SPV law extension to pave way for disposal of P200-B bad assets

About P200 billion worth of non-performing assets (NPAs) is expected to be disposed off once the Special Purpose Asset Vehicle (SPV) law is extended, a real estate investment consultant said.

Jojo Salas, director of investment properties and capital markets of CB Richard Ellis Philippines Inc., said of this amount, 60 to 70 percent will comprise of non-performing loans (NPLs) while the balance will come from ROPOAs (real and other property owned or acquired).

The law, which expired on April 12, 2005, helped banks unload their NPAs through the use of special purpose vehicles. Last year, commercial banks sold a combined P97 billion in NPAs to local and foreign institutions, bringing down the industry’s NPL ratio to 9.1 percent, its lowest level since May 1998.

Last December, Congress passed a SPV renewal bill which would extend for another 18 months the filing of applications and tax benefits for the establishment of an SPV. With this development, many banks have postponed the disposal of their NPAs as they await for the extension of the law.

The main purpose of the law is to encourage financial institutions to get rid of NPAs and create liquidity that can then be used to generate growth in the country. The NPAs are made up of NPLs and assets obtained by foreclosure or dacion en pago.

"Renewing the SPV law will further strengthen the country’s banking and real estate sectors and keep the Philippines on the radar of international investors," Salas said. Some banks have also opted to develop their big-ticket properties either alone or in joint ventures with developers, into build-to-suit buildings for call centers, residential projects, and retail centers.

Over the past two years on behalf of major local banks, CBRE Philippines managed a total of 27 retail auctions where over 900 properties were sold. Overall, CBRE Philippines has disposed of approximately P2 billion worth of non-performing asset properties through auctions, sealed bidding and negotiated sales.

Meanwhile, rental levels for premium/grade A Makati office are expected to continue to rise over the short-term due to the robust demand for suitable office space in the Makati central business district.

Average prime/grade A Makati CBD rental rates rose 4.5 percent to P575 per square meter from P550 per square meter. "Leasing rates in some prime buildings are already testing P700 per square meter level, according to CBRE Philippines Inc.’s corporate services director Joey Radovan.

"This is a phenomenal turnaround from just a few years ago when lease rates in these same buildings were at P450 per square meter or less," Radovan said.

Radovan said this is the second year that rental rates are on the upswing. He also noted that there will be a lot of lease expirations this year.

He said vacancy levels for premium/grade A Makati office space fell to 4.9 percent at the end of the fourth quarter as multinationals continue to outsource their call center and other back office functions to the Philippines.