Market in Depth

The Philippines is now in its 7th year of a house price boom

April 18, 2018

The Philippines' residential property market continues to perform very well, due to robust economic growth. The average price of a luxury 3-bedroom condominium unit in Makati central business district (CBD) soared 10.46% (6.95% inflation-adjusted) during 2017 to PHP199,050 (US$3,825) per square metre (sq. m.), from y-o-y rises of 9.95% in 2016, 13.43% in 2015, 7.11% in 2014, 14.37% in 2013, and 10.06% in 2012, according to Colliers International. During the latest quarter, condominium prices in Makati CBD increased 2.55% (1.46% inflation-adjusted) in Q4 2017.

Are there clouds in the horizon? Maybe - in 2018 the supply of new condominiums to Metro Manila will reach 27,200 units, up from a record 10,200 units in 2017, according to Colliers International. And rental yields are falling, while vacancies are rising.

House prices continue to rise in other major Metro Manila CBDs:
  • In Rockwell Center, the average price for a 3-bedroom condominium rose by 11.7% (8.1% inflation-adjusted) to PHP221,150 (US$4,249) per sq. m during 2017.
  • In Fort Bonifacio, the average price for a 3-bedroom condominium increased by 4.3% (1% inflation-adjusted) to PHP175,700 (US$3,376) per sq. m over the same period.

During 2017, the nationwide residential real estate price index rose by 5.7% (2.3% inflation-adjusted), according to the Bangko Sentral ng Pilipinas (BSP), the country's central bank. Quarter-on-quarter, the index rose by 5.2% (4.1% inflation-adjusted) in Q4 2017. The residential real estate price index, published every quarter, is based on bank reports on residential real estate loans.

By property type:
  • Condominium units saw y-o-y price increase of 14.2% (10.6% inflation-adjusted) in 2017 from a year earlier
  • For single detached/attached house, prices fell slightly by 0.3% (-3.5% inflation-adjusted) during 2017
  • Duplex house prices surged 17.3% (13.5% inflation-adjusted) y-o-y in 2017
  • Townhouse prices rose by 8.1% (4.6% inflation-adjusted) over the same period

In the National Capital Region (NCR), residential property prices surged 8.8% (5.3% inflation-adjusted) during 2017 while in Areas Outside the NCR (AONCR), prices rose by 3% (-0.3% inflation-adjusted), according to the BSP.

Demand remains strong. In 2017, the take-up of pre-sold condominium units throughout Metro Manila, including fringe locations, rose by 52,600 units, up 24% from a year earlier and the highest level ever in the country's capital, according to Colliers International. This was mainly due to strong demand from starting families and young professionals. Household formation has increased by an average of 3% every year in the past five years.

Nationwide residential property prices are expected to continue to rise strongly this year, boosted by robust economic growth. In Makati CBD, property prices have risen by almost 60% from Q1 2011 to Q4 2017, amidst rapid economic growth. Yet prices are not high, and yields are good, and the Philippine economy is in the 7th year of strong growth.

Philippines house prices The Philippine economy expanded by 6.7% in 2017, from an average annual growth rate of 6.3% from 2010 to 2016, mainly driven by strong government spending, recovering agriculture, as well as increasing exports. With a projected annual GDP growth of 6.7% in 2018 and 2019, the Philippine economy is expected to remain among the fastest-growing economies in Asia, according to the World Bank. Meanwhile, inflation is projected to increase to 4.3% this year (the highest level since 2011), as a result of expected oil price hikes and the impact of the Tax Reform for Acceleration and Inclusion (TRAIN) law signed last December 19, 2017.

Foreigners cannot own land, but can own condominium units or apartments in high-rise buildings as long as the foreign proportion does not exceed 40%. They can also buy a house but not the land on which it is built. Leases on land up to 50 years, renewable for another 25 years, are available.

Analysis of Philippines Residential Property Market »

Rental Yields

Philippines: yields good, though lower than in recent years

Yields in Metro Manila are exceptional, by international standards.

However transaction taxes (known as ‘capital gains taxes', but not actually such), and (if observed) official income tax rates applicable to non-resident investors, are high. You may think that it will be easy to avoid these taxes, it being the Philippines. But it ain't necessarily so. Once the local authorities have their eye on you, they won't willingly let go. Plus, the sheer bureaucracy of actually paying can be irritating.

Buying prices for condominiums are from US$2,800 to US$4,200 per square metre, considerably up on previous years. Unusually, yields are not always highest on the very smallest units, which suggests that smaller condominiums are oversupplied. It therefore makes a lot of sense to get a larger unit, since the general management cost and hassle of a larger unit is less.

The highest-yielding units that we found are 50 square metre units in Ortigas (which have gross rental yields of nearly 9%). Great! We don't have enough information to know whether these high yields apply in Ortigas to other apartment sizes.

The year before last we found that yields were surprisingly good generally on very large condominiums in Metro Manila (250 square metres), at around 9%, but this year we were not able to assemble a database of this dimension. This may be an optimal size for investment.

Read Rental Yields »

Taxes and Costs

Moderate taxes for foreigners
engaged in trade or business

Rental Income: Nonresident foreigners who are engaged in trade or business are taxed at progressive rates (5% to 32%) on their net income. Rents above PHP12,800 (US$26) per month are also liable to VAT at 12% of gross rent.

Capital Gains: Capital gains realized by nonresident foreigners from selling properties used in trade or business are taxed at the standard progressive income tax rates (5% to 32%). Taxable gains are the difference between selling price and acquisition cost of the property.

Inheritance: Non-resident foreigners pay estate tax only on property located in the Philippines at rates from 5% to 20%.

Residents: Resident citizens are taxed on their worldwide income at progressive rates, from 5% to 32%. Resident foreigners and nonresident citizens are taxed on Philippine-sourced income at progressive rates.

Read Taxes and Costs »

Buying Guide

Transaction costs can be very high in the Philippines

The total roundtrip cost of property purchase is around 7% to 16.25% of the property value.

For taxation purposes, properties are treated as capital assets if it is not used in trade or business, and properties are treated as ordinary assets if it is used in trade or business, such as rental property. The 6% Capital Gains Tax applies only on properties treated as capital assets and not on properties treated as ordinary assets.

It takes about 32 days to go through the nine procedures to register a property in the Philippines. Pre-selling, or the selling of units during construction, is the fashion nowadays. The buyer should be careful when buying unfinished buildings or condominiums.

Read Buying Guide »

Landlord and Tenant

Rents are paid one year in advance in Manila

The luxury rental market is generally pro-landlord. However, for the rest of the market the balance of power between landlord and tenant in the Philippines is neutral.

Rents: The parties can freely determine the amount or rent and rent increases. At the upper end of the market, the landlord receives one year’s rent in advance in post-dated cheques.

Legal System: The legal system is cumbersome. Tenant eviction can go through a long and expensive trial. In practice, the landlord’s success in evicting a tenant may depend on his influence in influencing the police (or local gang members) to apply pressure.

Read Landlord and Tenant »


Uninterrupted economic growth

Philippines gdp inflationThe Philippine economy expanded by 6.7% in 2017, slightly down from the previous year’s 6.9% growth, mainly driven by strong government spending, recovering agriculture, as well as increasing exports.

During Q4 2017:
  • Public spending surged 14.3% y-o-y in Q4 2017, up from the prior year’s 4.5% growth
  • The industry sector grew 7.3% from a year earlier and contributed 2.5 percentage points to real GDP growth
  • Services expanded by 6.8% y-o-y and contributed 3.9 percentage points to GDP
  • Agriculture grew by 2.4% y-o-y and contributed 0.3 percentage points to GDP

In 2017, the total number of foreign tourist arrivals surged 11% to 6.6 million from a year earlier, despite the 5-month long Marawi armed conflict that started in May 2017.

The economy is projected to grow by 6.7% in both 2018 and 2019 - the fastest pace in Southeast Asia, according to the World Bank.

In 2017, the nationwide unemployment rate stood at 5.7%, down from 5.5% in 2016, 6.3% in 2015, 6.6% in 2014 and 7.1% in 2013, according to the Bangko Sentral ng Pilipinas (BSP). Unemployment is expected to fall to 5.5% this year, from an annual average of 6.9% from 2006 to 2017, according to the IMF.

The Philippine economy grew by an average of 6.3% annually from 2010 to 2016, thanks to the previous administration’s socioeconomic reforms. Former president Benigno (Noynoy) Aquino III (president June 2010 - June 2016) instituted a no-holds barred anti-corruption campaign which wowed foreign investors and caused consumer confidence to surge. The Philippines’ investment ratings were upgraded to investment grade by Moody, Standard & Poor’s, and Fitch Ratings. The Philippines’ competitiveness improved sharply, with a Global Competitiveness Index rank of 47th out of 140 economies in 2015-16, up from 52 in 2014, 59 in 2013, and 65 in 2012.

However, the country’s competitiveness rank slipped back to 57th in 2016-17 and to 56th in 2017-18.

During the May 2016 presidential election, former Davao City mayor Rodrigo Duterte won a landslide victory, capitalizing on discontent with rising inequality and on the perceived incompetence of Aquino’s chosen successor, Mar Roxas. Duterte vowed to bring progress to all Filipinos, to eliminate government corruption and to substantially reduce crimes, especially the use of illegal drugs. While the government’s “war on drugs” is now very controversial having resulted in the death of over 7,000 Filipinos, Duterte’s net trust rating remains “excellent” (except in September 2017 when he got a “very good” net trust rating), according to the Social Weather Stations (SWS).

Currently, Duterte is pushing for a charter change to shift to a federal system of government from the current unitary system.

Duterte’s “Build, Build, Build” infrastructure program
President Duterte’s ambitious US$180-billion “Build, Build, Build” program is designed to modernize the country’s infrastructure by rolling out 75 flagship projects, including 6 airports, 9 railways, 3 bus rapid transits, 32 roads and bridges, 4 seaports, 4 energy facilities, 10 water resource projects and irrigation systems, and 5 flood control facilities, among others.

In Duterte’s first 18 months in office, about 36 projects were approved. In 2017, the combined cost of the projects approved was more than double the prior year’s PHP400 billion (US$7.7 billion) approved projects total. At least 6 projects are expected to be implemented this year, including the Clark Airport expansion; the first phase of the Metro Manila subway; the North-South railway projects; the 130-km first phase of the Mindanao railway; the Kaliwa water supply project; and the Cavite flood control project.

These projects are expected to sustain strong economic growth, raising annual infrastructure spending by about 3% to 7% of GDP until 2022. The economy is expected to grow by 6.7% in both 2018 and 2019, the highest level in Southeast Asia, according to the World Bank.

“We will make the next few years the golden age of infrastructure in the Philippines to enhance our mobility and connectivity, and thereby spur development growth,” said Duterte. “In other words, we are going to build, build and build.”