-intensive and export-oriented industries that are more likely to boost economic recovery.

President Duterte, however, called on Congress to prioritize the creation of the Philippine Center for Disease Prevention and Control, and the Virology Institute of the Philippines to address the concerns of similar health-related crises in the future.

Disaster preparedness and response was also a predominant theme in the SONA given that the country is frequented by natural calamities year-round. The creation of a Department of Disaster Resilience and modernization of the Bureau of Fire Protection are hoped to facilitate readiness of the country against disasters.

Low hanging fruits that keep on hanging

For more than a decade, various congresses have attempted to amend business laws that are restrictive to feasible range of investment levels, but to no avail. The triad of laws have been deemed as economic enablers to facilitate more domestic and foreign investments in the country.

Hurdles have embattled the reform of the Public Service Act of 1936 (Commonwealth Act No. 146) that has been restricting foreign investments in fundamental sectors of the country. Since the enactment of the PSA Act, investment in public services and utilities is subject to 60% Filipino ownership before getting approved. The proposed amendment will then provide a statutory definition of public services and public utility, and separate public services from the constitutionally restrictive 60-40 investment ownership rule.

Another low hanging fruit legislation for several years is the amendment to the Foreign Investment Act of 1991 (RA 7042, as amended by RA 8179). While serving the purpose of attracting foreign direct investments (FDI) when it was enacted, the 28-year-old law has been lagging behind the modern dynamics of business investments, and would thus need a fine tuning. In 2018, the Organization for Economic Cooperation and Development’s (OECD) FDI Regulatory Restrictiveness Index ranked the Philippines among the most restrictive economies in terms of FDI rules in the business services sector, telecommunications, media, electricity, and transport industries. It is now viewed as timely to reform the law’s appropriateness to the contemporary destinations of foreign investments.

Finally, the Retail Trade Liberalization Act amendment will be a welcome development to foreign retailers in the country. The proposed amendment will reduce the minimum paid-up capital requirements for foreign retail enterprises from US$2.5 million to US$1 million, while those who wish to establish more than one physical store are required to invest at least PHP 25 million (US$524,000) for each store. It will also remove pre-qualification requirements for foreign retailers to have been engaged in the retailing industry for the past five years, or to have at least five retailing branches located anywhere worldwide.#

The Promising Investment Opportunities of the CREATE Law in its Timely Mutation

By | frolands blog

The Promising Investment Opportunities of the CREATE Law in its Timely Mutation

– Froland M. Tajale


On March 26, President Duterte finally signed the second of the four major packages of comprehensive tax reforms proposed by the Department of Finance. The Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act will bring the country’s business climate competitiveness at least at par with the neighboring ASEAN countries, and attract more greenfield and expansionary investments from foreign and domestic investors.

The CREATE Law’s two-pronged reform will a) simplify tax regulations and immediately reduce the country’s corporate income tax from 30% to 20% for micro, small, medium enterprises (MSMEs), and 25% for other corporate taxpayers, and b) provide merit-based and time-bounded incentives for domestic and export-oriented enterprises.


Comparative Tax Rates in ASEAN-9


President Duterte, however, vetoed nine provisions in the bicameral version of CREATE, which are thought to go against the principle of the reform. These are as follows:

  1. Increasing the VAT-exempt threshold on sale of real estate property. Provision may “benefit those who can actually afford proper housing” and not those “buyers of socialized housing and base-level economic housing.”
  2. 90-day period for the processing of general tax funds. This provision is thought to be “administratively difficult to be implemented by the BIR and may cause delays or erroneous processing of refund claims.”
  3. Proposed definition of investment capital. The president favored to revert to the definition used by the IPAs.
  4. Redundant incentives for domestic enterprises. “Special corporate income tax (SCIT) rate for domestic market enterprises, which is in lieu of all local and national taxes, is redundant, unnecessary, and weakens the fiscal incentives system.”
  5. Allowing existing registered activities to apply for new incentives for the same activities. To allow fair and impartial granting of incentives, the president emphasized that “only new activities and projects deserve new incentives.”
  6. Limitations on the power of Fiscal Incentives Review Board. The FIRB will exercise policymaking and oversight functions on all registered business enterprises and IPAs [regardless of capital threshold]. However, IPAs still “retain the delegated power to grant incentives up to a certain threshold amount.”
  7. Specific industries mentioned under activity tiers. These are industries that “either do not merit support through incentives or are expected to become obsolete in the short term.”
  8. Provision granting the president the power to exempt any investment promotion agency from the reform. To avoid using the CREATE Law as a “political tool.”
  9. Automatic approval of applications for incentives. This provision will “run counter to the declared policy to approve or disapprove applications based on merit.”

The enactment of RA 11534 comes at a time when the business community is anticipating forward-looking regulatory measures from the government to facilitate investment recovery from the severe blow of the pandemic, which has been taking its toll on many industries since March 2020. In fact, the Philippines has notoriously been recognized as having the longest stretch of government-imposed lockdowns. Furthermore, these lockdowns were implemented at different levels of restrictiveness, making it the longest transition period towards the next normal of business operations.


Intentional Legislative “Mutations” of the Tax Reform

Analogous to the reports of COVID-19 virus strain mutations, the CREATE Law is the concluding “mutation” of the Tax Reform for Acceleration and Inclusion (TRAIN) 2 proposed by the Department of Finance to complement the first package of the tax reform. [Recall that in December 2017, the TRAIN 1 Law was enacted by President Duterte. The first package cut a hefty income tax for the majority of Filipino taxpayers.]

When TRAIN 2 was filed in the House of Representative in 2018, it was named Tax Reform for Attracting Better and High-Quality Opportunities or simply, the TRABAHO bill. Its major intent was to gradually lower the corporate income tax rate by 2% annually until reaching 20% in 5 years, and to align incentives and repeal some perpetual incentives granted by the Philippine Economic Zone Authority (PEZA). The version did not hurdle in the House of Representatives because of complexity.

Following the TRABAHO bill was the Corporate Income Tax and Incentives Rationalization Act (CITIRA) Bill filed in 2019. Taking majority of its provisions from the TRABAHO bill version, the CITIRA bill simplified and expanded corporate incentives, and changed the gradual reduction of corporate income tax from TRABAHO bill’s 2% annual reduction to 1% until reaching 20% in 10 years, lengthening the transition towards the proposed 20% corporate income tax regime. It also emphasized an increase in the penalties and imprisonment period for specific violations of the Tax Code. This, too, failed to pass the House of Representative for complexity and overemphasizing penalties rather than incentives.

In 2020, the COVID-19 pandemic started infesting the Philippines. It severely damaged many industries and the MSME sector, and badly contracted the economy by -9.5% in 2020 (full year). The pandemic caught the Philippine government off-guard, aggravated with reports of the Duterte Administration downplaying the impacts of the virus to the economy. As a result, the promising 5%-6% economic trajectory of the Philippines was quickly dumped to the lowest rank of GDP growth among the ASEAN-6 economies.

GDP growth


Several industry associations and chambers of commerce have already expressed concerns to the President over the drastic effects of continued restrictions in the economy. In Q2 2020, the CREATE bill was filed and the President had then certified the bill as urgent to fast-track the facilitation of economic recovery from the impacts of the pandemic. Debate on the new version of the tax reform was already ongoing when the government started incremental opening of some sectors in H2 2020, and then eventually to almost 100% by the end of 2020. However, the industrial impact of the recession was already a heavy stake to pull out and to drive the economy back to the pre-pandemic level.

Confusing as it may had seemed to the public, these legislative “mutations” were more necessary rather than preferential to the sponsors of the bill. In fact, Article VI, Sec. 26 (1) of the 1897 Constitution provides that every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.

Notice that the title and subject of the first version of the legislative measure focused on creating more jobs by attracting more investment through tax reform. Subsequently, CITIRA then took a clearer subject of the proposed law to focus on income tax and incentives rationalization, which are vital to attracting businesses, and the penalties for non-compliance. The concluding version of CREATE included the term “recovery” in its title through reduced corporate income tax and a more favorable incentive regime for all enterprises. This development manifests the timely dynamics of forward-looking regulation that every job-creating industry anticipates in the country. If less band-aid solutions are enacted, more certainties in the economy will be created and may potentially attract more investments.


Opportunities: Investor-friendly CREATE Law

Staying true to the essence of attracting more investment while facilitating recovery in pandemic-hit sectors, the CREATE Law has been getting compliments from the investment promotion agencies, such as the PEZA and the Board of Investments, and the private sector in the earlier stage of the bill. Specifically, the largest association of semiconductors and electronics manufacturers in the country, SEIPI, have been actively expressing its views on the fine details of the reform.

Over almost a decade, the manufacturing sector has been among the top industries to consistently contribute to the foreign direct investments (FDI) in the country as recorded by the Bangko Sentral ng Pilipinas (BSP). In 2020 alone, the manufacturing industry managed to grow by 46% in realized FDI according to the BSP. Collectively, the semiconductor and electronics sector are also among the top export merchandise of the Philippines at 5% growth in export sales amounting to US$ 278.62 million during the pandemic-stricken year. With the enactment of the CREATE law, the manufacturing sector, particularly the semiconductor and electronics, should expect an upward trajectory in investments as the legislative development took out many uncertainties over tax breaks in this technology-intensive industry. The manufacturing industry also carries with it a number of promising support industries such as warehousing, logistics, and transportation, to name a few, that are more likely to spur from the increased manufacturing activities.

Furthermore, the real estate sector, being at the forefront for land and commercial space-based investments, is always among the first to see increased transactions, particularly in the heavy-industry sector. In fact, it can be considered as a pseudo-barometer for knowing which economic industries are taking the pressure from any calamity or crisis.

During the pandemic alone, the real estate’s industrial market segment appeared undisturbed and saw steady growth in the warehousing and storage sectors following the shift to online commercial activities by essential consumer products market, and food manufacturing and storage.

Moving forward, renewed opportunities brought about by the completion of new infrastructure developments in Central Luzon (from developers Ayala Land, Filinvest, and TECO Industrial Park) and the Cavite-Laguna-Batangas cluster (from Ayala Land and Megaworld Corp.) should be able to complement the investment opportunity from the newly enacted CREATE Law.

Consistently, Region III (Central Luzon: Bataan, Bulacan, Nueva Ecija, Pampanga, Tarlac, Zambales) and Region IV-A (Cavite-Laguna-Rizal-Batangas-Quezon) are also among the top regions with the most approved investment commitments from the 7 Investment Promotion Agencies (IPAs) tracked by the Philippine Statistics Authority. In 2020 alone, total committed investments surged by 410% (Php 614 billion) in Central Luzon, which will be realized in 3 to 5 years.

BPO Growth 2020

By | frolands blog
Digitalization, Infrastructure, and Talent Enhancement to facilitate Philippine BPO industry growth; Real estate developments to pave way
November 20, 2020
The growth contribution of the services sector in the Philippines has been an important fuel to the recently celebrated economic growth of the country since IT-BPM meaningfully made an entry in 1992 when Frank Holz brought in Accenture. Unknowingly, the onset of the Covid-19 pandemic in the Philippines in January 2020 has now become the largest challenge to the IT and BPM industry’s growth potential.
In the recent IBPAP International Innovation Summit 2020 held online on November 19, Hanumantha Karthik, Partner at the management consultancy Everest Group, presented an IBPAP-commissioned study forecasting Philippine BPO industry revenue to likely increase by 3.2% to $28.3 billion by 2022 (equivalent to 70,000 jobs).
Optimistically, if the global market will show recovery from the Covid-19 pandemic and if the Philippine government supports and stimulates the service sector’s rebound, the BPO industry will potentially grow by 5.5% to $29 billion by 2022 (equivalent to 130,000 jobs).
Either way, Philippine BPO industry should remain at par or better than the global BPO growth, which is expected to grow flat in 2020 at -0.02% and peaking up to 3.9% in 2022.
The BPO industry will depend on several factors, both domestically and globally, most especially in controlling the spread of the Covid-19 virus. The Philippines has been taking its pace over the last eight months, which could make or break the traction of the industry in the next few years. The Everest Group noted that for the country to reach the sector’s growth potential, the Philippines should:
  • Strengthen its telecom infrastructure to allow a robust reception for the ICT requirements of the industry.
  • Promote digitalization and pivot auxiliary services to digitalization to cope with the rapidly accelerating trend globally.
  • Continue to improve the country’s ease of doing business environment.
  • Accelerate talent and infrastructure development outside Metro Manila.
  • Nurture the talent pool to allow for reskilling and upskilling of the labor force for emerging, if not next-generation, technical and soft skills.
  • Invest in improving industry resilience for better marketing and positioning of the Philippine IT-BPM industry.

The BPO sector particularly started surging when the Aquino Administration (2010-2016) emphasized inclusive growth measures to alleviate the poverty condition in the country and instituted policies that attracted many huge IT and BPM multinational companies. By the time the Duterte Administration (2016 to present) came into power, growth redistribution began expanding toward outside Metro Manila with the roll outs of the many infrastructure projects in the pipeline from the previous administrations, hoping to flatten the economic saturation in the National Capital Region.


Role of Real Estate Developments
Critical to these economic goals are the developments in the real estate sector, which has and will continue to pave the way for housing many multinational and domestic companies outside Metro Manila that will absorb the local labor force, and generate income in the local government units. The Philippine Economic Zone Authority (PEZA), together with the Board of Investments and about 18 other investment promotion agencies across the country, takes good care of these developments and ensures that incentives are in place for expanding and relocating companies.
TFA’s analytics maintain that there is a need for the government to increase the supply of integrated industrial zones across the country. These integrated industrial zones accommodate parks and centers that are needed to promote the IT-BPM industry. IT zones or centers are designated locations capable of meeting the requirements for IT and BPO companies, and where these companies can benefit from the business incentives mandated by the state. Unlike industrial parks, IT centers are mostly establishments that are ready to take in companies for operations.
Last year, the Duterte Administration released Administrative Order 18 on June 17th that put a moratorium on processing applications for ecozones in Metro Manila, save the pending proposals that are already on the desk of the president. The logic was to facilitate development and support for ecozones in the countryside.
By first quarter of 2020, PEZA registered a total of 318 IT centers across the country, of which 38% is located outside the national capital region. In terms of gross floor area, these IT centers account for 49% of the total PEZA-registered GFA at around 12,980,000sq.m compared to NCR’s 13,300,000sq.m. This is on top of about 71 pending PEZA ecozones that are awaiting presidential approval.
What this means is that the Philippines is now at a point where the supply for non-NCR IT centers is driving the demand of IT and BPO offices towards other regions. The economics will point to these opportunities as venues for relocation, expansion, and even back-up offices as Metro Manila continues to battle with pestering traffic congestions, and denser residential areas, among other things.
If the Philippines is to promote, market, and position the IT-BPM industry sector in the global market, it has to hasten and create more industrial parks and IT centers in the countryside to support the IT-BPM sector and other industries.
–Froland Tajale, Manager – Research; Consulting

Philippine Industrial Real Estate and PSEi Markets to Remain Buoyant

By | frolands blog

Philippine Industrial Real Estate and PSEi Markets to Remain Buoyant

By Gerardo Laperal | November 21, 2020


The pandemic-induced regulatory developments in the Philippines have caused decline of outputs in several markets. Recovery largely remained sticky, except for the industrial real estate sector and Philippine Stock Exchange Index (PSEi).


Analysis show that the resiliency of industrial properties was attributed to the capacity of the real estate sector outside Metro Manila to absorb the severe demand shocks from the pandemic situation in the National Capital Region. Various liquidity measures and enacted business-enabling legislation, as well as those actively moving in the Congress, have created a safety net on investors’ sentiments and access to capital that favoured these markets. While full economic recovery may take up to 5 years to return to the pre-pandemic growth level, both the industrial real estate sector and the stock market might lead in the recovery with the ongoing regulatory fine-tuning.

The Philippine Stock Exchange Index (PSEi) has gained 18.9% for Q3 of 2020[1] rising to 6,970—the last time the PSEi was at these levels was on February 27, 2020. The Philippines (and the world) was a much different place 8 months ago. At the same time, the Philippine Statistics Authority (PSA) revised Q2 GDP. To date, Q1, Q2, and Q3 GDP growth rates were -0.07%, -16.9%, and -11.5% respectively. Let us do a little math (for those who do not want to go through this computation, feel free to skip to the next paragraph):


Some Math


Q1 growth rate: -0.07%

Q2 growth rate: -16.9%

Q3 growth rate: -11.5%


g: annualized growth rate of Philippine GDP

t: time (in quarters) to get back to 2019 levels


1 = (1+Q1)(1+Q2)(1+Q3)(1+g)^t

1 = (1-0.07)(1-0.169)(1-0.115)(1+g)^t


t = [ln(1-0.07) + ln(1-0.169) + ln(1-0.115)] / [-(1+g)^t]

Assuming g = 1.5% (6% annual GDP growth divided by 4 quarters),


t = 21.11 quarters or 5.3 years

Assuming g = 2.5% (10% annual GDP growth divided by 4 quarters)


t = 12.73 quarters or 3.18 years.


Therefore (if my math is correct), assuming that the Philippine economy grows at a 6% per annum rate, it will take the Philippines 5.3 years to get back to the peak in 2019. A more optimistic assumption of a 10% growth rate (this has not happened in a long time) still will take the Philippines 3.18 years to get back to the previous peak. In my opinion, the only way out of the recession is to grow out of it. We can debate what the growth rate will be, but the arithmetic will show that it will take a few years to go back to pre-COVID output levels.


PSEi’s Rise

Going back to the 18.9% rise in the PSEi so far this quarter, the $69 question is ‘what caused it?’ Very few publicly listed companies posted year-over-year positive growth rates for both earnings and sales, but stocks traded higher. I would argue that there are 2 narratives that support the rise in the stock market.

First, there is the concerted effort by global central banks to add liquidity into the monetary system. Further, there are various fiscal stimulus programs which were passed into law to help spark the recover of the Philippine economy. Lawmakers passed Bayanihan 1 & 2, which granted the president special emergency authority and budget to combat the impacts of the Covid-19 pandemic. In terms of incentives, the CREATE Act, the FIST Bill, GUIDE Bill and talk of relaxing the foreign ownership hurdles for property in the Philippines are awfully close to being passed.

Second, many analysts and traders are looking through 2020 earnings and financials and looking further out in time. Yes, 2020 was a year mired by “black swan” events (eruption of Taal volcano, COVID-19, community quarantines, and more recently the damages by multiple typhoons); however, this is all known at this point. Investors seem to be looking past current events and trying to value companies more on future earnings.

Whether one agrees or not with the first and/or second narrative, the stock market has been trending higher for now. Another tailwind for the stock market is that companies and banks are much more capitalized than they were during the Asian Financial Crisis. Access to capital seems to be abundant. Year to date, Philippine public companies have raised over Php333 billion in bonds and commercial paper versus about Php277 billion in the entirety of 2019. Rates are low, investors are hunting for yield, and raising capital does not seem to be a problem for blue chip companies.


Ph Real Estate

Real estate is largely regarded as a cyclical industry. As evidenced by the Q2 and Q3 financial reports of some publicly listed companies, property firms have seen a dramatic fall in revenue and earnings. I am arguing that as a whole, properties outside of Metro Manila (MM) was less impacted by COVID-19 than those located inside MM.

Going through the Q3 financials posted by publicly listed companies, there is a stark difference from the Metro Manila segment and the developers who operate primarily outside of MM. Evidently, Metro Manila seems to be much more affected by the community quarantines (and other government actions because of the pandemic). Perhaps this is a function of more firms adapting and accepting work-from-home arrangements, congestion of Metro Manila causing traffic and logistical difficulties within the metro. Whatever the reasons, public companies focused on developments outside MM have faired better thus far.

Reading through Cebu Landmasters Inc (Q2), 8990 Holdings Inc (Q3), and Italpinas Development Corp (Q2), average sales decreased about 5%. Each of these companies focuses on residential developments in Batangas, Cebu, Cagayan de Oro, Bicol and other areas outside of the capital.

Ayala Land Inc. and SM Prime Holdings Inc. (two of the largest real estate firms in the Philippines), on the other hand, recorded sales decrease by about 40% as of Q3[2]. Each have extensive holdings all over the Philippines, but bulk of the sales and rental income still come from Metro Manila. This is, by no means, a comprehensive study of real estate companies in the Philippines but the trend from this limited sample appears consistent: sales outside of Metro Manila (MM) seem more robust.


The Industrial Real Estate Sector

Another resilient subsector of Philippine real estate has been the industrial sector. Here, I will take a sample of industrial developments only in Luzon. There are three (3) areas where developers have focused: Cavite, Batangas, and the Pampanga/Bataan area.

For Cavite, much of the primary developments have increased take ups over the years. Cavite Technopark, Gateway Business Park, Golden Gate Business Park, and First Cavite Industrial Estate lots, among others, on the secondary market are priced from Php7,000 to Php10,000 per square meter.

For Batangas, we looked at First Philippine Industrial Park, Light Industry and Science Park 3 & 4, and LIMA Technology Center. Our research has shown that there were transactions (in the same industrial park) at Php4,000 per square meter in January, but the latest transactions were Php7,000-Php8,000 per square meter—almost a 100% increase in price (crossed) in under a year.

For Pampanga and Bataan, we looked at Hermosa Ecozone Industrial Park, Alviera Industrial Park and Teco Industrial Park. Again here, prices have increased from Php4,500 per square meter to Php5,000-6,000 per square meter in under a year.


As the world repurposes their supply chains to add resiliency to potential disruptions, there is extremely limited capacity in terms of industrial parks in Luzon making it a scarce resource. Further, additional development even by the most seasoned industrial park developers is slow. First, a substantial contiguous chunk of land close to the highways must be aggregated, then the classification of the land must be changed from agricultural to industrial/commercial (the Department of Agriculture must endorse this), then the developer must get Presidential proclamation in order to avail of the Philippine Economic Zone Authority (PEZA) accreditation status. Our best estimate for a developer to convert land from agricultural to industrial classification and receive PEZA accreditation is 3-5 years. The industrial park sector is in short supply and the process of adding more inventory is timely and difficult.



By the math exercise we did earlier, we are looking at a recovery period of 3-7 years for Philippine GDP to be back to where it was at the end of 2019. As for within and outside Metro Manila, we have argued that properties outside MM are firmer. Lastly, of the many segments in real estate, we have observed that the industrial sector has been the most resilient this year.

Given Php100 million (about USD 2 million) and three options which would you pick?

  1. 12,500 square meters in an industrial park in Batangas (Php8,000 per square meter)
  2. 200 square meters of a prime condo in Bonifacio Global City or Makati (Php 500,000 per square meter)
  3. 500 square meters in an exclusive MM residential gated community (PHP 200,000 per square meter)


In both capital appreciation and monthly lease rate, I would argue that (A) would be your best bet. While it is difficult to determine the cap rate for option (A), (B) and (C) are relatively straight forward given the data we have. For (B), the indicative lease rate is Php250,000 per month or a cap rate of 3%. For (C), the indicative monthly rate is Php 200,000 or a cap rate of 4%. As for the land appreciation of C, perhaps this can increase at 2-6% annually but the days where these types of properties increase by 20% annually are most likely behind us.

There are many uncertainties and none of what is written here is investment advise nor should be considered advise of any kind (all are for education and illustration purposes only); however, given the right developer and the right area, the growth and yield seem to favour industrial park properties over residential condo’s and exclusive villages in Metro Manila.

[1] As of November 13, 2020

Flexible Workspaces

By | frolands blog

15,000 Flexible Office Seats to Facilitate Q4 2020 Business Resumption

October 12, 2020


Tan, Frankum and Associates, Inc. (TFA) registered a 98% increase of available flexible workspaces in six major central business districts (CBDs) of Metro Manila equivalent to 14,835 seats in Q4 2020 compared to 7,481 seats in Q1 2020. The movement restrictions and the temporary shift toward a work-from-home set-up following the upsurge of Covid-19 cases in the National Capital Region combined with the increase in supply resulted in a 23% drop in seat occupancy for Q4 2020.


Makati City and Bonifacio Global City (BGC) are at the top of the list of CBDs that have the greatest number of seats, and are evidently the most affected from the pandemic-induced quarantines. Specifically, vacant seats in Makati City grew by 337% (5,332 seats), while BGC’s vacant seats up-ticked by 92% (4,661 seats).

Ayala Tower 2 is the newest building to house flexible workspaces, which will come online by Q1 2021. TFA has so far noted only a minimal number of providers who have gone out of operations.


In terms of building grade, BGC houses the most available flexible workspaces in Grade A buildings at roughly 3,600 seats available for Q4, followed by Makati CBD with 2,400 available seats, and Ortigas with about 2,000 seats. On the other hand, businesses that prefer to locate in Grade B buildings should be able to find from a pool of about 2,700 seats available in Makati CBD, around 1,300 seats in Ortigas, and 1,000 seats in BGC.


TFA has seen the demand for flexible workspaces to be largely affected by Covid19-induced factors. Once popular to small companies and POGOs because of space adaptability and ability to take short term contracts, TFA’s Office Services Analytics have noted that most occupants in the flexible office market have been reluctant to share workspaces since Q1 2020 to avoid Covid-19 infections, prompting companies to shift operations to work-from-home set-up. Moreover, the global impact of pandemic to market demand in some industries have also led companies to restructure their budget allocations towards the year-end, citing low financial liquidity since the first quarter and, hence, turning towards telecommuting from home.


The reduction of POGO operations have also contributed to the increase in availability of flexible office spaces, especially in Makati City. Prior to the pandemic, POGOs have been one of the drivers of flexible workspace occupancy until the continued increase in Covid-19 cases, which stirred fear from these Chinese businesses.


With the gradual opening of some industries, TFA anticipates growth in flexible spaces to slowly pick up by the end of 2020 and gain considerable traction by early 2021 should the number of infections in Metro Manila pacify.


Flexible office spaces should remain popular to businesses looking for temporary office locations while testing the waters before contracting for full office space tenancy and while staying vigilant to the developments of Covid-19 management in Metro Manila