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Philippines has become one of the hotspots for foreign property buyers in Asia.
With favorable demographics and an increasing middle class, Metro Manila has undoubtedly seen the biggest interest. Corporations also move elsewhere, setting up offices in places like Cebu, where operating costs are lower.
In this article, I explain how Philippines property market has performed the past years. I’ll also share my predictions how I believe that the market will perform in 2019.
Keep in mind that foreseeing how a market will perform in the coming years is not the easiest task on hand. If you have any information you would like to share, you can share a comment at the end of the article.
Topics covered in this article:
- Philippine’s property market in 2017 & 2018: A throwback
- Manila property prices
- Is there a real estate bubble in the Philippines?
- How will Philippines’s real estate market perform in 2019?
- Is Philippines’ real estate market at its peak?
- How high are the rental yields in the Philippines?
- What is driving the demand of real estate in the Philippines?
Philippine’s property market in 2017 & 2018: A throwback
Philippines real estate market has boomed in the past years, following the path of the country’s strong economic growth, starting from 2010.
Over 70,000 new office spaces were added to the Manila business districts in 2017, breaking a new record. Still, the vacancy rates remained low, at around 5%.
Many Chinese companies, especially tech and gambling companies, have outsourced their offices to cities like Metro Manila. There’s been a continuous rise of Chinese investors, driving the demand for property, and increasing the prices.
These companies don’t only buy or rent office space in business areas like Makati, but also buy residential properties for their employees. Offshore gaming firms had a big impact on the exceptionally low vacancy rates in Manila’s central business district, despite the increase in supply.
In addition to Manila, these firms move to other cities like Cebu, having an impact on the local real estate markets.
Manila property prices
Property prices have increased much in Manila over the years. Below you can see the year-on-year price increase for 3-Bedroom condominiums in Makati:
- 2017 – 10.4%
- 2016 – 9.95%
- 2015 – 13.43%
- 2014 – 7.11%
- 2013 – 14.37%
Overall, prices increased by 5.7% on average nationally in 2017, where we saw the highest increase for duplex houses, followed by condominium units. Prices for single detached/attached houses fell slightly.
There was also a considerable difference in price increases in the NCR (National Capital Region) and areas outside of the NCR. In NCR, residential property prices increased by 8.8%, but the price increase was merely 3% in the rest of the country.
Is there a real estate bubble in the Philippines?
At the end of 2017, there was a growing concern that a housing bubble started to evolve, mainly due to the increased property prices and supply.
However, in Q1 2018, the supply decreased significantly.
According to Colliers, the number of new housing units has gone from 27,000 to 12,700 per quarter during this period. At the same time, the vacancy rates improved much during the first two quarters of 2018.
Below you can see some key findings about the real estate market in Metro Manila during the first half of 2018:
a. Almost 30,000 units (a record high) were taken up in the preselling sector. It’s expected to cross over 60,000 by the end of 2018
b. The high demand is mainly driven by expats, local professionals and Chinese investors
c. The vacancy rate for condominiums was around 11%, while it’s expected to remain at around 12% during coming years
d. The quarter-on-quarter price increase in most of Manila’s districts was more than 2%, while the price increase in upscale areas like Fort Bonifacio and Makati was around 2.8%
How will Philippines’s real estate market perform in 2019?
Overall, Philippines’ real estate market looks bright for 2019, especially if we look at places like Metro Manilla. The demand is outpacing the supply in almost all major cities, while the office vacancy rate is less than 5%.
Based on recent figures, as well as previous trends, many believe that Manila might be one of the best locations to invest in real estate in Southeast Asia.
There are few countries in the world that had a growth rate of 6-7% in the last decade. The rapidly growing economy is driving the real estate sector, with increasingly more Chinese investors and companies operating in the Philippines.
We also see an increased purchasing power among locals.
The offshore gaming industry is one of the key drivers of the real estate market, both in the office and residential sector. In 2018, the gross gaming revenue increased by 9.4%, which represents a flourishing industry backed by Chinese investors and gaming companies.
Is Philippines’ real estate market at its peak?
In fair terms, no. You might wonder if the continuous price increases, that we’ve seen for the last seven years, means that the market has already reached its peak.
This is probably not the case, at least if you look back at the time of the Asian Financial Crisis in 1997.
At that time, the property market went through a sharp decline. But if you compare the current prices adjusted by inflation, the current prices are still 20% lower. Looking historically, the market is still far from its historic peak.
How high are the rental yields in the Philippines?
Even if prices are expected to rise at the same rate as in the last few years (8~10%), the rental yields are expected to remain at a similar level. Philippines performs well in terms of rental yields, so it’s nothing you should worry about too much.
In 2017 and 2018, we didn’t see a big increase in rents for residential properties, and Colliers predicts a 1-3% increase in rents by 2020, at most.
Future supply of property in the Philippines
According to a recent report published by JLL, many well-known developers operate in Metro Manila and other NCR cities to provide office and residential space, meeting the coming demand.
According to JLL, around 2.1 million square meters of office space will be added until 2020, where a majority will be dedicated to Makati, Pasig, and Taguig.
Similarly, the same report predicts an increase of 35,000 condominium units in 2019. Cities like Pasay, Taguig, Makati, and Quezon are expected to see the highest increase in residential units.
8.600 condominium units will be provided quarterly from 2019 to 2021, while the condominium vacancy rate will remain at around 12-13% during this time period.
The increase in rents will stay the same with only a marginal increase until 2021.
What is driving the demand of real estate in the Philippines?
I’ve mentioned some of the reasons why we see an increased demand of real estate in the Philippines. Below I’ve listed additional information, speaking for an increased demand:
Offshore companies and outsourcing from China
With the continuous depreciation of the Peso, Philippines become more affordable and a lucrative market for foreign companies to take advantage of its big English speaking workforce.
There’s an increased demand from global e-commerce companies, call centers, and gaming firms, among others.
Note: 1 USD = 49 Pesos in Jan 2018 | One USD = 54 Pesos in Oct 2018
Continuous supply of flexible workspace
With millions of square meters of office space the rents remain stable, allowing companies and startups to expand and operate more easily.
Increased number of local and foreign high net-worth individuals
A stronger economy, a lower unemployment rate, a growing middle-and upper class, and foreigners drive the growth of the residential property market.
Increased amount of Chinese buyers
An increased number of Chinese buyers contributes to the current and future growth. According to Bloomberg, the gambling/gaming market has attracted around 100,000 Chinese workers to the Metro Manila area since September 2016.
High remittances from overseas
Philippines is the third largest recipient of foreign remittances in the world. Overseas Filipinos sent additionally USD 3 billion to their families in 2017 compared to 2016.
With a depreciating peso, and with the increase in foreign remittance, many families now have the purchasing power to buy and invest in the residential property market.
According to market statistics, previous trends, reports by leading real estate agencies like Colliers and JLL, Philippines remains an attractive spot for real estate investments in 2019.
Prices are increasing, the demand is high, and the market is growing with a sustainable pace, which is predicted to remain the same for the coming two to three years.
The key drivers are: increased interest from foreign companies (that need housing for their employees), Chinese investors, an increased purchasing power among locals, and increasingly more remittance of money from overseas.
Yields are comparatively high and it’s generally easy to do business. You also have the option to apply for a number of long-term visas, allowing you to stay indefinitely, with low requirements.
It’s always hard to predict the future, but with the information on hand, it seems like Philippines will perform fairly well in 2019.
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