Market in Depth

The Philippines' housing market is now two-tiered

Lalaine C. Delmendo | March 26, 2020

The Philippines residential property market is now two-tiered, with the Metro Manila CBDs losing steam, while the rest of the country continues to boom.

The average price of a luxury 3-bedroom condominium unit in Makati central business district (CBD) rose by a minuscule 0.87% during 2019 to PHP 232,000 (US$ 4,488) per square metre (sq. m.), a sharp slowdown from a y-o-y rise of 15.55% in 2018 and the weakest performance since 2009, according to Colliers International. In fact, when adjusted for inflation, prices declined 1.03% y-o-y last year.

On a quarterly basis, condominium prices in Makati CBD increased 9.43% (8.27% inflation-adjusted) in Q4 2019.

The Philippines experienced a house price boom from 2010 to 2018, with Makati CBD prices rising by almost 132%. But with a slowing domestic economy, coupled with the US-China trade war, the housing market slowed sharply last year.

However, strong house price growth continues nationwide. During the year to Q3 2019, the nationwide residential real estate price index surged 10.4% (10% inflation-adjusted), according to the Bangko SentralngPilipinas (BSP), the country's central bank. Quarter-on-quarter, the index rose strongly by 9.5% (8.9% inflation-adjusted) in Q3 2019. 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 the strongest y-o-y price increase of 29.1% (28.6% inflation-adjusted) in Q3 2019 from a year earlier
  • For single detached/attached houses, prices rose by a modest 2.4% (2.1% inflation-adjusted) during the year to Q3 2019
  • Duplex house prices surged 24.8% (24.4% inflation-adjusted) y-o-y in Q3 2019
  • Townhouse prices rose by 6% (5.7% inflation-adjusted) over the same period

But with continued global uncertainties andan additional blow coming from deepening COVID-19 crisis, the housing market is projected to slow sharply this year, as potential homebuyers are expected to take a “wait-and-see” approach in the short term.

The Philippines' economic growth slowed to an eight-year low of 5.9% during 2019, following a 6.2% growth in 2018, mainly due to the delayed implementation of the 2019 national budget and soft global markets caused by the US-China trade war. Recently, the International Monetary Fund (IMF) maintained its 2020 growth forecast for the Philippines at 6.3%, even though the COVID-19 outbreak is expected to negatively affect tourism. The government is more optimistic, forecasting economic growth of 6.5% to 7.5% this year.

Philippines house prices
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 (0% to 35%) 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 0% to 35%. 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 4.50% 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 »


Economic growth slowing; outlook uncertain

The Philippines’ economic growth slowed to an eight-year low of 5.9% during 2019, following a 6.2% growth in 2018, mainly due to the delayed implementation of the 2019 national budget and soft global markets caused by the US-China trade war. But it still places the country as among the fastest growing economies in Emerging Asia.

The total number of foreign tourist arrivals rose strongly by 15.2% to around 8.26 million people in 2019 from a year earlier, according to the Department of Trade and Industry (DTI). South Korea remained the country’s top tourism market with 24% share, followed by China (21.1%), the US (12.8%), Japan (8.3%) and Taiwan (4%).

Philippines gdp inflation
Recently, the International Monetary Fund (IMF) maintained its 2020 growth forecast for the Philippines at 6.3%, though the COVID-19 outbreak is expected to negatively affect tourism. The government is even more optimistic, targeting an economic growth of 6.5% to 7.5% this year.

However, these projections seem infeasible now, given that the entire country is currently under a state of calamity due to the COVID-19 pandemic. Recently, Metro Manila and the entire Luzon were also placed under ‘enhanced community quarantine’ in an effort to contain the contagion. Schools were cancelled for weeks, civil servants and private employees were ordered to work from home, cross-border mobility was restricted, and businesses, excluding those identified as necessities, were closed.

In January 2020, the nationwide unemployment rate stood at 5.3%, unchanged from a year earlier, according to the PSA. The average jobless rate fell to 5.4% from 2016 to 2019, from an annual average of 7.2% in 2006-15 and 11.4% in 2000-5.

The number of unemployed individuals increased to 2.39 million, up from 2.28 million in the same month a year ago.

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 &Poors’, 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 has been falling in recent years. It’s competiveness rank slipped back to 57th in 2016, to 56th in both the 2017 and 2018, and to 64th in the 2019 ranking.

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" has been very controversial having resulted in the death of over 7,000 Filipinos, Duterte’s net trust rating remains either “excellent” or “very good”, based on the Social Weather Stations (SWS) surveys.

Duterte’s push for a charter change to shift to a federal system of government from the current unitary system was also very controversial.

Duterte’s "Build, Build, Build" infrastructure program revamped
Last year, President Duterte’s ambitious US$180-billion "Build, Build, Build" infrastructure program came under fire after claims that only nine of the 75 flagship projects have started construction. The slow progress was mainly due to red tape, poor planning, right-of-way issues, cost overruns and engineering issues.

As a response, the government revamped the list and scrapped items that were found to be “costly and challenging”. From the original 75 projects, the new list now includes 100 leaner projects, with higher proportion of public-private partnership.

President Duterte’s "Build, Build, Build" program, which was drawn up in 2016, is designed to modernize the country’s infrastructure by rolling out various projects, including new airports, railways, bus rapid transits, roads and bridges, seaports, energy facilities, water resource projects and irrigation systems, and flood control facilities, among others.

The government’s economic managers project that half of these 100 projects will be completed by June 2022 – the end of Duterte’s presidency. This implies that he will leave his successor with the remaining half of projects in the pipeline.

These projects are expected to sustain strong economic growth, raising annual infrastructure spending by about 3% to 7% of GDP until 2022.

Unsurprisingly, the Philippine government breached its budget deficit cap last year, as expenditures exceeded target and outpaced the increase in revenues. In 2019, fiscal deficit reached PHP660.2 billion (US$12.8 billion), up 18.3% from the PHP558.3 billion (US$10.3 billion) gap recorded a year earlier, according to the Bureau of Treasury.As percent of GDP, the deficit was equivalent to 3.55% of GDP in 2019 – overshooting the 3.25% target for the year.

Get GPG fortnightly newsletters delivered to your inbox

A quick summary of global real estate trends.