Philippines: 27% spike in property values in 5 years

STALLED BY THE VIRUS: A country on the edge of the "Ring of Fire", the Philippines is frequented by typhoons, floods, earthquakes. There are engineering hacks around these natural challenges. Japan, also an archipelago buffeted by natural calamities in the west Pacific just north of the Philippines, has sort of done it. In the past, such adversities have thwarted the Philippines’ growth, including manufacturing and real estate industry. But the country has proven its resilience, as shown by real estate values holding and new property developments far away from the capital. | An aerial view of the Luneta Park in Manila.

CALAMITIES: For the Philippines, 2020 kicked off with a big bang. And a deadly cough. Taal Volcano, just 80km from Manila, erupted on January 12, 2020, shutting down airports and crushing the economy of nearby communities on the Luzon island. On February 2, 2020, the coronavirus began its death run, claiming a life in Manila — its first outside China (400,000 infected as of November 10, 2020, with 7,661 deaths). The Philippines, too, is an earthquake-prone country, with quakes recorded each day, though most are not felt. Phivolcs records an average of 20 earthquakes a day and 100 to 150 earthquakes are felt per year. But every calamity is a challenge to build back better.

DENT IN RENTAL VALUES: With the 2020 coronavirus contagion, the Philippines faced the first recession in 29 years. As a result, property rental values are down. But it's a minor blip in the big picture. A recent CEIC report comparing house prices growth by country shows that over the last 5 years, Philippine property values have jumped by a massive 27.1%, from March 2015 to June 2020 — compared to a 0.4% drop in neighbouring Malaysia and 1.1% slide in Japan. Even in this disaster-prone country, it's not all fire and death. A popular Filipino phrase states: "Habang buhay, may pag-asa" (Where there's life, there's hope).

ECONOMIC BOOSTER: Property developments, particularly in the faraway provinces, help stimulate economic activity. Hidden behind the natural calamity stories that regularly hog the headlines is an unprecedented government-led infrastructure spending. The "Build, Build, Build" pushed by President Rodrigo Duterte is addressing a big gap infrastructure enough for the country's 110 million inhabitants. It has earmarked a spending warchest of some $164.7 billion spread over 20,000 projects — ports, airports, roads, bridges, mini hydro, power plants, telecoms, etc — across the nation, and bankrolled by both the government and the private money.

GROWTH AWAY FROM THE CITY: The residential property market in the Philippines is now wedged into two: Metro Manila central business districts (CBDs) and the rest of the country. Manila CBDs are losing steam, says Colliers International. The rest of the country, on the other hand, continues to boom. The average price of a luxury 3-bedroom condominium unit in Makati CBD rose by a minuscule 0.87% in 2019 to Php232,000 ($4,488) per sqm, a sharp slowdown from a year-on-year rise of 15.55% in 2018 and the weakest performance since 2009. Adjusted for inflation, prices declined 1.03% year-on-year last year.

PROPERTY PRICES: The Asian tiger is currently awash with cash, whose central bank (BSP)manages an estimated $100 billion in gross international reserves, a historic high. A property price boom from 2010 to 2018 gave Makati CBD a windwfall, rising by almost 132%. Given the viral on-going contagion, local calamities and the recent US-China trade tiff, the housing market slowed sharply in 2019. But house prices nationwide continue to grow. In the first nine months of 2019, residential real estate price index surged 10.4% (10% inflation-adjusted), according to the Bangko Sentral ng Pilipinas (BSP), the country’s central monetary authority.

DRIVERS: Several drivers are bouying up the Philippine property industry. Before the viral contagion, the Asian country was one of the region's fastest-rising economies, backed by a young population, a growing middle-income class, and improving governance. A positive economic climate encourages more Filipinos and expats to invest in the property for an expected growth in value, according to Colliers International Philippines. Property companies are jumping into the fray by developing industrial estates in alternative hubs like Bataan, Bulacan, and Pampanga, as well as southen Tagalog, Visayas the the breadbasket provinces of Mindanao.

OWNERSHIP: Foreigners are allowed to own property in the Philippines — up to 40% of units available in high-rise developments. Corporations partly owned by foreigners can also buy land in the Philippines. Central bank data show that condominium units saw the strongest year-on-year price spike of 29.1% (28.6% inflation-adjusted) in Q3 2019 from a year earlier.

CHINESE BUYERS: Over a million Chinese tourists and workers have flocked to Manila, as Philippine President Rodrigo Duterte embraced closer ties with Beijing. Upper middle-class Chinese buyers have snapped up condominiums and pushed rental rates in the Manila Bay area to around Php1,700/sqm ($35) in the three months ending March 2020. This is a 172% jump compared to 2015, Leechiu Property Consultants data show. A prime mover for Chinese interest in the Manila property market, in particular, is the online gaming boom (Philippine Offshore Gaming Operators) which caters almost exclusively to clients based in China, where gambling is banned, though many of them have left due to the pandemic and a subsequent crackdown on gambling operations. But many have stayed behind. Many Hong Kong Chinese have also invested in the Philippines.

BUYING SPREE TAMED: Prior to COVID-19, residential yields in Manila was 5.1%, higher than Bangkok's 4%, and Singapore 2.9%, according to Colliers data. The pandemic has tamed the property buying spree, and price spikes. But the lifting of stay-at-home measures had reignited buying activity, especially among bargain hunters. Juwai.com, a portal that tracks Chinese real estate, shows that Manila is subject of 68% of inquiries among Chinese property investors looking to buy in the Philippines.

COVID IMPACT: Filipino developers have felt the impact of the economic slowdown amid lockdowns in China and the Philippines. For example, Ayala Land, the country's largest developer, reported sales to Chinese buyers fell by 49% to Php1.5 billion ($30 million) in the first quarter of this year. Still, Chinese investors account for 41% of all international sales at Ayala Land compared to 30% from the US and 5% from Japan. | Makati, despite competition from the like of Bonifacio Global City, Pasig and Eastwood, hasn't really lost it charm, as this triangular public garden and courtyard in the foreground in the central business district shows.

11,000 new UNITS this 2020: Ayala Land and Megaworld, another major Philippine developer, have reportedly slashed their capital spending this 2020 due to the pandemic-induced slowdown. This will stem a potentially huge supply that may affect demand. Yet Philippines developers are expected to deliver 11,000 units in Manila this year, over 3,000 less than earlier projected, Nikkei Asia quoted Collier's research manager Joey Roi Bondoc as saying in a June 2020 report.

LULL FROM OFW BUYERS: Tens of thousands of overseas Filipinos workers (OFWs) have returned home after losing jobs abroad, which could dent property industry sales, say industry experts. There's also the matter of tax enforcements that could hit the online gaming industry. Yet large deals are still being closed. For example, a Chinese group recently sealed a Php5.5-billion ($113 million) deal with a local developer in the midst of the lockdown.

OWNERSHIP LIMITS: By law, there's a 40% limit on the number of units foreigners can buy in the Philippines. Many have worked around it by having a local company acting as a front and buying on behalf of foreigners. While police raids of condominiums housing illegal Chinese online casino workers have raised some tensions, the Philippines is generally a welcoming country. Many property buyers see their investment in Philippine real estate as a long-term hedge.

PRICE DIFFERENCE: Compared to neighbours, the Philippine competes on price. These's no big difference in build quality. For example, a one-bedroom unit (42 sqm) in a Singapore CBD high-rise typically goes for SGD1.5 million ($1.11 million, Php53 million). On the other hand, similar-sized 2-bedroom unit (47 sqm) at an upscale condominium in Makati CBD, is typically priced at Php6.3 million (SGD162,000). So for the price of one unit in Singapore's central business district, a buyer can snap up nine units in Makati, Manila's financial hub.

VALUE FOR MONEY: Among countries in Southeast Asia, the Philippines is where you can find good value for money, and relatively inexpensive properties. A house in upscale communities can be snapped up for less than $500,000. Jed Calamigan of Philippine developer SMDC told Gulf News: "The pandemic has stalled property appreciation as millions lost their jobs and drained the pool of property investors. But experience tells us there are still buyers, though less in number." To drive demand, developers are giving discounts (up to 10% for SMDC) for both ready and off-plan units. "I still find buyers even in the midst of COVID," said Calamigan. He expects property value appreciation to restart as post-COVID recovery kicks off.