The largest Philippine pension fund is planning its biggest-ever sale of real estate assets this year as land prices jump to a 16-year high.
The Government Service Insurance System, which has about 730 billion pesos ($16.3 billion) in investable assets, has identified eight properties to sell through public auctions this year, according to President Robert Vergara. They are part of a 31 billion-peso real estate portfolio, based on historical prices, that isn’t earning income, he said.
Land prices in some areas of Manila surged 17 percent in the fourth quarter to the highest since the Asian financial crisis as accelerating economic growth, rising remittances from Filipino expatriates and record-low borrowing costs fuel demand. The fund is turning to real estate sales to bolster returns, anticipating that gains from domestic equities will slow after the benchmark index rose the most among Asian peers since 2008.
“Property prices have increased phenomenally in the past three years,” Vergara, 53, said in a March 14 interview. “It seems a good level to finally realize some value while liquidity is plentiful and a lot of investors are interested in land and looking for strategically located properties.”
Manila was ranked the fourth most-popular real estate investment destination for 2014, behind Tokyo, Shanghai and Jakarta, according to an Asia Pacific survey by the Urban Land Institute and PricewaterhouseCoopers.
Prices of land in Makati, home to the nation’s financial district and some of its richest businesspeople, have jumped 28 percent over the last three years to an average 341,505 pesos per square meter, according to U.K.-based Colliers International Plc. That’s the highest level since 1997, said Julius Guevara, the firm’s head of research in the Philippines.
The country’s $250 billion economy expanded 7.2 percent in 2013 and 6.8 percent in 2012, the fastest two-year pace since the 1950s. The central bank has kept its benchmark interest rate unchanged at an all-time low of 3.5 percent since October 2012.
Assets identified by GSIS for sale account for less than 5 percent of its land holdings, Vergara said. They include the fund’s former 2,429 square meter (26,145 square foot) office site in Makati and a 3,200 square meter raw property in Fort Bonifacio, a former Army camp adjacent to Makati that’s being turned into a commercial and residential district.
‘Time to Sell’
“Now is probably the best time to sell,” said Ron Rodrigo, a property analyst at Maybank ATR Kim Eng Securities in Manila. “I don’t expect we’ll see a sharp appreciation in land values in the next three years and currently there is still plenty of interest.”
Rodrigo still has an overweight rating on Philippine property stocks, recommending investors buy shares of Ayala Land Inc., Megaworld Corp. and Robinsons Land Corp. because of “strong” earnings prospects.
Philippine property prices peaked in 1997, prior to the Asian financial crisis, when land values in Makati reached 425,000 pesos per square meter, according to Guevara. Prices slumped in 2008 amid the global financial crisis and began to recover in September 2010, he said.
The Philippine Stock Exchange Index, which has more than tripled from its 2008 low, may have little room left for further gains this year amid high valuations, Vergara said. The gauge may peak at 6,800, a target he set at the start of 2014. That’s about 6 percent higher than the March 14 close.
The gauge trades at 17.1 times projected 12-month earnings, according to data compiled by Bloomberg. That’s about 18 percent more expensive than the average over the past five years, and 72 percent more than the MSCI Emerging Markets Index.
The pension fund, which targets annual returns of more than 8 percent from investments to provide benefits and insurance to 1.4 million government workers, still ultimately wants to boost its equity holdings to 20 percent of investable assets from 17 percent, Vergara said.
About 44 percent is invested in bonds, 75 percent of which are in tenors of more than 20 years. Loans to members account for about 30 percent.