KB-Real Estate Report 2015
CHAPTER 1: LOCAL MARKET OVERVIEW
Comprising 7,107 islands wedged between the western Pacific Ocean and the South China Sea, the Philippines is a country of approximately 100 million people, one of Asia’s most culturally and linguistically diverse, and in recent years has emerged as one of the developing world’s investment havens.
Things started to look up for the Philippines in 2010 when regulatory reforms from the early 2000s began to take effect. In 2013 the country received its first long-coveted investment-grade rating from Fitch, which gave the country a BBB– with a stable outlook. An upgrade from Standard & Poor’s came soon after, and then Moody followed suit in late 2013.
Although the devastation caused by Typhoon Haiyan in November 2013 resulted in the country missing its target for the fourth quarter of 2013, the economy grew 7.2 percent for the year, beating expectations and becoming Asia’s second fastest growing economy after China. Albeit slower compared to a year earlier, the Philippines’ 6.1 percent GDP growth rate in 2014 was Southeast Asia’s fastest.
Philippine Economy
Although growth eased in 2015, the Philippine economy continued to outperform. The economy grew 5.2 percent during the first quarter of 2015, 5.8 percent in the second quarter, and six percent in the third quarter, making the Philippines the third fastest growing economy in Asia after China and Vietnam. Total growth for 2015 is estimated at 5.8 percent and forecast to rise to 6.4 percent in 2016, according to the World Bank. [1]
OFW Remittances
The Philippines was the world’s third largest recipient of foreign remittances in 2014. It is estimated that remittances from overseas Filipinos, numbering approximately 10 million, account for a tenth of the Philippines’ GDP. According to preliminary data from the Bangko Sentral ng Pilipinas (BSP), for the first 11 months of 2015, personal remittances from overseas Filipino workers (OFW) reached $25.249 billion, which is 3.4 percent higher than for the same period in 2014. [2]
According to the World Bank, remittances are an important source of cash for developing economies. With the exception of China, they far exceed official development assistance and even foreign direct investment (FDI). Remittances have proved to be more stable than private debt and portfolio equity flows, and less volatile than official aid flows.
Foreign Direct Investment
August 2015 saw the highest monthly foreign direct investment (FDI) inflows since December 2014, at $526 million, which is a 74 percent increase year-on-year. Despite reaching $4.5 billion for the first nine months of 2015, FDI inflow to the Philippines for January to September was 5.5 percent lower compared to the same period in 2014.
In 2014, BSP data shows that FDI inflow rose 61.6 percent during the first 11 months of the year, compared to the same period in 2013. Net FDI inflows from January to November of 2014 amounted to $5.7 billion, compared to $3.5 billion during the same period in 2013.
The Philippines still lags behind its neighbors, such as Indonesia and Thailand, in terms of attracting FDI. In 2013, Indonesia attracted $18.4 billion of FDI inflow, while $13 billion poured into Thailand for the same year. A year earlier, other ASEAN countries outperformed the Philippines in terms of FDI inflow, with Singapore posting a net FDI inflow of $56.17 billion; Indonesia with $19.85 billion; Thailand with $10.67 billion; Malaysia with $9.4 billion; and the Philippines with only $3.2 billion.
Real Estate Market
The Philippines’ real estate market in 2014 was best described as buoyant. According to Colliers International, better economic conditions and ramped up government spending drove real estate growth, if not for the residential sector but for other segments, such as industrial, hotel, retail, and office. The Philippines was also named one of Southeast Asia’s best performing markets in JLL’s Real Estate Transparency Index in 2014.
In 2015, JLL recognized Metro Manila as one of its top 30 real estate investment cities in the world in its Commercial Attraction Index [3]. According to the global real estate consulting firm, the key feature of a successful city is about sustainable momentum, adaptability and the ability to reinvent itself, and Manila definitely has these qualities.
JLL predicts that by 2030, Manila will be a top 18 city in the world in terms of city gross domestic product, having one of the highest economic momentum globally, along with Jakarta (Indonesia) and Istanbul (Turkey).
Metro Manila
New players have entered Metro Manila’s office sector due to bullish demand, according to the Q4 2014 report from Colliers. More than 195,000 sq m of office space was completed in the last quarter of 2014, the highest in a single quarter since Q1 2013. Despite this new supply, vacancy rates remain stable in the Makati CBD at two percent, resulting in an acceleration of rents.
Prime residential real estate, on the other hand, saw stable growth of rental rate and capital value in the same period, although preselling condo sales declined by seven percent year-on-year. According to Colliers, smaller-sized condo units are set to dominate Metro Manila’s condo market over the next four years. Close to 75 percent of new supply to be turned over between 2015 and 2018 will comprise studio and one-bedroom units (ranging in size from 18 to 90 sq m). The influx of these smaller units is expected to create pressure on rental rates and resale prices.
CALABARZON
As the Philippines’ second most economically important region after Metro Manila, CALABARZON (comprising the provinces of Cavite, Laguna, Batangas, Rizal, and Quezon) boasts the Philippines’ second largest gross regional product (GRP) at Php1.644 trillion ($37.14 billion) and a buoyant real estate market. [4]
The provinces of Laguna, Cavite, and Rizal are close to Metro Manila and for this reason, they are popular areas to buy a home for the capital’s millions of workers. For instance, the cities of Bacoor and Dasmariñas in Cavite, San Pedro and Santa Rosa in Laguna, and Taytay, Cainta, and Antipolo in Rizal are home to numerous residential subdivisions that offer houses from as low as Php1 million in Cainta ($22,160) to as high as Php35 million ($775,700) in Ayala Southvale in Bacoor.
However, the region also boasts a buoyant leisure real estate market, especially Tagaytay City in Cavite and the towns of Nasugbu and Calatagan in Batangas. Vacation homes, condos, and beachfront houses within master-planned communities are quite common in these areas, such as Playa Calatagan, Pico de Loro, Twin Lakes, and Tagaytay Highlands.
Metro Cebu
Metro Cebu – comprising the cities of Cebu, Mandaue, Lapu-Lapu, Talisay, Carcar, Danao, and Naga, and the municipalities of Compostela, Consolacion, Cordova, Liloan, Minglanilla, and San Fernando – ticks all the boxes of an attractive real estate market.
The metro is Central Visayas’ economic powerhouse, home to 80 percent of the Philippines’ domestic shipping companies, and a thriving tourist destination in its own right. Homebuyers here can enjoy easy access to both the metro’s central business districts and to white-sand beaches and world-class diving sites.
Major property developers have been active in Metro Cebu for years, pouring money into mixed-use projects, such as Megaworld’s Mactan Newtown and Ayala’s Cebu Park District.
Davao City
Davao City is emerging as Mindanao’s real estate hotspot, thanks to its relative stability and a local economy that is ripe for further expansion and development. Colliers has also identified the city as Mindanao’s condo hotspot: from a mere 1,203 condo units launched in 2009, new launches grew 54 percent annually to 6,768 units by the end of 2014.
National developers have also made their presence felt in Davao City. The SM Group have two malls in the city (SM City Davao and SM Lanang Premier), while Ayala subsidiary Alveo Land is expected to turn over Abreeza Residences this year. Megaworld Corp., on the other hand, has earmarked Php15 billion ($331 million) to develop its first mixed-use township in Mindanao, the 11-hectare Davao Park District on the former Lanang Golf and Country Club site.
Central Luzon
The region, especially the provinces of Zambales and Pampanga, has been a real estate hotspot since the closure of the U.S. bases in the early 1990s. Pampanga’s Clark Air Base, for instance, has reemerged as Clark Special Economic Zone, which is now a hub for business, industry, aviation, and leisure and tourism. The same has happened to neighboring Subic in Zambales.
Property developers have been pouring investments into Central Luzon over the last few years. Ayala Land in 2014 launched two mixed-use projects in the region: the 1,125-hectare Alviera in Porac, Pampanga, and the 98-hectare Altaraza in San Jose Del Monte, Bulacan.
Recently the government’s Bases Conversion and Development Authority (BCDA) has bid out development rights for 254 hectares of land within the 9,450-hectare Clark Green City between Tarlac and Pampanga.
CHAPTER 2: 2014 VS 2015 TRENDS
In 2014 Lamudi conducted a survey of Filipino real estate professionals. Results of the survey were reported in the real estate platform’s 2014 White Paper, Real Estate in the Emerging Markets: The Philippines.
2014 Trends
The 2014 survey noted that real estate professionals were overwhelmingly positive about the Philippines’ real estate market. In fact, 92 percent of the survey’s respondents described the outlook of the local property market for the next 12 months as positive. However, respondents also cited the Philippines’ economic outlook as one of the biggest constraints for the real estate sector, which is indicative of concerns about a potential slowdown among agents and brokers. In addition to economic outlook, political change, limitations on foreign investment, price fluctuations, and vast supply were cited as major constraints by real estate professionals.
On the economic front, the Philippines also emerged as one of Asia’s bright spots in 2014. Metro Manila, for example, was cited by the Urban Land Institute and PricewaterhouseCoopers (Emerging Trends in Real Estate Asia Pacific, 2014) as Asia-Pacific’s fourth most preferred destination among property investors in the region, outranking Sydney, Guangzhou, and Singapore [1].
Data from the Bangko Sentral ng Pilipinas (BSP) also showed promising foreign direct investment (FDI) inflows in 2014. Net inflows totaled US$588 million in June 2014, a turnaround from the US$26 million net outflows registered a year earlier. Net inflows increased 76.9 percent to US$3.6 billion in the first six months of 2014, which according to the central bank, reflected “strong investor confidence in the country’s solid macroeconomic fundamentals”.
2015 Trends
Although real estate professionals’ sentiments for the market in 2015 was positive overall, a significant number of surveyed agents and brokers cited several factors that could have an impact on the local real estate market.
In the survey, the agents were asked to rate several factors from 1 to 5 (1, not at all; 5, severely affected) in terms of their impact on the real estate industry. These factors include the following: (a) banks are more stringent when extending loans to homebuyers, (b) a mismatch between supply and demand, (c) lack of marketing and branding for real estate projects, (d) slowing demand from Filipino homebuyers, (e) slowing demand from foreign buyers, (f) slowing demand from OFWs, (g) natural calamities, (h) political turmoil, and (i) economic uncertainty.
Among the surveyed real estate professionals, 14 percent rated banks’ more stringent approval for house financing as 5 (severely affecting), while nine percent rated the same as 1 (not at all affecting). On the other hand, 36 percent of the surveyed agents rated the factor as having a moderate effect on the real estate industry.
More brokers rated all but one of the factors above as having a moderate effect on the market (26, 34, 32, 26, 32, 26, 26, and 21 percent respectively), with the exception of political uncertainty, where 14 percent of the professionals cited the factor as having a moderate effect on the real estate industry. However, overall the professionals were more optimistic about the Philippine economy, with 17 and 36 percent of them rating political uncertainty as 1 (no effect at all) and 2 (slight effect), respectively.
More real estate professionals were also optimistic of the political climate’s effect on the real estate industry. Of the respondents, 22 and 29 percent rated political turmoil as 1 or 2, while only eight percent rated the same as 5.
Real Estate Market in 2015
When asked if they have noticed a considerable increase in the number of sales inquiries made through online channels in 2015, 91 percent of the surveyed real estate professionals were positive of this emerging trend, while only nine percent said they did not notice an increase. In addition, when asked whether there has been a considerable increase in both the price of real estate and monthly rents in the areas where they specialize, 91 and 78 percent of the surveyed professionals were positive of this trend, indicating a positive growth of the real estate market over the time period.
CHAPTER 3: INTERNET PENETRATION
It goes without saying that the Philippines’ Internet landscape is quickly changing, shifting, and growing. The country’s Internet penetration stood at 44 percent in January 2015, an increase of 26 percent on the previous year [1]. In fact, this has increased more than 630 percent since 2008, when a mere six percent of the population were Internet users. The figure was expected to cross the 50 percent mark in 2015, thanks to the proliferation of smartphones, especially cheaper Android devices.
The dramatic increase in Internet penetration in the Philippines has a profound effect on how brands and businesses market their products, and the real estate industry is no exception. In fact, a survey conducted by Lamudi in 2014 found that 88 percent of real estate brokers said that the Internet was now frequently used during house-hunting, and about the same proportion of agents believed that the future of the industry was online. The survey found that the Internet is now the number one platform that real estate agents use to advertise their listings.
In 2015, Lamudi conducted another survey among licensed real estate professionals. The survey found that 91 percent of all professionals observed a significant increase in inquiries made through online means. In addition, 59 percent of the surveyed professionals cited online listings platforms as their most widely used online channel to advertise their property listings, while 18 percent of them cited social media platforms.
The Rise of Online Real Estate Portals
Real estate websites and portals were virtually unheard of in the Philippines in the mid-2000s. Traditional media such as newspapers, magazines, printed classifieds, and the broadcast media were the most common means by which real estate brokers, sellers, and developers advertised their listings.
But gradually the marketing expenditure of real estate advertisers has shifted from offline to online, or at least an increasing proportion of their budget is now being spent on digital. With the growing popularity of listings websites, consumers now have information literally a mouse-click away. In fact, data from the National Association of Realtors in the United States shows that up to 90 percent of all American homebuyers start their property search online [2]. Given Filipinos’ affinity with the Internet, more and more Filipinos are turning to the web to assist with their search for their dream home.
However, it is not enough to have a website or list properties on an online property platform to capture a market. A clear understanding on how Filipinos consume online content is crucial and will make (or break) a successful digital marketing strategy for online marketers, including in the real estate industry.
Trends in Digital Marketing in 2015
Facebook Usage Is Shifting
Filipinos are some of the world’s most avid users of Facebook. A study conducted by market research firm On Device Research in 2014 found that of the Philippines’ Internet population of almost 39 million, a staggering 94 percent of them have Facebook accounts—about one in every three Filipinos [3].
But the days of Facebook just being a social media site and destination are coming to an end. In order to monetize through advertising, Facebook is now moving from community building to being a content distributor. According to research conducted by the McCann Worldgroup, the social media site is now recalibrating its content and media strategy to influence online communities to provide its users unique experiences and become the point where content and trends are discovered.
Mobile Messaging Apps
On Device Research also showed that 32 percent of Filipino smartphone users in 2014 downloaded six or more apps per month, and 45 percent of these people have either shelled out some money for these apps or made in-app purchases.
What is more noteworthy, however, is the popularity of mobile messaging apps. Eighty-two percent of mobile users have Facebook Messenger, 27 percent use Viber, and 27 percent have Skype. Research by McCann Worldgroup predicts that mobile messaging apps could become the new social network that brands should tap into. For example, brands can connect directly with smartphone users through private messaging or public chats, which is a new form of direct marketing and digital PR.
Growth of Filipino Netizens Will Be Driven by Mobile
At 15 percent, the Philippines lags behind Malaysia, Singapore, and Thailand in terms of smartphone penetration. However, this was forecast to leap to 50 percent in 2015, due to the increasing popularity of cheaper smartphones.
What is also interesting about the Philippines’ smartphone users is that 44 percent of them are aged between 25 and 44 years, according to On Device Research. This is the age bracket in which most people have stable incomes and higher spending power.
In addition, Filipino smartphones users are on their phones far longer than their peers in Southeast Asia. Forty percent of Filipino smartphone users spend more than five hours per day on their phone, according to On Device Research, which roughly translates to 30 percent of our waking hours.
Intent-rich Moments Will Become the Rage
The way that people consume digital content is also changing. There are moments that Google calls “micro-moments” in which consumers reflexively turn to a device—increasingly a smartphone—to act on a need to do, learn, discover, or even buy something. These intent-rich moments, according to Google, are when decisions are made and preferences are shaped.
This presents a huge marketing opportunity for brands, including real estate companies. People sitting in restaurants or waiting at supermarket counters are highly likely to have a question they would like answered quickly, and in these moments, their expectations are higher. If there is one thing that our smartphones have taught us, it is that we expect brands to immediately deliver exactly what we are looking for when we are looking for it. Google says that successful brands will be those that have a strategy for understanding and meeting consumers’ needs in these micro-moments.
CHAPTER 4: REAL ESTATE PRICES
Philippine property prices have been increasing since the early 2000s when the country emerged from the Asian financial crisis. Although recovery was quite slow, especially in the first few years after the crisis, the sector experienced faster growth over the last eight years. With the global economy remaining shaky and China underperforming, the Philippines remains one of Asia’s bright spots—and this sense of optimism is spilling over to real estate.
For this report, Lamudi Philippines analyzed price data from its property listings comprising condominiums, houses, townhouses, apartments, and foreclosed properties.
Metro Manila
Condominiums
Only a handful of cities in the Philippines have condominium property listings, with the majority of them located in Metro Manila, specifically the cities of Makati, Taguig, Mandaluyong, Pasig, Manila, and Quezon City.
Lamudi analysis shows that Makati and Taguig featured some of the Philippine capital’s most expensive condominiums in Q1 2015, with the former boasting average per square meter condo price of Php139,503 (US$3090). Taguig’s condos, on the other hand, have asking prices of Php125,031 per sq m (US$2770). The majority of these Taguig listings are for properties in the Bonifacio Global City and McKinley Hill.
At the other end of the price spectrum is Las Piñas, where one can find the cheapest Metro Manila condos on a per square meter basis (Php47,875 or US$1060). No data was generated for Caloocan, Malabon, Navotas, and Pateros due to lack of listings in these areas.
주택
The price of houses behaves in a similar way to condos. As expected, homes in the more popular areas of Metro Manila, such as Makati, Taguig, and Pasig are more expensive, due to both scarcity of supply and location. Those in Caloocan and Valenzuela are much cheaper. The cities of Paranaque and Quezon, on the other hand, boast numerous subdivisions or gated communities that range from the very high end to affordable. For this reason, these areas can be considered as mid-range markets.
Metro Cebu
Condominiums
Being the Philippines’ second most important metropolitan area, Metro Cebu also has the second highest concentration of condo properties in the country. The majority of these properties are in Cebu City, Mandaue, and Lapu-Lapu on the resort island of Mactan.
As expected, Cebu City is the most expensive condo market in Metro Cebu. City-wide, its average per square meter condo price stands at Php98,777 (US$2190), followed by Lapu-Lapu at Php84,199 (US$1870), and Mandaue at Php81,207 (US$1800). However, Lapu-Lapu’s high-end condos are more expensive at Php128,319 (US$2850) per sq m compared to Cebu City’s Php113,530 (US$2500), but the former’s low-end condos are cheaper at Php41,459 (US$920) per sq m (compared to Cebu City’s Php83,852, or US$1860, per sq m).
주택
As expected, houses in Metro Cebu’s three most important cities are also the most expensive. Leading the pack is Cebu City, where average prices for homes stand at more than Php14 million (US$310,000), followed by Mandaue at Php9.3 million (US$206,000) and Lapu-Lapu at Php5.722 million (US$127,000).
Cebu City’s high-end houses are also some of the country’s priciest, with asking prices that rival those found in Ayala Alabang or Greenhills Village in Metro Manila. The city’s most expensive listing has an asking price of Php120 million (US$2.7 million) and is situated in the high-end Maria Luisa Estate Park.
Other Cities
Outside of Metro Manila and Metro Cebu, the cities with the most expensive housing markets are Tagaytay and Baguio, both popular tourist spots. Lamudi data shows that Tagaytay’s average house price is Php13.8 million (US$306,000) while that of Baguio is Php11.7 million (US$260,000). In addition, both these cities boast a high number of listed houses for sale, at 232 and 388, respectively.
CHAPTER 5: ECONOMIC OUTLOOK
Despite lower than expected economic growth in 2015, the Philippines remains one of Asia’s and the emerging markets’ bright spots. Strong economic fundamentals have always been heralded as the driver of the country’s growth, which namely are strong private consumption, beefed-up government spending (especially on public infrastructure), a growing business process outsourcing (BPO) industry, and record-level OFW remittances.
In addition, the Philippines is now about to enter (or has already reached) a demographic sweet spot—a stage in which the number of working-age Filipinos outnumber those who are either too young or too old to work. According to Bangko Sentral ng Pilipinas (BSP) governor Amando M. Tetangco, these working-age Filipinos have the purchasing capacity to drive consumption and investments, and therefore contribute to faster economic growth. Gov. Tetangco predicted that the Philippines would reach this stage in 2015.
According to Michael McCullough, managing director of local Savills associate KMC MAG Group, the Philippines’ growth engine keeps purring, showing remarkable and consistent GDP growth. “Business sentiment in the country stays very optimistic, [and] it is expected that the property markets will remain highly active throughout the year,” he says.
Real Estate Developers Getting Selective
Colliers International reported that in 2015, Philippine property developers became more selective in rolling out residential projects to allow the market to absorb the large influx of inventory from aggressive launches since 2011 [1]. According to the real estate consulting firm, total licenses to sell (LTS) issued by the Housing and Land Use Regulatory Board (HLURB) declined 15.35 percent year-on-year to August 2015. Colliers stated that a drop in the issuances of non-residential projects, specifically memorial parks and parking units, largely accounted for this decrease.
There has also been a significant increase in the number of new applications for low-income housing, according to Colliers. The number of LTS for socialized housing, for instance, doubled as of August 2015 (year to date) from the same period in 2014. There have also been significant increases in the number of LTS issued by the HLURB for mid-income housing (56.58 percent increase) and low-cost condominiums (22.18 percent). It should be noted that the price ceiling for economic housing was raised from Php1.2 million to Php1.7 million in 2015 by the Housing and Urban Development Coordinating Council (HUDCC), but its effects may not yet be seen as of this reporting period.
2015: A Year of Mixed-Use Townships
According to KMC MAG Group, 2015 was set to be the year of townships [2]. As of 2015, at least 11 mixed-used real estate projects, ranging in size from 6.6 hectares to 74 hectares, were in various stages of development. To finance these projects, real estate developers, such as Ayala Land, Megaworld Corp., Federal Land, and Robinsons Land, have earmarked close to Php300 billion (US$665 million) in capital expenditure for their respective township projects in Metro Manila.
In addition, after a 50-year hiatus Metro Manila development is expected to focus on Bay City, a massive reclamation project in Pasay and Parañaque. The area is now home to two billion-dollar integrated resorts, Solaire Resort & Casino and City of Dreams Manila. Two more projects, Manila Bay Resorts and Resorts World Bayshore, will open in 2016 and 2017, respectively. On the other hand, SM Prime is ramping up development of the Mall of Asia Complex. The country’s largest mall developer plans to develop this area of the Bay City within the jurisdiction of Pasay into a fully-fledged business district. As of 2016 three office towers are already built, with three more in the pipeline. High-profile companies have chosen the area as their Manila base, most notably Australian telecom giant Telstra.
Upcoming Infrastructure Projects
Several infrastructure projects in the works in southern Metro Manila are also expected to give a further boost to the Philippine capital’s real estate sector. According to local research firm Cuervo Far East, major infrastructure projects – including the Manila-Cavite Expressway (CAVITEX), SLEX-Daang Hari Road, Muntinlupa-Cavite Expressway (MCX), and the Cavite-Laguna Expressway (CALAX) – are expected to boost the Southern Manila West Growth Area, which comprises the cities of Las Piñas and Muntinlupa. Cuevo Far East said that the area will see a 10 to 15 percent increase in land values annually until 2019.
According to Colliers, real estate developers with land banks close to these infrastructure projects will be motivated to proceed with their planned developments, as they stand to benefit not only from the ease of access the projects provide but also from the eventual increase in land values. These developers include Vista Land, Ayala Land, and Megaworld Corp.
Retail
Driven by Filipinos’ higher spending power, the Philippine retail market will remain one of the top gainers for 2016. As expected the top three major mall developers – SM Prime, Ayala Land, and Robinsons Land – will dominate the market. These firms currently are estimated to account for 87.5 percent of total gross leasable space in the country. However, new players such as Double Dragon will introduce neighborhood mall concepts in under-served secondary and tertiary cities, which is expected to drive competition among mall builders to shift toward small format shopping centers.
In addition, retailers will usher more foreign brands into the Philippines, following the success of H&M, Cotton On, Uniqlo and others. Competition among convenience store brands is also expected to accelerate, as local companies introduce foreign brands such as Lawson of Japan (Puregold) and Alfamart of Indonesia (SM).
BSP Monetary Actions to Moderate Real Estate Risks
In an effort to cool the market, the Bangko Sentral ng Pilipinas has put in place monetary policy actions to moderate the risks faced by banks when lending to and investing in the real estate sector. According to BSP governor Tentangco, the new measures will provide the market with clear guidance to help them better appreciate the risks of their lending activities in the real estate sector.
This move by the BSP is clearly an indication that the monetary authority is keeping an eye on the real sector. This comes after land prices in Metro Manila’s business districts reached their highest levels since the 1997 Asian financial crisis, renewing talk of an impending asset bubble in the property market. The BSP, however, has assured the sector that there is no property bubble in the economy, even if there are certain segments in the real estate sector with fast-rising valuations.
FDI in Real Estate
For years, the Philippines has been lagging behind its Southeast Asian neighbors in attracting foreign direct investment (FDI). In fact, data from the BSP for January 2015 shows that net inflows of FDI fell 71 percent compared to the amount registered in the same period in 2014.
Based on the data provided by the BSP, the Philippines recorded net inflow of $263 million in January 2015, way below the $905 million reported in January 2014. Of the amount, according to the BSP, $167 million was invested in debt instruments issued by local affiliates, while the rest were channeled mainly to wholesale and retail trade, real estate, manufacturing, financial and insurance, and professional, scientific and technical activities.
Most experts agree that the restrictions on foreign ownership are the main barriers to higher FDI inflow to the Philippines. For examples, foreign entities can only have a 30 percent stake in advertising and 40 percent in educational institutions. However, there are signs of reforms in the offing. In 2014, President Aquino signed Republic Act 10641, which allows foreign banks full entry into the Philippines and to own up to 100 percent stake in local banks.
CHAPTER 6: DEMOGRAPHICS
As the Philippines continues to make strides on the economic front, so does Filipinos’ spending power and their financial capacity to purchase a property. New housing developments (condos, townhouses, and subdivisions) are fast becoming a common sight not just in Metro Manila, but also in the neighboring towns and cities of the capital and other highly urbanized cities.
Residential projects are not the only ones becoming popular. Income-generating properties, such as leisure projects (beach villas and golf estates) and comercial real estate (office and retail) are booming as well.
It is not surprising then that Filipinos are becoming financially savvier, looking into buying their first property sometime in the near future. Lamudi Philippines conducted a survey in May 2015 to understand more fully house-hunters’ behavior, as well as to take a look at real estate agents’ observations of the market.
Homebuyers
The customer survey revealed that 33.89 percent of the respondents were aged 50 years and older, followed by the age groups 31–40 years (28.13 percent), 41–50 years (21.15 percent), 21–30 years (16.11 percent), and under 20 years (0.72 percent). There are slightly more female respondents (54 percent) than male, which is consistent with Lamudi Philippines’ onsite data that shows that more women search for properties online than men.
When asked if they were looking to move in the near future, an overwhelming 79.6 percent of respondents said yes, while 20.4 percent said they did not have any plans to move home. Almost all of the respondents are looking for a house (94.86 percent), while only a small percentage of them are looking for a condo (2.42 percent), followed by a townhouse (1.21 percent).
The survey also found that house-hunters are shifting from offline to online, with 79.57 percent of all respondents citing real estate websites, search engines, and social media websites as their starting points when searching for property. What is also interesting to note is that 57.2 percent of the survey’s respondents use real estate websites as their starting point in researching about properties online. On the other hand, 10.82 percent cited search engines and 5.53 percent go to social media websites. This shows that some house-hunters—although they are Internet savvy—are still not aware of online real estate platforms.
The survey’s respondents cited various reasons why they are looking to move house or apartment, with those planning to purchase their own property (either as a first home or as an investment vehicle) comprising the majority (79.57 percent). This is followed by respondents who cited area preference (either looking for a better area, planning to move to another city, or planning to live close to relatives) as the primary reason for their impending move (14.66 percent). Other reasons cited include proximity to schools (1.44 percent) and work-related relocation (2.4 percent).
More than half (55.05 percent) of the survey’s respondents cited Metro Manila as their preferred area for their property purchase, with Quezon City being the most preferred city (19.47 percent), followed by Makati (8.65 percent) and Manila (8.41 percent). Cebu Province—specifically Cebu City, Lapu-Lapu, and Mandaue—is the preferred area of those looking for a property in the Visayas region (6.97 percent), followed by Cavite Province (6.73 percent).
Real Estate Brokers
Lamudi Philippines’ survey of real estate brokers had similar findings, specifically when it comes to the property types and locations that house-hunters are looking for.
The respondents—89.48 percent of whom are licensed by the Professional Regulation Commission (PRC) and the rest being agents employed by real estate developers—cited houses, condos, townhouses, lots, and, interestingly, low-cost housing as the property types for which they receive the most inquiries (39, 28, eight, seven, and five percent, respectively).
In addition, 91 percent of agents said that they have noticed an increase in the number of inquiries made through online channels; that is, either through email, social media or listings platforms.
Interestingly, a decreasing number of real estate professionals are utilizing traditional media to advertise their property listings. In the survey, only 12 percent of the respondents said they are still advertising in newspapers or magazines, 10 percent cited their organization’s MLS, while only one percent were relying on referrals from their fellow agents.
In contrast, 59 percent of the surveyed agents are using online listings platforms to advertise their properties, and a further 18 percent are promoting them on social media.
CHAPTER 7: ONSIGHT TRENDS
For this report we have analyzed search data mined from the Lamudi Philippines website starting from Q2 2014 (April–June) to Q1 2015 (January–March). The data involved approximately four million page views over a period of 12 months.
Search Trends
Among all the regions in the Philippines, the National Capital Region (NCR or Metro Manila) received the greatest volume of searches on the Lamudi website. Although NCR’s search traffic is increasing quarter-on-quarter, its share of search traffic among all the regions has been gradually decreasing: from 78.55 percent in Q2 2015, 63.21 percent in Q3 2014, 58.9 percent in Q4 2014, and 55.09 percent in Q1 2015.
On the other hand, the share of search traffic for CALABARZON, Central Luzon, and Central Visayas has been gradually increasing. CALABARZON’s traffic surged on average 130 percent quarter-on-quarter from Q2 2014 to Q1 2015. On the other hand, Central Luzon’s search volume increased on average 159 percent quarter-on-quarter for the period. It should be noted, however, that these regions are home to popular provinces such as Cavite and Laguna (CALABARZON) and Pampanga and Bulacan (Central Luzon).
Search volume for Central Visayas, on the other hand, increased on average 104 percent quarter-on-quarter from Q2 2014 to Q1 2015. This region is home to popular cities such as Cebu, Mandaue, and Lapu-Lapu—all part of Metro Cebu, which is the second most important metropolitan area in the Philippines.
Overall all regions (with the exception of CARAGA) experienced an increase in search traffic quarter-on-quarter from Q2 2014 to Q1 2015. It is noteworthy that these regions have at least one or two key cities that drive onsite search traffic—for example, Naga and Legazpi for Bicol, Baguio for Cordillera, Davao City for the Davao Region, Cagayan de Oro for Northern Mindanao, and Bacolod for Western Visayas.
Most Searched Cities
Quezon City remains the most searched city in the Philippines. In fact, while other cities may have seen their popularity wane among online property-hunters (e.g., Pasig from Q3 2014 to Q4 2014 and Taguig for the same period), Quezon City’s search traffic increased on average 108 percent quarter-on-quarter from Q2 2014 to Q1 2015.
Makati is the Philippines’ second most searched city (which yielded the top spot to Quezon City in Q3 2014), followed by Parañaque, Pasig, and Mandaluyong. Davao and Baguio are the only two non-Metro Manila cities to make it to the top 10 most searched cities in the Philippines. Q-on-Q growth in search traffic for Davao and Baguio average 119 and 271 percent, respectively.
Property Types
The Philippine capital’s condominium boom notwithstanding, house-hunters by a large margin are still researching about houses and landed properties online, while Quezon City—Metro Manila’s largest city—still gets the greatest volume of online search traffic, higher than any other city in Metro Manila.
More than 55 percent of all searches on Lamudi were for properties located within Metro Manila. Of these searches, 10.96 percent were searches for properties in Quezon City, half of which were for houses, while only 8.6 percent were searches for condos in the city. On the other hand, condos were the most searched properties in Makati, accounting for almost 40 percent, compared to 27 percent of searches involving houses.
For the rest of the cities and municipalities in Metro Manila, houses were still the most popular property type: Caloocan (58.78 percent of searches), Las Pinas (73.26 percent), Malabon (41.88 percent), Mandaluyong (45.19 percent), Manila (34.74 percent), Marikina 78.91 percent), Muntinlupa (66.77 percent), Navotas (59.15 percent), Paranaque (70.9 percent), Pasig (54.94 percent), Pateros (91.28 percent), San Juan (58.98 percent), Taguig (40.53 percent), and Valenzuela (53.51 percent).
Conclusions
Despite Metro Manila’s condo boom, it appears that most online property hunters are searching for houses. Quezon City remains the most searched city in the Philippines, comprising almost 11 percent of all searches for Metro Manila, and half of these searches were for houses, while the opposite is true for Makati, the country’s second most searched city, where almost 40 percent of searches were for condos.
Although search volume for Metro Manila (and the Philippines in general) is increasing, the National Capital Region’s share is gradually decreasing, from 78.55 percent in Q2 2015 to 55.09 percent in Q1 2015. Other regions where search volume has been increasing Q-on-Q include CALABARZON and Central Visayas, where popular cities such as Santa Rosa (Laguna), Bacoor and Dasmarinas (Cavite), Cebu and Lapu-Lapu (Cebu Province) are located. Given that more residential projects have been unveiled in these places, Lamudi expects to see searches for these regions surge over the next few quarters.
CHAPTER 8: THE CHANGE IN LAWS
Perhaps the most common question that an international investor of property in the Philippines asks is: are foreigners allowed to own land in the country?
This question is quite timely as an increasing number of foreign nationals are showing interest in Philippine real estate. In 2014, local news website GMA News Online reported that up to 20 percent of pre-selling luxury condos from local developer Ayala Land Premier go to foreign buyers, which includes a mix of both overseas Filipinos and foreign nationals.
The relative affordability of Metro Manila’s luxury condos compared to places like Singapore, Hong Kong, and Tokyo is perhaps one of the reasons foreign buyers are flocking to the Philippines.
In fact, in 2014 the Philippine capital was ranked fourth out of 23 Asian cities in terms of its city investment prospects, according to a survey by the U.S.-based Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). [1] Metro Manila closely follows Tokyo, Shanghai, and Jakarta, which occupied the top three positions for 2014. Although Metro Manila slipped to eighth position in the 2015 and 2016 reports, the Philippine capital was rated “fair” in both investment and development prospect by ULI and PwC. [2] [3]
But despite this, property ownership here remains highly regulated. Although the Philippines is not the only Asian country that prohibits foreigners from owning real property, it is arguably one of the most restrictive locations for foreign investors.
Foreign Ownership of Real Property
The Philippine constitution explicitly states that Filipino citizens are entitled to own or acquire land in the country. Foreign nationals, on the other hand, are not allowed to own land, although there are exceptions, detailed below:
- Acquisition before the 1935 constitution
- Purchase of not more than 40 percent interest in a condominium project
- Purchase by a former natural-born Filipino citizen subject to the limitations prescribed by law. Natural-born Filipinos who acquired foreign citizenship are entitled to own up to 1,000 sqm of residential land, and one hectare of agricultural or farm land
- Filipinos who are married to aliens who retain their Filipino citizenship, unless by their act or omission they have renounced their Filipino citizenship
On the other hand, if they are Filipino investors and want to acquire property on a leasehold basis, they can do so but only for a period of 50 years, which may be extended for another 25 years. Individual foreign buyers, in contrast, may lease land for a maximum period of 25 years only, which can be extended for another 25 years.
There is another legal way for foreigners to own land, and that is through a duly registered company. However, the company must be at least 60 percent Filipino owned and there must be at least five people sitting on its board.
In addition, the Condominium Act of the Philippines (RA 4726) allows foreigners to acquire condominium units and shares in condominium corporations up to not more than 40 percent of the total and outstanding capital stock of a Filipino-owned or controlled condominium corporation. There are also some single-detached homes and townhouses in the Philippines with condominium titles; therefore, a foreign national can technically acquire one.
If married to a Filipino national, a foreigner can acquire and own a property. However, the foreign spouse’s name cannot be on the title but can be on the contract to buy the property. In the event of death of the Filipino spouse, the foreign spouse is allowed a reasonable amount of time to dispose of the property and collect the proceeds, or the property will pass to any Filipino heirs or relatives.
Further, any natural-born Filipino citizen who has lost his citizenship may still own private land in the Philippines up to a maximum area of 5,000 square meters in the case of rural land. In the case of married couples, the total area that both couples are allowed to purchase should not exceed the maximum area mentioned above.
Former natural-born Filipinos who are now naturalized citizens of another country can buy and register, under their own name, land in the Philippines but limited in area. However, those who avail of the Dual Citizenship Law in the Philippines can buy as much as any other Filipino citizen. Under the Philippines’ Dual Citizenship Law of 2003 (RA 9225), former Filipinos who became naturalized citizens of foreign countries are deemed not to have lost their Philippine citizenship, thus enabling them to enjoy all the rights and privileges of a Filipino regarding land ownership.
Steps to Gaining Dual Citizenship
If you are in the Philippines, file a Petition for Dual Citizenship and Issuance of Identification Certificate (IC) pursuant to RA 9225 at the Bureau of Immigration (BI) and for the cancellation of your alien certificate of registration.
Those who are not BI-registered and based overseas should file the petition at the nearest embassy or consulate.
Future Directions
According to Charlie Gorayeb, former national president of the Chamber of Real Estate and Builders’ Association (CREBA), some countries were quick to realize the importance of foreign investors in fueling local economic growth. Two—Malaysia and Thailand—have been specifically liberal when it comes to foreign ownership. Unsurprisingly, in 2013 alone Malaysia attracted US$12 billion of FDI.
Many believe that the real estate market will benefit if some of the restrictions imposed on foreigners are lifted. In an interview with Lamudi, David Leechiu, country head and international director of global estate consultancy firm JLL Philippines, said allowing foreign ownership was another way of expanding the demand within the market.
The upcoming ASEAN integration, too, is expected to put pressure on the local real estate industry to open up. For the Philippines to remain competitive on a regional scale, relevant market reforms must be put in place, such as lifting of foreign ownership restrictions. The local real estate market has also been pushing for a law that will consolidate the function of the government’s major shelter agencies to address the needs of both consumers and developers. In fact, a bill proposing the creation of the Department of Housing and Urban Development has already been approved by the Senate in the 15th Congress, but was not acted upon by the House of Representatives. In 2013, Senator Loren Legarda revived the proposed bill in an effort to address the country’s four million housing backlog.
However, the privilege granted to foreigners to purchase property, according to Gorayeb, must not come without corresponding mechanisms of control. For example, in order to protect the Philippines’ natural resources, lands that can be acquired by foreigners should be limited to those classified as alienable or disposable. He adds that agricultural lands purchased by foreigners should remain as such and, to channel investment to poorer areas, foreign ownership should be encouraged in underdeveloped locations to spur growth.
CHAPTER 9: RENTING VERSUS BUYING
In 2014, a Lamudi survey showed that the Philippines, as a whole, is a rental nation. The reasons most commonly cited by the survey’s respondents was affordability; in fact, more than 60 percent of those surveyed said that to date, they could not afford to buy property outright.
But looking at Lamudi onsite data for Q1 2015, a different picture has emerged. Of the 1.86 million total searches conducted for all properties across the Philippines from January 1 to March 31, 2015, 43 percent were conducted by the website’s users for for-sale properties, 18.9 percent for rental properties, while 37.9 percent were searches for properties in general (whether for sale or for rent).
When we looked at the 10 most popular cities, search type showed great diversity. Quezon City—the most-searched city on the Lamudi Philippines platform—generated 244,456 searches for Q1 2015, of which 37.3 percent were searches for for-sale properties (regardless of property type) and 15.6 percent were searches for rental properties.
Data for the Philippines’ second most-searched city—Makati—is quite different. Of the total 116,451 searches conducted in the financial capital, 51 percent were for properties—specifically condos—for rent, while 33.9 percent were for for-sale properties. It should be noted that Makati is the Philippines’ business and financial capital, and its population balloons to over four million during the normal work day (from approximately 530,000), according to the city’s local government data. This surge in population is driven not just by the influx of tourists and shoppers but also of workers employed in the numerous offices in the city’s central business district. This is one of the reasons search for rental properties in Makati is high, as many workers based in the city are looking for temporary dwellings to live in during the working week.
Aside from Makati, Mandaluyong and Davao were the only other cities in the top 10 where searches for rental properties were higher than searches for properties for sale (41 versus 36.4 percent and 35.9 versus 32 percent, respectively).
부동산 유형
When looking at the data in terms of property type, condos were the most searched among website users looking for rental properties, while houses were preferred by those looking for property for sale.
Across the top five cities with the highest search volume for condos, more website users were searching for rental condos. As expected, Makati generated the greatest volume of searches for condos, of which 61.1 percent were for rentals while 33.6 percent were looking for for-sale condos. Makati is followed by Quezon City, Taguig, Manila, and Mandaluyong.
In contrast to condos, more online house-hunters using the Lamudi website to search for houses are looking to buy. Quezon City is the most searched city for houses, and 54.8 percent of those looking at the city are searching for houses for sale, compared to 8.7 percent looking for rental homes. Quezon City is followed by Parañaque, Makati, Pasig, and Mandaluyong.
Conclusions
Although the majority of Filipino house-hunters in Lamudi’s 2014 survey said that they were looking to rent rather than buy a property due to financial constraints, the opposite seems to be happening when they are searching for real estate online. Across the Philippines, almost half (43 percent) of all online house-hunters who used the Lamudi website from January 1 to March 31, 2015, were searching for for-sale properties and 18.9 percent were searching for rentals.
One possible explanation for this is that Filipino online property-hunters are readying themselves for home purchase later on by researching available options online as early as possible. This was highlighted by Lamudi in its 2014 white paper, where the majority of renters surveyed (88.6 percent) were currently saving to buy their own home, and that almost all of the respondents indicated they expected to buy a property within the next five to 10 years.
In addition, houses remain the most-searched property type anywhere in the Philippines (50.8 percent), followed by condos (9.7 percent). More online house-hunters who are searching for houses are looking to buy (52 percent) than to rent (11.2 percent), but more property-hunters searching for condos are looking to rent (43.8 percent) than to buy (26.3 percent).
This presents a clearer picture that real estate developers, brokerages, and individual sellers and real estate investors can use for their sales and marketing strategy. Studying what their target market is looking for is crucial to ensuring a healthy take-up of units. In addition, renters are most commonly looking for condos, specifically those situated in Makati, Taguig, and Mandaluyong (owing to the presence of business districts and the large concentration of people working in these cities).
CHAPTER 10: THE RISE OF SUSTAINABILITY
Green building has been on the rise in Asia, and the Philippines is fast catching up with the developed world in embracing the concept. In fact, in its report published in January 2015, Colliers International Philippines said that more green and innovative building projects will be seen in Metro Manila over the next few years. [1]
According to Colliers, the number of applications for green-building certification has been increasing in the Philippines since 2013, indicating that local property developers are responding to a global push to reduce the environmental impact of real estate, which is a highly polluting industry. Colliers International said more global companies who pursue green and sustainable initiatives as part of their corporate social responsibility programs are convincing property developers to incorporate environment-friendly features in their buildings.
KMC MAG Group, the local affiliate firm of London-based Savills, agrees. According to KMC MAG managing director Michael McCullough, there are plenty of benefits to building or investing in green building, such as being able to provide a healthier workplace for employees and increasing savings and cost-efficiency. In a recent statement, McCullough said that developers can no longer look at green buildings as a premium offering but rather as a key component of their medium- to long-term strategy.
What Makes a Building Green?
In an interview, Christopher C. de la Cruz, chairman of the Philippine Green Building Council (PhilGBC), said that the concept of green building refers to both the process of building a structure that is sustainable, energy efficient, and environmentally friendly, and the end product of such a process, which is the green building itself. “By extension, green building may also be referred to as the movement of like-minded parties and stakeholders in the property industry whose interest lies in making sure that every act of building is sustainable,” he said.
De la Cruz added that the term “sustainable” does not only refer to the ecological or environmental sense, but also has social and economic implications. In a sense “green” does not only mean that a building is sustainable and resource-efficient. It also means that the material that has been used in building is recyclable, has been sustainably sourced, and is resource efficient. Furthermore, green building ensures that the workers who helped build the structure were paid decent wages, had humane conditions, were asked to work a reasonable amount of time, and the level of effort falls within internationally accepted standards.
At the end of the day, green building is not just about profits for the building’s owners but profits for the people who supported building it. This does not only refer to support for them financially but also socially.
Green Buildings in the Philippines
As of 2014, there were already 25 buildings in the Philippines certified as LEED by the U.S. Green Building Council, according to Colliers International. Colliers also indicated that, at that time, there were 89 pre-certified LEED projects in the country, 61 of which are in Metro Manila and were expected to be completed within the next three to five years. This emphasizes the growing influence and importance of green building principles among occupants and tenants.
According to PhilGBC, there is an increasing demand from the international business community, especially foreign investors, for local locators to offer more green buildings. In addition, more Filipino building owners are now retrofitting and upgrading existing buildings to improve energy efficiency and environmental performance. It makes more sense for any business locator to choose a green building. While a green building may entail more upfront costs, the investment is recoverable in the long run through decreased operating costs, increased return on investment through higher tenant retention, and increased asset value.
Why Go Green?
Real estate is perhaps one of the most polluting industries. Built structures take a huge toll on the environment, from the stage when they are still on the drawing board up to the time they are demolished. For these reasons, designing and making green buildings is more important than ever. Indeed, the economic and environmental performance of buildings can be maximized through the successful adoption of green building strategies.
CHAPTER 11: LUXURY PROPERTY MARKET
The Philippines’ residential real estate market—Metro Manila’s in particular—has been continually growing since 2010, although at a much more modest rate in recent years. According to Savills’ local associate firm KMC MAG Group’s Metro Manila Property Outlook for 2015, the demand for residential properties is still high but shifting toward middle-income products, and this will help sustain overall market growth. [1]
According to KMC MAG Group, the demand is derived from two main sources: OFWs who are investing in residential condos, and the young population employed by the booming BPO sector, who have increased purchasing power and are increasingly able to afford condos.
However, this shift does not mean that Metro Manila’s luxury real estate market is underperforming. Quite to the contrary—the Philippine capital’s luxury homes are still highly sought-after. The metro’s gated communities boast single-family homes with asking prices as high as Php1 billion (US$22.19 million), while branded high-rise condos (such as Raffles, Trump, and Hyatt) are fast becoming a common sight in its business districts.
There are many reasons why ultra-luxurious properties are considered a safe investment: their values rarely—if ever—stagnate, and if one plans to hold the property in the long term, renting a luxury condo out can be potentially lucrative, especially given Metro Manila’s large expat population.
The Market
The Philippines’ luxury real estate market is concentrated in Metro Manila, particularly in Makati and Taguig, and the high-end gated communities scattered across Quezon City, Mandaluyong, San Juan, and Muntinlupa. Outside the Philippine capital, the cities of Tagaytay, Baguio, and Cebu have single-family properties above Php20 million.
In an interview with Lamudi Philippines, Chris Wells, a real estate agent from Colliers International specializing in luxury homes, said that in Metro Manila there are only a handful of condominiums that can be considered truly luxury. “This is because for a condo to be considered luxury, it must offer much more than a high price tag,” he said.
Additional features include a highly sought-after location, unobstructed views, architectural uniqueness, very few units per floor, ceiling height, sheer square footage, and special amenities (like a heated indoor swimming pool, for instance) that are not found in other properties.
Using data from its property listings, Lamudi analyzed price trends for the Philippines’ luxury condominiums and single-family homes.
Metro Manila
Luxury Condominiums
Metro Manila’s luxury condos are found mainly in the cities of Makati and Taguig. In the Makati CBD, the average size of luxury condos with an asking price of at least Php40 million (US$885,000) is 275 sq m, while in Taguig, it is slightly larger at 294 sq m.
Average price per sq m, however, is much higher in Makati: Php191,870 (US$4250) per sq m compared to Taguig’s Php172,405 per sq m (US$3800). Makati condos that have asking prices in this bracket include Raffles Residences, Discovery Primea, One Roxas Triangle, and The Residences at Greenbelt, while in Taguig these condos include One Serendra, Pacific Plaza Towers, and Essensa Private Residences.
Single-Family Homes
Makati’s Forbes Park boasts the most expensive houses in the Philippines. The price of single-family homes here averages Php431 million (US$9.5 million), based on Lamudi Philippines’ listings data. Nearby Dasmariñas Village comes second, with homes averaging Php265 million (US$5.9 million), followed by Urdaneta Village (Php210 million or US$4.6 million), San Lorenzo Village (Php91 million or US$2 million), Bel-Air Village (Php89.8 million or US$1.9 million), and Magallanes Village (Php44.6 million or US$990,000).
Gated communities outside Makati that boast expensive single-family homes include Corinthian Gardens and Ayala Heights in Quezon City (average: Php171 million or US$3.8 million and Php90.8 million or US$2 million, respectively), Wack-Wack in Mandaluyong (Php129 million or US$2.9 million), Greenhills in San Juan (Php117 million or US$2.6 million), Ayala Alabang in Muntinlupa (Php63 million or US$1.4 million), and McKinley Hills Village in Taguig (Php49.2 million or US$1.09 million).
Outside Metro Manila
Popular tourist cities boast some of the most expensive single-family homes outside Metro Manila. These include Tagaytay, Baguio, and Cebu City. Lamudi Philippines data shows that the average price of single-family homes in Maria Luisa Estate in Cebu City stands at Php28.8 million (US$638,000), while the most expensive home listed in the city has an asking price of Php150 million (US$3.3 million).
On the other hand, Tagaytay and Baguio, both mountainous cities that boast a cool climate, have average single-family home prices of Php13.6 million (US$301,000) and Php11.7 million (US$260,000), respectively. The most expensive Tagaytay home listed on Lamudi has an asking price of Php53 million (US$1.2 million), while in Baguio it is Php95 million (US$2.1 million).
Where the Market Is Heading
According to KMC MAG Group managing director Michael McCullough, yield compression in Metro Manila’s luxury and high-end residential markets is expected over the next few years. McCullough indicated in the firm’s 2015 Metro Manila Property Outlook report that the market now relies on the leasing segment, as well as demand from expat tenants, for growth and profitability.
For properties in the lower segments, the scenario is quite different, wrote McCullough. Strong demand is seen at the lower end of the market—a market segment that for years has been largely undersupplied. As a result, this market segment is showing very attractive returns for purely investment-minded buyers.
CHAPTER 12: INTERVIEW
What are the Philippines’ and Metro Manila’s biggest challenges for the real estate market in 2015?
Metro Manila typically gets the lion’s share of infrastructure development. This is the reason why millions of Filipinos are flocking to the metropolis, pushing land prices to historic highs. Given the sound economic fundamentals and increasing purchasing power of Filipino families, real estate developers have been offering various products to capture the pent-up demand. The biggest challenge in Metro Manila is finding suitable land for development. Metro Cebu and the other budding metropolises are experiencing tightening land markets. Outside of Metro Manila, the biggest challenge is lack of infrastructure. Cities and municipalities bordering Metro Manila are typically suffering from traffic congestion since mid- to low-income earners are priced out and are forced to live farther away.
The Philippines has so far been successful in preventing a real estate bubble. Do you think our regulators have learned their lessons from the 1997 Asian financial crisis? If so, what are the key learnings from the late 1990s?
The Bangko Sentral ng Pilipinas (BSP) learned the hard lessons of the 1997 Asian financial crisis. The BSP is strictly monitoring the banks’ credit practices, reserves, flow of foreign currencies, and the banks’ “know your client” (KYC) due diligence. A concrete example is when BSP felt that when there was tremendous development in 2013, the central bank increased the mandatory reserves by one percentage point to eight percent in the first quarter of 2014, thereby withholding approximately Php60 billion in the financial market. This proactive approach slightly inched up the banks’ interest rates after one quarter, thereby “cooling” the very active market a little bit. This was seen to discourage disproportionate speculation.
Residential real estate is experiencing a bit of slowdown since 2013. Do you think this is just an indication that the market is correcting itself?
The year 2012 saw a huge leap in approved licenses to sell (LTS) for condominiums, of 129,204 units from 51,388 units in 2011 (or 151 percent increase). While the number of LTS issued by the Housing and Land Use Regulatory Board (HLURB) in 2013 dipped to 78,458 and in 2014 to 76,413, the approved LTSs are still way above the pre-2013 level. It is important to note that while condominium developments, which are typically located in Metro Manila and major highly urbanized cities, have somewhat slowed down in the past two years, development of economic housing has picked up. The Philippine real estate market is far from perfect, but market corrections are part of the dynamic supply and demand interplay. With the ever-increasing land prices and fierce competition for market share, buyers and investors have more options to choose from. This is very good for the buyers’ side.
Compared to credit extended by banks and financial institutions, housing loans given by real estate developers to boost sales are something that’s poorly monitored. What steps are being taken by the monetary authority to carefully monitor developers’ lending activities?
The BSP indirectly monitors real estate developers by regulating the banks’ exposure to real estate developments. The mandatory “know your client” (KYC) and “single borrower’s limit” (SBL) are some tools of the BSP to monitor banks’ activities relating to real estate. In addition, real estate developers usually charge higher interest rates and “seasons” the buyers/borrowers’ accounts since the ultimate goal is to effect a bank takeout. Of course, other financing institutions are also getting a piece of this action. It is important to note that during the construction period, those buyers who are paying in installments to the developers are actually accumulating the required equity for the bank takeout.
What will be Philippine real estate’s next big opportunities?
The phase of brisk sales is tapering off. The next big opportunity is to produce income-generating assets. Office buildings and commercial malls have been leading the way. Pinnacle sees the new trend in rental residential condominium developments, hotel and gaming revenues, and even toll roads. The next big thing is recurring income, which is also the primary requirement of a successful REIT market.
The Philippines’ first ever residential real estate index is scheduled to be rolled out in the third quarter. What can we expect from it? Will it help us understand the market more?
The pioneering work of the BSP in rolling out the real estate index is a very good step forward in making the real estate market more transparent and friendly to investors, both at the institutional and individual levels. It is designed to initially cover the Metro Manila market since this is the location of most of the real estate activities, and that land prices here have been skyrocketing. Market information is considered key in educated real estate investments; the index will level the playing field.
OUTLOOK 2016
The year 2015 has been dubbed the year of townships. Real estate players are ramping up spending on their big-ticket township projects this year, some of which will start to be opened in 2016.
According to KMC MAG Group, local developers are very aggressively buying land and increasing their portfolios as the bullish market shows no signs of slowing down. Several townships are being built not only in Metro Manila, but also in major cities outside the capital [1]. These townships give these places much-needed facelifts, spread development outside Metro Manila, and provide jobs for locals.
The Philippine government has been working hard to develop secondary cities, recognizing them as critical centers of economic growth, urban development specialist Alexandra Vogl from the Asian Development Bank told Bloomberg in 2014 [2]. In fact, many secondary cities are rapidly becoming tourist hubs and centers of trade, services, and industry.
Among the big players to ramp up constructions of township projects in 2016 will be Megaworld, which has earmarked record capital expenditure allocation and is now focused on McKinley West and Uptown Bonifacio in Taguig, Iloilo Business Park, and Mactan New Town in Lapu-Lapu City [3]. In 2015, the Andrew Tan-led property developer announced four more integrated township projects to add to its growing portfolio: Santa Barbara Heights in Iloilo, Nothill Gateway and The Upper East in Bacolod, and a yet-unnamed project in San Fernando, Pampanga.
SM Prime, on the other hand, is planning to reclaim more land to expand its Mall of Asia (MOA) Complex to take advantage of the booming Bay City. In addition, the Philippines’ largest mall operator will start to develop townships around its larger malls. In an interview with Bloomberg, Jeffrey Lim, Executive Vice President of SM Prime, said that 15 out of 50 SM malls sit on land large enough to be developed for high-density, mixed-use projects, which will be part of the company’s US$11 billion expansion until 2019.
In addition, SM Prime has already completed three E-com tower projects in the MOA Complex, with three more in the pipeline until 2018. One of the high-profile firms to choose the MOA Complex as their base in the Philippines is Australian telecom Telstra.
Ayala Land has already earmarked Php185 billion (US$4 billion) in CAPEX for 2015, and is in the initial phase of developing its townships Arca South, Alvierra, and Vermosa. In addition, the property giant’s smaller township projects are well underway: Circuit Makati in the former Santa Ana Racetrack in Makati; Vertis North in Quezon City; South Park District in Alabang, Muntinlupa; and Altaraza in San Jose del Monte, Bulacan. The company also reportedly announced that it has entered into a 45-year contract with the Wenceslao group, owner of the Aseana Business Park complex, to lease a 9.2-hectare property for a mall, hotel, and office project. The property is situated across from the newly opened City of Dreams Manila.
Infrastructure
In an interview, Michael Mabutol, CEO and Managing Director of real estate consulting firm Pinnacle, says Metro Manila gets the lion’s share of infrastructure development in terms of roads, toll roads, railroads, bridges, flyovers, skyways, water, power, and telecommunications, among others. This is the reason why millions of Filipinos flock to the metropolis, pushing land prices to historic highs, especially in major commercial business districts.
This also makes finding suitable Metro Manila land for development very challenging. Vacant lands in prime and strategic locations usually receive a lot of offers to purchase. Even old buildings in similar locations are now targets for some developers. Metro Cebu and the other budding metropolises are experiencing tightening land markets.
But outside Metro Manila, it is a different matter. The biggest challenge is lack of infrastructure. Cities and municipalities bordering Metro Manila are typically suffering from traffic congestion since mid-income to low earners are priced out and are forced to live farther and farther away. However, this may soon change given the infrastructure projects currently in the works in the CALABARZON region, such as the CALAX and the Laguna Lakeshore Project, both of which will make commuting between Metro Manila, Cavite, and Laguna much easier.
Monetary Policies
The Bangko Sentral ng Pilipinas (BSP), as the main government agency handling monetary policies, has learned the hard lessons of the 1997 Asian financial crisis. According to Pinnacle’s Mabutol, the BSP is strictly monitoring banks’ credit practices, reserves, and flow of foreign currencies.
However, Mabutol added that while the Philippine real estate market is far from perfect, market corrections are part of the dynamic supply and demand interplay. “With ever-increasing land prices and fierce competition for market share, buyers and investors have more options to choose from. This is very good to the buy-side, while real estate developers may experience compression of their profit margins.”
Furthermore, Mabutol said that since the mandate of the BSP is to supervise the monetary policies of the government, it will continue to monitor the real estate market, especially the bank loans extended to property developers. “There is also always need for BSP to monitor and ensure that sound credit and underwriting practices are in place.”
Real estate activities have been generating a lot of foreign currency investments, making the BSP extra careful in monitoring the industry, according to Mabutol. He added that investments in residential developments are very brisk, which is one of the main reasons why BSP is coming up with its residential real estate index.
In addition, the BSP indirectly monitors real estate developers by regulating the banks’ exposure to property developments. Mabutol cited the mandatory “know your client” (KYC) and “single borrower’s limit” (SBL) as some of the tools that the BSP uses to monitor the banks’ activities relating to real estate.
Opportunities
Philippine real estate’s next big opportunity is to produce income-generating assets, said Mabutol. Office buildings and commercial malls have been leading the way. Mabutol said that Pinnacle is seeing the new trend in rental residential condominium developments, hotel and gaming revenues, and even toll roads. The next big buzzword for the local real estate is recurring income.
Metro Manila’s tightening land supply is also pushing developments outside the Philippine capital, according to CBRE Philippines managing director Rick Santos in a briefing held in August 2015 [4]. Santos said that property developers are exploring other locations known as new wave cities, which are becoming potential growth areas where various mixed-use projects are being created. These areas, according to Santos, include fringes of Metro Manila such as Santa Rosa in Laguna and Clark in Pampanga, and the cities of Iloilo and Davao. He singled out Clark as having the greatest potential to become a BPO hub, an area that is accessible through air, land, or sea and has a large amount of developable land and a skilled, English-speaking labor pool.
The country’s BPO sector is also expected to surpass revenue from OFW remittance within the next decade, according to the BSP. The industry is expected to earn US$25 billion annually starting by 2016, which would replace cash transfers made by overseas Filipinos as the country’s major growth engine.