POGOs: Path to peril or prosperity for PHL property sector?

IT was the last night of a popular musical based on TS Eliot’s poem about felines at Solaire Casino: one of four big integrated resorts and casinos to open in Entertainment City, which sits on a reclaimed land facing the Manila Bay.

Like most casinos, Solaire’s self-parking zone is free. It dedicated an entire building for its parking space, enough for vehicles that go to the $1.2-billion facility owned by billionaire Enrique Anselmo K. Razon Jr. But that night, a Friday, was exceptional and most of the parking floors were full.

One of the theater goers left the theater before a cast sang of how one addresses a cat and drove his car higher the parking building. There he saw rows and rows of white vans; many are Toyota HiAce vans that can fit 15 or so and the much pricier, 8-seater Alphard.

He later found out that the entire two or three floors of Solaire’s parking space were occupied by these white vans that shuttle Chinese workers of Philippine offshore gaming operators (POGOs) to and from their place of work and their respective residences.

The POGO business exploded and rattled many businesses, mainly in the property market—residential, office spaces and even retail. A section of the Manila Bay area became their haven, marked by the sprouting of restaurants with Chinese-only menu.

Prices rising

DAVID Leechiu, CEO of Leechiu Property Consultants, credits the rise of real-estate prices to the growth of POGOs.

“Unlike Filipinos overseas [who] take home their money, they [Chinese Pogo workers] are spending most of their money here,” Leechiu said. “It may have caused prices of property to rise; but it is the time to finally invest more.”

He added that POGOs could be credited with the “increase in the tax base.”

He explained that the Chinese POGOs naturally want to be at The Bay—how the developed areas near the Manila Bay are referred to collectively—since it’s near the airport. Leechiu’s data showed that 38 percent of these POGOs are located on The Bay. Many, however, have already taken up space in commercial and entertainment areas such as Makati and Alabang. Since then, employees of POGOs could also be seen in Cavite, Quezon City, Ortigas, Pampanga in Clark Field and even in Cebu.

Leechui’s statement—that the entry of POGO has been a boon to the property market—is highly debatable, especially by the developers themselves who see the POGOs as representing a curve ball.

Recurring income

AFTER the 1997 Asian financial crisis, many investors are now looking for the recurring income in property development. This means money should not be just coming from the sale of the units so that the property business can withstand the cyclicality of the industry. Recurring income should come from rents in every form—shopping malls, hotels, dorms and offices.

Like the parking lots at Solaire during peak hours, many argued that Chinese workers are taking up prime space that should have been meant for the Filipinos. As demand for prime property increases, prices of these spaces have gone up.

The characteristics of this industry were already seen in wealthier Western countries like Australia and Canada, when Chinese investors came in.

The only difference between the Philippines and these Western countries is that the Chinese that are coming here are not migrants, and only the good relations between the country and China are putting it together, like walking on eggshells.

What is happening in the Philippines is far different, a CEO of a conglomerate said.

“These people [POGO employees] came from the second-tier and third-tier cities in China who failed to enter China’s main cities like Beijing because their education is below the standard,” the CEO, who requested anonymity, said. “Therefore, they have certain habits frowned upon by us.”

Operational rules

ACCORDING to the Philippine Amusement and Gaming Corp. (Pagcor), there are currently 60 POGOs with licenses employing about 138,000 foreigners as of first half of the year. However, some estimates the number at just 120,000 as they say that some of the Chinese work for two or three POGOs.

Pronove Tai International Property Consultants Inc. estimates that, to date, there are close to 200,000 Chinese nationals working in the offshore gaming sector.

Pagcor, the regulator and also operator of various gambling joints of mainly casinos in the country, conceptualized Pogos “to enable the Philippine government to capture a greater share of the growing, yet previously unregulated, online gaming pie.”

In 2016, it issued rules and regulations covering the operations of a Pogo. A Pogo is an entity that offers and participates in offshore gaming services by providing games to players, taking bets and paying winning bettors.

The gaming activities include online games of chance through the Internet, using a network and software, exclusively for offshore-authorized players who have registered and established an online gaming account with a Pagcor-licensed Pogo.

Filipino citizens, even while overseas, are not allowed to play.

Pagcor issues a license to qualified operators, which could be Filipino-based operators or foreign-based operators.

The Pogo framework also covers service providers that provide the various components of gaming operations, such as the gaming software provider, business outsourcing provider, and content streaming provider. These providers also need to secure a Pagcor license.

One Pogo license requires a minimum of 10,000 square meters of office space, or an equivalent of two entire floors of a building or a small shopping mall.

Pesos, payments

ACCORDING to Pagcor, Pogos require three categories of office space. Some Pogos require space that offer live streaming while women serve as dealers for online games. Category two and category three are subsectors of the business-process outsourcing (BPO) industries that provide back-office support.

“So, for example, if there are questions on how a game is played online, they will provide clarifications. That is why you need a lot of Chinese- and Mandarin-proficient people, and that is why they require a lot of office space,” a Pagcor official who requested anonymity told the BusinessMirror. “And, in the same manner, if they have difficulties—if, for example, the website is down, there has to be an IT [information technology] guy.”

For this year alone, about P8 billion entered the market, according to Pagcor, representing revenues from offshore gaming operators. The amount is a third higher than last year’s P6 billion.

Then there’s the rent that Pogos pay for office space and where workers live.

However, some camps say the disruptive manner that a Chinese Pogo impacts on several sectors may not be even worth it. Likewise, the governments of the Philippines or China may pull the plug on the “program” at any time.

Employee skills

GAMBLING is banned in China but Pogos have found a way to skirt such prohibition by going online, with operations housed in a remote area outside the world’s second largest economy.

The issue of Chinese Pogo employees who are here has nothing to do with their skills or how they work but on how they interact with the locals, the conglomerate CEO said.

“They are perceived as rowdy, smoke and drink a lot,” he said, adding this is disturbing the community itself, which could eventually bring down the value of a property.

The CEO’s company had developed a posh, gated subdivision in Taguig, and many of the brokers of the houses there are renting out some of the empty units of mostly two floors to four floors, with a market value of about P25 million to P100 million.

He said even his son retrofitted a unit and tried to rent this out to Chinese workers. However, this was short-lived as the homeowners’ association decided to boot out all POGO workers living in the subdivision.

Many POGOs are shuttling the employees to and from their workplace to the place where they live, using the white vans that are parked somewhere else. That, too, also disturbs the community as they come in droves, with many of the vehicles coming unmarked, the conglomerate CEO said.

Rise range

ACCORDING to Pronove Tai, the sustainability of the offshore gaming demand is a lingering issue for property developers, particularly since its growth is highly attributed to consistent and reliable policy and regulatory measures by the government.

“This uncertain environment in offshore gaming firms’ growing existence in the country has resulted in major property developers limiting their exposure to POGOs to an average of 8 percent to 12 percent of their total office space portfolio,” Pronove Tai said.

A large property developer like Ayala Land Inc. has admitted it limits POGO operation, as well as where Chinese employees live, in certain areas of their development.

Property prices may have increased as a result of the huge demand from the Chinese, the conglomerate CEO said. However, property values plummet as soon as they start living there due to implications, he added.

As a result, many of the investors are now scrutinizing how much a property developer can expose themselves with POGOs.

Pronove Tai forecasts prices will continue to rise by a range of 6 percent to 8 percent per annum.

“Although prices will continue growing, it may not necessarily be driven by the offshore gaming sector,” Pronove Tai said in a briefing paper.

A property developer can only sell up to 40 percent of its available for-sale unit to overseas buyers, which include Filipinos working abroad. Ayala Land’s sales to the Chinese for the nine months of the year ending September were at P7.1 billion, down by a quarter from last year.

Take-up

ANDREW Tan’s Megaworld Corp. has taken a different path. Walk through Megaworld development projects in Quezon City and in Pasay fronting Terminal 3 of the Ninoy Aquino International Airport in Pasay and there’s a visible presence of Chinese nationals.

Tan started his fortune on renting out offices in Libis in Quezon City before the BPO sector boom in the Philippines.

POGOs shored up Tan’s office leasing business and kept on growing. However, BPO investments have been falling since 2017 due to a confluence of factors.

Pronove Tai noted, however, that the offshore gaming sector’s presence in the country started in 2003 and not just two years or three years ago.

According to Leechiu Consultants’ data, POGO take-up this year overtook those of the traditional BPO sector.

POGO take-up for 2019 was at 738,000 sqm, up 66 percent from last year’s 443,000 sqm. The BPO sector, meanwhile, only took up 573,000 sqm this year, down 14 percent from last year’s 652,000 sqm.

Yearly progress

ACCORDING to Pronove Tai, since the POGO licensing was clarified and established in 2017, offshore gaming has continued to rank as one of the top three demand drivers of Metro Manila office space.

However, it is important to note that as at the second quarter of the year, POGOs only account for 1 million sqm, or 9 percent, of the total office stock in the metro as compared to 54 percent and 35 percent of traditional offices and IT business process management (BPM), respectively.

The office market has an annual average of supply and demand at around 1.1 million sqm, respectively, in the last three years, the Pronove Tai brief said.

“The vacancy rates remained at a manageable level of 4 percent to 5 percent in the same period,” it added. “With high supply and early absorption of the key cities of Makati, Pasay and Parañaque, offshore gaming firms have managed to grow their operations significantly by taking up the bulk of the new office supply.”

Amid the slowing growth of the IT-BPM industry due to both global and local headwinds, offshore gaming firms took over by absorbing significant office space by an average of 302,000 sqm per year in the last three years. This is 1,000 percent higher than the recorded annual demand from 2013 to 2016, Pronove Tai explained.

Demand fuel

THE offshore gaming sector was the real-estate industry’s “unsung heroes” amid headwinds on the IT-BPM sector as well as declining foreign investments, slower remittances by overseas Filipino workers and weaker purchasing power of the Philippine peso in 2017, Pronove Tai said.

The property consulting firm’s briefer said that as of third quarter of the year, the Philippine real-estate market has reached a 10-year strong demand fueled by robust economic performance.

“Instead of slowed growth in the residential and offices’ capital values and rents in 2017, it increased remarkably due to the strong offshore gaming demand,” the company said. “This created better yields or investment returns for property developers as well as ordinary landlords.”

“Offshore gaming firms have also created a new market, particularly in the retail sector,” Pronove Tai said, adding that Chinese nationals working in offshore gaming firms are converging in coffee shops, restaurants, convenience stores in the cities of Makati, Pasay, Mandaluyong, Parañaque and in Quezon City.

Expected take-up

ACCORDING to Pronove Tai, residential prices as well as rents, particularly in residential condos, are being pushed beyond the buying-financial capacity of ordinary Filipinos.

“The strong demand from offshore gaming firms resulted in significant growth in prices of real-estate properties, especially near CBDs [commercial and business districts], as Chinese nationals working in POGOs are known for not negotiating the contract price of transactions.”

In the office market, the rental rates have increased most notably in offshore gaming firms’ preferred office destinations of Makati City and Bay Area (Pasay City and Parañaque City). Both Makati City and Bay Area have increased tremendously by 29 percent and 47 percent, respectively, in the last three years.

In the residential market, the prices of both for a mid-end to high-end condominium in Makati City and Bay Area surged to an estimated average of 30 percent in the last three years.

With future office spaces being taken by offshore gaming firms, foreign nationals working in offshore gaming firms will continue to fill residential villages and condominiums in Metro Manila.

Very hard

CHINESE nationals working in offshore gaming firms are earning much higher at around P80,000 to P100,000 monthly compared to the P25,000 to P45,000 earned by Filipino nationals, Pronove Tai said.

These Chinese nationals are spending their money on food, entertainment and branded items such as clothing, accessories and gadgets. The retail sector could benefit heavily from this Chinese market.

Edgar “Injap” Sia II, chairman and CEO of Double Dragon Properties Corp., said they asked for rental security deposit worth one year of their rent and an advance payment of six months before they allow a POGO to rent.

Double Dragon has a mixed-use development called Meridian Park along Roxas Boulevard also near the Manila Bay. Of the 130,000 sqm of completed space for the office rentals, around 60 percent of these were already occupied by POGOs. Some 80 percent of these are taken up by the Chinese while the rest are Koreans and Europeans.

“For us, either way, we have covered ourselves. We think that with this location, one year is more than enough to replace traditional office locators,” Sia said. “That’s why we don’t want to build office buildings, especially for the POGOs, or those in the secondary, outlying areas.”

With such hesitation on the POGOs, many have not asked if POGOs would still grow but rather if it would stay.

“We’re still in the early stage [of POGO maturity]. I never thought the POGOs would enter the BPO scene,” Leechiu said. “It takes time to grow the management; it takes time to build talent and these communities to accept them.”

But when asked if POGOs would one day be bigger than the current BPO, he said: “I don’t know. [It’s h]ard to say. They may stop growing.”

Image Credits: MINDAUGA DULINSKA | DREAMSTIME.COM



mm
A journalism graduate and has covered the Philippine business beat for more than a decade.

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