Decade-long housing market boom is over.
Lalaine C. Delmendo | July 21, 2021
The average price of a luxury 3-bedroom condominium unit in Makati central business district (CBD) plummeted by a whopping 20.2% during the year to Q1 2021 to PHP 196,410 (US$4,042) per square metre (sq. m.), according to Colliers International. This was in sharp contrast to a 0.8% rise in Q1 2020 and its biggest y-o-y fall ever recorded. In fact, when adjusted for inflation, prices declined even more by 23.6% y-o-y in Q1 2021.
On a quarterly basis, condominium prices in Makati CBD fell by 2.5% (3.8% inflation-adjusted) in Q1 2021.
The Philippines experienced a house price boom from 2010 to 2018, with Makati CBD prices rising by 125% (77% inflation-adjusted). But with a slowing domestic economy, coupled with the US-China trade war, the housing market slowed sharply in 2019, with house prices rising by a meagre 0.9% and falling by 1% when adjusted for inflation. In 2020 the COVID-19 pandemic aggravated the situation, sending the housing market to its knees. In fact the Philippines has been ranked as the worst performing housing market in the Global Property Guide's 2020 Global House Price Survey, with Makati CBD house prices plunging by 13.2% (-16.1% inflation-adjusted) last year.
Nationwide, the house price decline is less severe. During the year to Q1 2021, the nationwide residential real estate price index fell by 4.2% (-8.3% inflation-adjusted), according to the BangkoSentral ng Pilipinas (BSP), the country's central bank. Quarter-on-quarter, the index dropped 1.6% (-2.9% inflation-adjusted) in Q1 2021. The residential real estate price index, published every quarter, is based on bank reports on residential real estate loans.
By property type:
- For condominium units, prices fell by 1o.7% (-14.5% inflation-adjusted) in Q1 2021 from a year earlier
- Duplex houses saw the biggest y-o-y price fall of 20.7% (-24.2% inflation-adjusted) in Q1 2021
- For single detached/attached houses, prices rose byThe Philippines' housing market is in free-fall, amidst a minuscule 0.2% (but fell by 4.1% inflation-adjusted) during the year to Q1 2021
- Townhouse prices rose by 8.3% (3.7% inflation-adjusted) over the same period
With continued global uncertainties brought by the COVID-19 crisis and rising political instability associated with the 2022 national elections, the housing market is expected to remain depressed this year, as potential homebuyers are expected to take a “wait-and-see” approach in the short term.
“Pandemic-induced disruptions have altered the Philippine economy and the property sector,” said Colliers International.
“The pandemic continues to hamper residential demand in both the pre-sale and secondary markets,” Colliers added. “We expect this to result in further price and rental correction.”
The Philippine economy continues to struggle in Q1 2021, with real GDP shrinking by 4.2%, marking its fifth consecutive quarter of y-o-y economic decline, according to the Philippine Statistics Authority (PSA). The reimposition of quarantine restrictions amidst the surge in infections hampered business and consumer activity.
Despite this, the government remains hopeful that it will achieve its 6.5% to 7.5% economic growth target this year, following a huge 9.5% contraction in 2020 – the biggest contraction since PSA started collecting data in 1946. Yet recently, the World Bank downgraded its 2021 economic growth forecast for the Philippines to 4.7%, from its initial projection of a 5.5% expansion.
The Philippines has the second highest number of COVID-19 cases and deaths in the Southeast Asian region.
Analysis of Philippines Residential Property Market »
Philippines: yields good, though lower than in recent years
The demand for property prices in the Philippines hampered. Thus, condominium property prices dropped off. Records have shown that these prices declined due to Covid-19 impact.
Makati City, as the country's financial center offers a great and modest properties. If you are planning to buy a property, Makati is one of the best neighborhoods. Legazpi Village, Salcedo Village, Rockwell Centre, name it. This city is one of the most urban areas in the Philippines.
Bonifacio Global City is also one good place to live. In this area, condominium prices are from US $3,838 to US $ 5,412. For a 45 square meter unit you can get a rental yield of 5.65% and 4.47% for a 150 square meter unit. Not bad!
Compared to other neighboring districts, condominium prices in Rockwell, Makati are still expensive. It ranges from US $5,487 to $ to US $5,526 per square metre. For some neighboring districts like in Legazpi Village, Makati condominium prices are cheaper. It ranges from US $3,803 to US $4,305. And what's interesting is that you can buy a larger size condominium much cheaper than a small one.
Round trip transaction costs are high for foreign buyers in Philippines (though the surcharge is unlikely to be permanent). See our Property transaction costs analysis for Philippines and Property transaction costs in Philippines, compared to the rest of Asia.
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.
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.
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.
Failed pandemic response sends economy into prolonged recession
The Philippine economy continues to struggle in Q1 2021, with real GDP shrinking by another 4.2%, marking its fifth consecutive quarter of y-o-y economic decline – the longest since the Marcos era, according to the Philippine Statistics Authority (PSA). The reimposition of quarantine restrictions amidst the surge in infections is hampering business and consumer activity, particularly in Metro Manila and nearby provinces.The government has been widely criticized for its handling of the COVID-19 crisis, with its delayed imposition of a travel ban from China during the onset of the outbreak, failure to strengthen contact tracing and mass testing, insufficient protective gear and supplies for medical frontliners, slow vaccination, as well as the lack of transparency on the Bayanihan Acts 1 and 2 relief programs.
As such, it is not surprising to know that the Philippines has ranked 52nd out of 53 economies on Bloomberg’s COVID Resilience Ranking, a global study that measures the resilience of countries to the pandemic.
Despite this, the government remains hopeful that it will achieve its 6.5% to 7.5% economic growth target this year, following a huge 9.5% contraction in 2020 – the biggest contraction since PSA started collecting data in 1946. Yet recently, the World Bank downgraded its 2021 economic growth forecast for the Philippines to 4.7%, from its initial projection of a 5.5% expansion.
The economy grew strongly by an average of 6.4% annually from 2010 to 2019 – one of the fastest in the region.
The total number of foreign tourist arrivals plummeted by almost 84% to 1.32 million in 2020 from 8.26 million in 2019, according to the Department of Tourism. Likewise, tourism receipts fell by 83.1% y-o-y to PHP 81.4 billion (US$1.67 billion) last year, from PHP 482.2 billion (US$9.88 billion) in 2019.
In April 2021, unemployment stood at 8.7%, up from 7.1% in the previous month but substantially down from the record high of 17.6% in April 2020, according to figures from the PSA.
In 2020, the budget deficit increased to a whopping PHP1.37 trillion (US$28 billion), more than double the PHP660.2 billion (US$13.5 billion) shortfall in 2019, mainly attributable to government spending on coronavirus-induced relief programs such as the Bayanihan Acts 1 and 2.
As percent of GDP, the deficit was equivalent to 7.5% of GDP in 2020, sharply up from 3.4% in 2019 - and the biggest shortfall ever recorded.