REAL ESTATE is one sector that closely resembles the performance of our economy. With the Philippines recording one of the fastest growth rates in Asia at 5.6 percent in the first quarter of 2019, our real-estate sector has also become one of the most vibrant in the region, providing both Filipinos and foreign nationals a good investment opportunity.
I believe that investing in Philippine real estate, such as land, house and lots, townhouses and condominium units remains a sound decision, with a significant upside potential. This is because real-estate prices continue to rise amid the strong demand from both homebuyers and investors as more Filipinos join the ranks of the middle class.
The gross domestic product per capita in the Philippines reached P163,475 ($3,104) based on 2018 prices. A closer look at the 2018 Gross Regional Domestic Product report of the Philippine Statistics Authority (PSA) shows that the National Capital Region remains the undisputed economic leader, where per capita income was over three times the national average.
The per-capita income in NCR hit P500,947 ($9,513) last year, or nearly at the level of Turkey, China or Mexico. NCR’s per-capita income was even higher than those of Brazil, Peru, Colombia and other Latin American countries. This explains why a lot of tower cranes fill Metro Manila’s skyline right now.
Data from the PSA show that our gross domestic product expanded 6.2 percent in 2018, one of the fastest in the region. The gross value added of real estate, renting and business activities grew 4.7 percent last year based on constant prices. At current prices, the sector contributed P2.22 trillion to the economy, up by 6.9 percent from the previous year.
While there are specific places that saw a significant increase in real- estate prices such as the Bay Area, the average nationwide adjustment remains manageable. The Residential Real Estate Price Index, which is monitored by the Bangko Sentral ng Pilipinas, rose by just 0.5 percent year-on-year in the fourth quarter of 2018. Prices of townhouses and condominium units increased 11.4 percent and 0.6 percent, respectively, while those of single detached housing units declined 1.9 percent.
The increase is more pronounced in Metro Manila. The average residential property prices in the National Capital Region increased 1.6 percent year-on-year in the fourth quarter, while prices outside the capital actually declined by 0.8 percent. This means that housing remains affordable in the provinces where there are still vast lots to be developed.
In Metro Manila and other major urban centers such as Cebu, Davao and Iloilo, a number of factors are pushing up real-estate prices, the most significant of which is the robust economic growth. Everybody is bullish and the general impression is that real-estate prices will continue to go up. A good barometer for me is the selling prices of the Manila Golf shares, which now hover at around P70 million per share with the largest increase coming in the last two years.
A second major factor is the influx of Chinese investors and tourists who invest heavily in residential condominium projects in the Bay Area, Makati and Fort Bonifacio. Whatever gluts the sector had in the past has been wiped out by the strong demand from Chinese nationals.
The improved economic and political relations between Manila and Beijing have encouraged Chinese investors to look at the Philippine real-estate landscape. To satisfy this new growing demand, Filipino brokers themselves are now going to China to offer Philippine condos.
Another factor is the higher base of real-estate taxes. While we have seen a radical increase in the real-estate tax base, nobody is selling less than the zonal value, which means people believe that prices will continue to go up in the coming years.
The fifth factor is the extremely slow land conversion rate.
High real-estate prices have a negative effect on housing and on our people, but this is an inevitable result of economic growth. Our real- estate prices are now close to those of neighboring countries such as Indonesia, Malaysia and Thailand, which means our assets are now comparable to theirs in terms of value.
Colliers International Philippines, a property consultancy firm, said 54,000 residential condominium units were sold in the Metro Manila presales market last year, higher than the 53,000 units sold in 2017. It says that given the lack of developable land in the metropolis and the rising prices of land, developers are expected to be more aggressive in launching projects in the fringes of Metro Manila where land is cheaper.
In the office sector, Colliers says office space net take-up hit a record 1.18 million square meters in 2018, and predicts that new supply would reach another 1 million sq m this year, driven by the outsourcing sector and offshore gaming firms
I believe that there is still room for growth in the real-estate sector, especially in key areas outside Metro Manila, as the government pursues major infrastructure projects and the inflation rate begins to normalize.
Fears of a housing bubble are unfounded, as the country continues to suffer from a housing gap of about 6 million units. It is important for the government to focus its attention on the housing problem to create more opportunities for Filipinos and boost economic growth.
As we expect to join the ranks of upper middle-income countries this year, we need to uplift the quality of life for every Filipino, starting with good housing. Unfortunately, there remains an imbalance in the economy because economic growth is still concentrated on Metro Manila.
This is why it is important that we pursue the “Build, Build, Build” infrastructure program of the Duterte administration to catch up with the rest of Asia. With the aggressive infrastructure buildup, even our balikbayans will find it wise to invest in the Philippines.
This piece first came out in Business Mirror on May 14, 2019 under the column “The Entrepreneur.” For comments/feedback e-mail to: [email protected] or visitwww.mannyvillar.com.ph./PN