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POGO boom drives real estate sales in Manila, Cebu

Growth in online gambling in the Philippines is driving a real estate boom in Manila, which is now spilling over to the island of Cebu, as operators seek more space and cheaper prices.

The ascent to power of mercurial President Rodrigo Duterte in 2016 cast a shadow over the country’s online gambling industry, amidst threats of a shutdown. However, instead a new licensing regime was put into place, allowing land-based regulator, the Philippine Amusement and Gaming Corp, to offer licenses and to compete with the existing licensor, First Cagayan.

The upheaval and uncertainty lead to First Cagayan losing more than half its licensees, dropping to less than 80 from more than 200 before the changes. Many online firms also relocated to neighboring jurisdictions, such as Taiwan and Cambodia.

However, real estate figures suggest the online market in the Philippines is still alive and thriving.

Most of the online gaming companies that have set up in the Philippines originate from China. About 200,000 mostly Chinese workers have arrived in the country since late 2016, after licenses were awarded to more than 50 offshore gambling companies that cater to overseas Chinese gamblers.

According to a report by Colliers International, sales to Chinese nationals have risen in 2017 and continued into 2018 due to the influx of POGO operators. These clients tend to buy multiple floors or in bulk which has sustained the office market and impacted residential sales as POGOs often supply housing for their staff.

Online gaming firms were reported to prefer offices in Bay City, a rising business district by the Manila Bay. Typically they require 80-100,000 sq meters of space. Office occupancy in POGO buildings now stands at  95 percent, with secondary condos near POGO licensees at 100 percent occupancy.

Real estate consultancy, Leechiu said it has leased more than 2 million sqm of office space and sold over P100 billion ($1.87 billion) worth of real estate in 2017.

It’s not just Manila experiencing the boom, Colliers International reported that online gambling operators’ demand for Cebu office spaces grew by 25,700 square meters in 2017, accounting for a quarter of recorded transactions last year.

“With a more conducive local regulatory environment, we expect offshore gambling to become a major contributor to office take up in Cebu,” Colliers reported.

“After Manila which is a little congested, many are now looking into Cebu. It’s a very nice place to start a business, everyone is friendlier, the cost is lower and of course there is a lot of manpower in Cebu,” said Miggie Lopez, head of sales and marketing, for Cebu-based Blue Frog.

Blue Frog obtained a POGO license last year after having been regulated for the prior four years by First Cagayan.

POGO licensees are only able to offer their services to players outside of the Philippines, but can be situated anywhere in the country. Under a First Cagayan license, companies are required to be physically present in the Cagayan Special Economic Zone.

Although this had always been the law, most licensees had their back office systems and workers in the capital due to the remoteness and inadequate infrastructure in the zone. Duterte’s clampdown sought to close this loophole.

Blue Frog’s Lopez says she prefers the transparency provided under PAGCOR.

“I think it’s going to be fair for everyone that illegal operators are being cracked down on and it’s fair that the government is closely regulating the industry because it will pull the whole industry down if there are so many illegal operators,” she said.

As well as bring in more money, POGOs were also created to establish more regulations on what PAGCOR head, Andrea Domingo termed “fly-by-night” operators who would simply close shop and “disappear” whenever they were unable to pay clients’ winnings.

Under the new system, regulators will have a stronger ability to monitor for fraudulent behavior and be able to remove the license of any POGO operator found to have violated operating procedures. Previous administrations had failed to capitalize on the lucrative online gambling industry because of this proliferation of unregulated operators.

“The foreign bettors will be more confident of getting fair play with this system, and they know that that they will be protected against fraud,” said Domingo, when it was first announced.

PAGCOR has said that it expects the state’s revenue from online casinos to double this year as more licensees come online, boosting the estimated income to about P6 billion in taxes.

PAGCOR issued POGO licenses to at least 45 online casino operators and 10 sports betting operators. But with so many new applications, the regulator has rejected several applications, and is thinking of limiting the number to just 50 operators to prevent “oversupply.”

Each POGO licensee must pay $10,000 in licensing fees monthly for a minimum of 15 gaming tables, or a total of $150,000 a month per POGO licensee. Domingo dismissed reports that PAGCOR’s high fees have driven international operators out of the Philippines and into other Southeast Asian jurisdictions, such as Cambodia. Domingo pointed out that the advantage of investing in the Philippines is that the country is not a military state and highlighted the competence and hospitality of Filipino workers.

PAGCOR’s full-year income from gaming operations stood at US$1.11 billion in 2017. For 2018,  Domingo estimates that gross gaming revenue will rise to US$3.57 billion with the bulk coming from POGO licensees.

“In general, the government and PAGCOR are making efforts to better regulate the gaming industry, including the online gaming business. Still, taxation of the operators generate a good portion of the revenue for the government,” said Margaret Huang, Asia gaming analyst for Bloomberg Intelligence. “As such, it's a tricky balance to cap the number of licensed operators when the revenue supports other projects for the government. There may be risk of cannibalization if the licenses become excessive, similar to the land-based casinos.”

Francis Hernando, President of First Cagayan Leisure and Resort Corporation says the Philippine gaming industry has been going through a big adjustment period, first with Duterte’s crackdown on licensees and now with an upcoming tax law that will affect casinos and which may hurt potential foreign investment.

“The gaming regulatory environment is the one that needs to be clear. We should admit even from the government side it became a bit shifty. That needs to be settled down and communicated to the licensees or would be licensees,” he said.  

Another challenge is that the Philippines has a demonstrated vulnerability to cybercrime. Online gaming is a tempting target, and the Philippines’ digital security framework needs improvement.

In an amendment signed by Duterte last 2017, the Anti-Money Laundering Act (AMLA) now encompasses “internet or ship-based” casinos. This will require cash transactions of more than P5 million to be reported to the Anti-Money Laundering Council.

Despite these teething and regulatory problems, online gaming is set to grow. Pagcor has hinted that its previously indicated cap of 50 licensees may be increased and the attraction of setting up in the Philippines remains.

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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