Philippines' real estate sector continues recovery

Philippines’ real estate sector continues recovery

Strong economic growth and reduced inflation contributed to the continued recovery of the real estate sector. Luxury condominium prices in the Philippines rose 9.6% (4% in real terms) in 2006, following an 11% nominal price rise in 2005.

The real estate sector started its recovery in 2004 from the slump brought on by the 1997 Asian Crisis. Boosted by the growth of the call centre industry and demand from foreign-based Filipinos, 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. Demand for office space for information and communications technology (ICT) related firms such as call centres and other business process outsourcing (BPO) firms have 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 around 250,000 employees and is expected to expand more.

While BPO executives and expatriates add demand to the luxury market, BPO employees form a new breed of young urban professionals with tremendous purchasing power, earning several times more than the minimum wage. They have boosted the demand for rental housing and other products creating a ripple effect on the construction, retail, and telecommunications industries.

There is a two-tiered condominium market both in the sales and the rental market. At one end are either studios or one and two bedroom units measuring less than 200 sq. m. Studios generally measure from 26 to 36 sq. m. only. Most of condominiums in the market belong to this category. On the other end are the expatriate-preferred condominiums, 3-bedroom luxury units measuring 200 to 330 sq. m.

Dual Citizens

The property market is also relying on the newly opened market of Dual Citizens. A law passed in 2000 allowed Filipinos who had acquired foreign citizenship to become dual citizens. This allowed them to acquire land in the Philippines.

The new law also affected the mix between foreign and local ownership allowed in condominiums. And many new projects such as condominiums and subdivisions in Metro Manila’s adjacent provinces of Bulacan, Rizal, Cavite and Laguna are specifically marketed to foreign-based Filipinos, with prices typically quoted in US dollars.

The families of OFW’s are giving a further boost to the real estate sector. It has been noted that about 30% of the income of OFW’s is spent on housing, whether to buy a new house, fix present homes or pay rent. OFW remittances exceeded US$13 billion in 2006.

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.

With 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. With minimal real gains in 2005 and 2006, property prices are still 50% to 55% below their 1995 peak in real terms.