‘POGO ban to trigger real estate crisis’

Economic losses seen at P200 billion per year

MANILA, Philippines — A total ban on Philippine offshore gaming operations (POGOs) may trigger another crisis in the real estate industry and spill over to the economy as it could translate to annual losses of nearly P200 billion, an industry player has warned.

The complete ban on POGOs is also expected to translate to an additional office space vacancy of 1.05 million square meters – the space currently occupied by the remaining POGOs, according to real estate consultant David Leechiu, CEO of Leechiu Property Consultants (LPC).

This, in turn, could swell losses from the POGO exodus to roughly P190 billion, according to LPC estimates.

The estimated annual losses are broken down as follows: P54.3 billion to P57.1 billion in income tax from foreign FTEs (full-time equivalent); P52.5 billion in fit-out cost or the cost of providing furniture, fixtures and technology; P28.6 billion in housing rent across 2.4 million sqm of residential space; P18.9 billion in office rent; P11.4 billion expenditure on commissary meals; P9.5 billion in electricity cost; P5.8 billion in taxes; P5.25 billion in revenue for the Philippine Amusement and Gaming Corp. and P952 million in daily spending.

The empty offices could also lead to closures of medium-sized and smaller property players and push rental rates back to their levels as far back as two decades ago, Leechiu warned.

In a recent briefing, Leechiu said an outright and blanket ban on POGOs would lead to an oversupply in the sector and could cut rental rates by more than half, which would be detrimental to property players.

The Bay Area, for instance, used to fetch P1,500 to P2,000 per sqm from POGOs and about P750 to P900 per sqm from other tenants. But with rising vacancy, Bay Area rents are now down to P600 to P500 per sqm, industry data showed.

Other business districts such as Makati and Ortigas could potentially face the same situation and set prices back to pre-POGO years.

Higher vacancy and low rental rates may result in a liquidity crunch for the sector and thus trigger another crisis for the property industry, which in recent decades was already brought to its knees by past global meltdowns such as the Asian financial crisis of 1997 and the US mortgage crisis of 2007.

The POGO sector has so far vacated 630,000 sqm of office space, which led to contractions in the industry in the last three years.

This translated to P25.93 billion losses in office rent from 2020 to present; P17.1 billion in housing rent from 2020 to 2022; P2.51 billion estimated loss in annual tax; P12.9 billion in estimated loss in electricity cost from 2020 to 2022 and P31.5 billion estimated loss in fit-out cost from 2020 to 2022.

Leechiu said that if an additional 1.05 million in office space would be vacated, it would translate to wider losses, and put additional pressure on rental rates.

Over the past three years, POGOs have vacated 630,000 sqm in office space.

“A full exit of the POGO industry is expected to not only accumulate further losses in sources of income and tax, but also increase office vacancies and push rental rates further down than during the pandemic,” Leechiu said.