Philippines: Price History

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The real estate boom rolls on

Strong demand from Overseas Filipinos has contributed to the continued rise in prices in the real estate sector, as has strong economic growth, especially in Metro Manila, the centre of the call centre boom.

Residential prices in upscale districts of Manila rose by an average of 15.15% in 2007, following a rise of 9.6% in 2006, (4% in real terms) according to data from Colliers International. In the previous year, 2005, property prices had risen 10.9%.

The real estate sector started its recovery in 2004 from the slump brought on by the 1997 Asian Crisis. Condominium projects are rising all over Manila, with condominium prices and rents going up, and vacancy rates falling.

Strong demand

The property market draws strength from sectors anchored to the world economy including demand from Overseas Filipinos and their families. Overseas Filipinos include Overseas Filipino Workers (OFWs) and Filipino immigrants and dual citizens abroad.

It has been noted that about 30% of the income of OFWs is spent on housing, whether to buy a new house, fix present homes or pay rent. OFW remittances reached US$12.76 billion in 2006 and are expected to reach US$14.7billion in 2007.

Demand for office space for information and communications technology (ICT) related firms such as call centers and other business process outsourcing (BPO) firms also provided the spark to revive the slumbering real estate sector.

In 2006, BPO firms in the Philippines earned US$3.6 billion, up by 50% from the previous year. The sector now employs more than 250,000 employees and is expected to expand more.

Wider coverage

The real estate boom in the Philippines can be seen with the number of new condominiums rising all over Metro Manila. The pre-Asian Crisis boom was only visible in central business districts of Makati and Ortigas. Instead of just pockets of developments, condominiums are being planned and built along the entire stretch of EDSA. There are also new condo projects planned in the North and South. This provides potential buyers more choices.

Several subdivisions are also being developed in nearby provinces such as Rizal, Bulacan, Cavite and Laguna. With the completion of major infrastructure projects such as the North and South Rail more people can easily commute from these provinces to the city. In effect, Metro Manila is getting bigger and less crowded.

Problems persist

Potential buyers should still wary of the problems which may be involved in buying in the Philippines. One is the issue of fraudulent titles. High transaction costs and the lack of information also hamper the real estate market. Condos and new subdivisions are generally free of these concerns; hence, they benefit more from the boom.

Property buyers are also mostly limited to Overseas Filipinos and their families. Some agents report that about 60% to 90% of the properties are sold to an OFW or a Filipino immigrant abroad and their families.

The problem with these is that it this demand vulnerable to peso appreciation against the dollar, which is being now being experienced. About half the Philippines’ OFWs work in the Middle East, and a significant number work in Hong Kong. They mostly earn in dollars. And about 70% of Filipino immigrants abroad are in the US. As the peso appreciates against the dollar, the Overseas Filipinos’ foreign earnings can buy less and less Philippine goods.

There are already worrying signs. According to the BSP Consumer Expectation Survey for Q4 2007, only 1.3% of OFW households in NCR intend to use the remittance for purchasing a house. During the second quarter of 2006, as much as 10.9% of OFW households said that they intended to purchase a house.

Limited mortgage options

For the real estate mortgage market to grow, demand from local buyers should strengthen. In other countries, a housing market boom is accompanied by a mortgage boom, i.e. most property purchases are financed by a loan.

In the Philippines, despite the ongoing real estate boom, loans to real estate, renting and business activities contracted by 7% from Q4 2006 to Q1 2007. Loans to the real sector fell 0.5% to end Q1-2007 from a year earlier. This was in sharp contrast to the 12.9% increase in loans to end-2006.

The lack of mortgage options in the Philippines continues to hamper the real estate market. Despite the drop in the base interest rates, mortgage rates remain high, typically, in double digits. Most mortgages in the Philippines are indexed to the Treasury bill rate, depending upon the length of loan maturity. The 364-day T-bill rate was at 5.6% from June to December 2007, significantly lower compared to the average of 14.4% in 2000.

However, mortgage rates offered by major commercial banks are stubbornly set at 9.99% or more, for mortgages with rates fixed for five years or more. These means that the borrower absorbs much of the interest rate risk. Mortgages offered by developers are significantly much higher, ranging from 12% to 18%.

While Pag-ibig fund (Home Development Mutual Fund) offers a much lower interest rate, at 6% to 7%, and better loan conditions (longer payment periods and higher lona-to-value ratios), the amount that can be borrowed is much lower and there are certain membership requirements.

Biggest drop

The Philippines experienced the biggest drop in property prices among the economies affected by the Asian Crisis. A speculative bubble formed in the 1990s in the Philippines’ property sector, after financial liberalization and economic reforms had attracted capital inflows. Luxury condominium prices rose 63% (46% in real terms) between 1995 and 1997.

During the Asian crisis, Philippine luxury condominium prices dropped 18% (25.3% in real terms) from 1997 to 1998. Political crises held led to further deterioration of the real estate market, till a mild recovery began in 2004. Luxury condominium prices in the Philippines dropped 56.2% in real terms (34.36% nominal) between 1997 and 2004. Even with gains from 2005 to 2007, property prices are still 50% below their 1995 peak in real terms.

Recently the BSP relaxed rules on real estate lending. Many fundamental problems confronting the real estate sector remain to be addressed, including reforms in credit rating, property valuation, land administration and property registration – but so far, lack of these reforms does not seem to have held back a booming market.

Philippines - more data and information

• Philippine house prices, rents, and letting income - real data!
• How expensive are houses in Philippines, compared to the rest of Asia?
• How much rent can be earned from Philippine property, compared to the rest of Asia?

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