To describe the growth of the property market in Manila as staggering would be an understatement. According to Jessica Mae Go, assistant research manager at Jones Lang LaSalle Leechiu, at the start of the millennium, only around 7,000 units of condominium units were completed. This figure jumped to about 90,000 by the end of 2011.
Go also said that from 2012 to 2016, approximately 154,000 condominium units are expected to be completed, which is about 1.7 times the housing stock completed between 2007 and 2011 (87,000 units) and almost 9 times that between 2002 and 2006 (17,500 units).
These numbers are a reflection of the Philippines’ improved economic outlook. According to Claro Cordero Jr., Jones Lang LaSalle Leechiu’s head of Research, Consulting & Valuation Advisory, property prices, too, have also continually increased. ‘Capital values for mid-end condominiums grew by an average of 13% annually between 2004 and 2001, while rents grew an average of 8% annually over the same period.’ It is therefore not surprising to hear people talking of property bubble when one sees this kind of number.
‘Although the danger of a property bubble occurring has always been there, the Philippine capital is not experiencing a bubble at the moment, and we do not think a bubble will occur in the short- to medium-term unless an unexpected shock affects the country,’ says Cordero.
‘The reason for this is that the demand for these residential units is sourced mainly from end-users rather than speculative buyers. Moreover, demand is currently supported by low interest rates, a higher value-added tax exemption ceiling and flexible payment terms.’
Cordero also added that although property prices are rising, they are not likely to drastically shoot up, because of the intense competition in the market at present.
The country’s property boom is being ‘filled’ by genuine demand from end-users, and the market seems able to absorb the incoming supply over the short- to medium-term. ‘Nevertheless, there is a large supply over the next five years, making market positioning and aggressive marketing campaigns crucial for developers if they wish to maintain healthy take-up rates,’ cautions Cordero.
The high growth of the market is driven by the country’s improving economic conditions, such as positive economic growth, record-high remittance from overseas Filipinos, and relatively low inflation and interest rates. ‘As long as the economic environment continues to improve, the property market may be able to sustain growth,’ says Cordero.
In addition, major buyers of residential units in the Philippine capital are primarily end-users, mainly overseas Filipinos. These Filipinos, having experienced living abroad, are motivated to improve the quality of life of the families they left behind. And one way to do this is to purchase quality homes, notably condominiums, for their families. In fact, according to estimates, a considerable percentage of the remittance of an overseas Filipino to the Philippines goes to real estate (either for house rent or to pay mortgage).
And this trend is expected to increase further. In 2011, remittances from overseas Filipinos grew by 7.2% to US$20.117 billion from US$18.763 billion in 2010. The country also posted an impressive 6.4% GDP growth rate in the first quarter of this year, the highest in the ASEAN region and the second highest in Asia.
Cordero also said that, despite the supply growth accelerating, take-up levels have remained competitive. Developers are seeing healthy sales rates for their developments, which encourage them to build more projects.
This high take-up is also partly driven the country’s booming offshoring and outsourcing industry (O&O). The growing number of O&O firms, such as call centres and back-office operations, has significantly expanded the mid-end market. Many of these O&O firms have also established offices outside the traditionally preferred business districts, such as Filinvest Corporate City and Madrigal Business Park in the southern fringe of the metropolis, Araneta Cyberpark in Quezon City, and McKinley Hill in Taguig City. This has led to a frenzy of building in many parts of the capital.
Today there are 18 emerging business districts in Metro Manila, in addition to the three traditional business districts of Makati, Ortigas and Bonifacio Global City. These emerging districts offer a community comprising retail, office and residential projects, which are attractive to both occupiers and developers.
Filipinos’ rising household income, too, is also a major factor to the country’s property market’s growth, thanks to the O&O industry. In fact, according to a report by CNN, so many Filipinos are working in this sector that every family has at least one close relative working in one of the country’s numerous call centres. This phenomenon has increased home ownership in the country.
Positive news about the growth of the Philippine economy is also positively affecting the country’s property market. The bright prospects for continued economic and tourism growth, coupled with the upgrade by credit rating agencies, suggest that local and foreign investors’ confidence in the country has improved. This heightened confidence is expected to fuel the growth of property-related demand in the short- to medium-term.
However, as with any other developing country, the Philippines faces many challenges to maintain its impressive growth.
According to Cordero, the government will do well to introduce reforms in its educational system. ‘This way the country will be able to produce graduates, not just to match the demand from the O&O industry, but the demands from other developing industries. There is also a need to constantly review the performance matrix in the banking system to ensure a smooth flow of capital and investment from the public and private sectors.’
Another area of reform is the improvement to infrastructure and transportation systems, such as the construction and upgrading of telecommunication infrastructure, link roads (including farm-to-market roads to effectively link rural to urban areas), rail systems and overall improvements to the airports to minimise business disruptions.
‘For as long as the economy grows at its current pace, the optimism in the property sector is likely to continue,’ says Cordero. ‘The early gains in the economy should temporarily shield the country from the external economic shocks brought about by the continued slump in the eurozone area and the slow recovery of the US market. The bigger challenge is thus to capitalise on the positive market sentiments in the local economy to advance the long-term economic growth plans, attract more investors and strengthen the major drivers of the property market.’