Real estate sector braces for POGO closures

MANILA, Philippines — The real estate sector is bracing for the possible closure of some offshore gaming companies and their service providers due to the impact of the coronavirus disease 2019 or COVID-19 pandemic.

Property analyst David Leechiu, president and CEO of Leechiu Property Consultants, told The STAR that both office and residential businesses are at risk of losing substantial revenue should Philippine Offshore Gaming Operators (POGO) and their local service providers close shop due to the challenging business environment.

“It’s going to be the perfect storm for the property market,” Leechiu said.

Leechiu said that with the additional tax burden, POGOs may find the Philippines uncompetitive and just transfer to other territories. Aside from generating taxes and gaming revenue share for the government, he said POGOs spur related industries like real estate, construction, automotive, tourism, hotels and others.

Currently, offshore gaming operators occupy 1.7 million square meters of office nationwide and two million square meters of residential space, Leechiu said.

As a precondition to their partial reopening during the quarantine period, the Bureau of Internal Revenue (BIR) has issued a circular requiring all POGO to first show proof that they have paid their 2019 franchise taxes, their withholding taxes due for the months of January to April, as well as their 2019 corporate income tax.

They were also required to submit a notarized undertaking affirming their commitment to pay all tax arrears for prior years of their operations.

So far, no POGO has been able to comply with the BIR rules and thus they have not been able to reopen, Internal Deputy Commissioner Arnel Guballa said.

While property companies believe it won’t be easy to replace POGO tenants should they leave, some industry players said they are ready to adapt.

Andrew Tan-led Megaworld, which describes itself as the country’s biggest office landlord, is hopeful that POGOs would be allowed to reopen.

“For POGOs, I think they are good at giving revenues to the government... If they can be regulated better or properly, we should continue to let them grow because they can be good contributors, pretty much like free money to the government,” Tan said in a recent interview on ANC.

The head of another listed property firm, meanwhile, said the POGO industry’s departure would hit the residential sector hardest.

“The office sector has one year in advance rent but residential condominium lessors will suffer because they don’t have long-term advance deposits. BPO employees can’t fill up the void because BPO employees are Filipinos and they go home to their houses. They don’t need to rent residential spaces,” he said.

SM Prime Holdings Inc., the property arm of the Sy Group, said business process outsourcing (BPO) companies cannot easily occupy office spaces to be left behind by POGOs should they be forced to close shop.

“BPOs require PEZA certification which many buildings occupied by POGOs don’t have. Hence, it’s not likely BPOs can just replace POGOs in those office buildings, unless PEZA is able to give incentives as it has done before so BPOs can absorb the space POGOs might leave behind,” SM Prime president Jeffrey Lim said.