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Japanese investors eye PH real estate — MUFG

Allan Tripon |

Japanese investors are currently eyeing investment opportunities in the country’s real estate market, according to a recent press conference held by the Mitsubishi UFJ Financial Group Inc. (MUFG).

Reasons for optimism
Yuichi Yamagishi, managing director and Philippine country head of MUFG provided two main reasons for this optimism: (1) Attractive demographics and (2) A growing economy.

Attractive Demographics
The country’s population can be perfectly described by two words: young and growing. Currently, the average age of Filipinos stands at around 25 years old — implying that the majority of the country will be working and will be earning income for at least the next twenty years. The population is also growing at a rate of approximately 1% per annum.

These two characteristics of the demographics will continue to support and drive the Philippine economy as businesses operating in the country will continue to have a large, growing, and fiscally capable customer base for the foreseeable future.

Growing Economy
The Philippine economy has historically grown at an average rate of 6% annually over the past decade. This positive trend is not expected to end any time soon. In fact, Timson Securities claimed that the Philippines will be the fastest growing economy in the South East Asian region for 2020, with a forecasted growth of 6.5%. From there, the economy will continue to grow at a pace of 6% annually over the next ten years until the Philippines becomes a $1 trillion economy by the 2030s.

Possible risk areas
Investments always come with risk. Despite the attractive demographics and rapid growth potential, there are several risk areas which temper investor optimism such as impending tax reforms and a poor infrastructure situation.

Tax Reform
The proposed Corporate Income Tax Reform Act (CITRA), or more commonly known as package two of the Department of Finance’s tax reform initiative, is already beginning to worry investors.  The bill, if enacted into law, will reduce corporate income tax rates from the current rate of 30% to 20%. The rate cuts will be done in five tranches, with the tax rate being reduced by two percentage points every two years.

On one hand, package two is expected to benefit almost 98% of all corporate tax payees through tax savings. The DOF estimates that these savings will translate to almost 1.5 million jobs generated. On the other hand — however, the reforms will also cause the rationalization and even elimination of certain tax incentives for foreign investors.

Lacking infrastructure
Every rapidly growing economy, such as the Philippines, needs an adequate stock of infrastructure in order to support the growth. Otherwise, the economy would simply overheat and eventually slow down. Unfortunately for the Philippines, it seems that the country’s current infrastructure supply is inadequate. As a result, the economy is on the verge of overheating as evidenced by the heavily congested National Capital Region (NCR).

The government is already taking steps in order to remedy the situation through the administration’s “Build, Build, Build” program. Despite these efforts, foreign investors are still worried since the majority of these projects — such as the proposed Metro Manila Subway System — will take at least five years to complete.

(Cover photo from BusinessWorld)