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Philippine property stocks may recover after Duterte's China visit

Manila

PHILIPPINE property stocks may rebound from a seventh straight weekly loss as President Rodrigo Duterte ended his trip to China on Sunday with no indication that he would ban online casinos that cater to Chinese gamblers.

Based on official statements from Mr Duterte's meeting with Chinese President Xi Jinping, a crackdown by the Philippines seems unlikely, according to David Leechiu, chief executive officer of Leechiu Property Consultants. He expects office demand from Philippine offshore gaming operators, or POGOs, to continue to grow and drive the nation's property market.

"It doesn't seem like we have something to worry about given what's happened: the things that have been said and not said," Mr Leechiu said in an interview in Manila on Saturday. "Because there is no anti-POGO statement and no clear policies made, it looks like the industry will keep growing."

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Investors have dumped Philippine property stocks amid concern that Mr Duterte will impose a crackdown after China said it wants the Philippines to ban all forms of online gambling that service its citizens.

The Philippine Stock Exchange Property Index has dropped almost 10 per cent in seven weeks on fears a ban will result from Mr Duterte's meeting with Mr Xi, and hurt office demand and home sales.

"I think POGOs will continue to expand in the Philippines unless there is a clear indication that they will pull out," Mr Leechiu said. "This is good for the property sector and the overall economy."

He sees online casinos overtaking providers of outsourced business services as Manila's top source of office demand. He said POGOs account for 1.06 million square metres of office space, or about 9 per cent of the nation's 12.74 million sq m of office space, and contribute about US$219 million in annual rental.

The online gambling industry spends around US$641 million a year in home rentals to house its 440,000 workers, who are paid US$8.3 billion in annual salaries, he said.

Should a ban materialise on POGOs serving China, the property sector will get hurt but will not crash, Mr Leechiu said. POGOs pay a security deposit equivalent to 12 to 24 months of rent, giving landlords a buffer should they pull out. The offices they lease are mostly located in prime areas which can be rented out to call centres and business process outsourcing companies, he said.

China accounts for as much as 70 per cent of the Philippine offshore gaming sector, while the rest cater to other markets including Macau, Singapore, Malaysia, Japan and the US.

"The POGO industry will buy some time for the property market," Mr Leechiu said. "If this will be switched off, we will get hurt. It will be painful but it won't be a disaster. We will see a soft landing." BLOOMBERG