Philippines has become one of the hotspots for foreign property buyers in Southeast Asia. With favorable demographics and an increasing middle class, Metro Manila has undoubtedly seen the biggest interest.
Foreign corporations move to the region, setting up offices and operations in places like Cebu and Davao, where labor costs are low.
In this article, I explain how the Philippine property market has performed in the past years. I’ll also share my predictions on how I believe that the market will perform in 2020.
Keep in mind that foreseeing how a market will perform in the coming years is not the easiest task on hand. If you have any information you would like to share, you can share a comment at the end of the article.
Philippines real estate market has grown at an exceptional rate in the past years, following the path of the country’s strong economic growth, starting from 2010.
Looking at its office market, over 70,000 new office spaces were added to the Manila business districts in 2017, breaking a new record. Still, the vacancy rates remained low and at around 5%.
Despite seeing reduced economic growth in the first nine months of 2018, the office market performed well with a healthy supply and an average vacancy rate of 5%. Colliers anticipate that vacancy rates will remain at this level until 2021.
At the same time, rents will rise steadily by 8% annually until 2021.
Analysts forecasted a slow-down throughout 2019, but the market remained resilient. Many are certain that the real estate market will remain stable, even in the case of a global economic downturn.
Chinese companies, especially tech and gambling companies have opened plenty of new offices in Manila in the past years. These offshore gaming firms had a big impact on the exceptionally low vacancy rates in Manila’s central business district, despite the increase in supply.
There’s been a continuous rise of Chinese investors, driving the demand for property and pushing prices upwards. The companies don’t only buy or rent office space in business areas like Makati, but also buy residential properties for their employees.
Business Process Outsourcing (BPO) is also an important pillar of the economy and one of the country’s fastest-growing sectors. Numerous foreign companies target Philippines’ young and English-speaking talent pool.
The industrial property market is expected to see strong growth at the same time as the need for flexible workspace, such as co-working spaces, will increase significantly in the coming decade.
The residential property market is still stable and prices continue to rise. According to Colliers, the average price for 3-bedroom luxury condominiums rose by more than 15% in 2018, to USD 4,371 per square meter.
Thus, it outperformed all previous years since 2013.
Having said that, it’s important that you buy in the right project and area as we’ve seen issues with oversupply of units and high vacancy rates.
According to JLL, the increased demand for residential units mainly come from young local professionals, upgrading families, and High-Net-Worth-Individuals (HNWIs) from overseas. We also see increasingly high remittances from Overseas Filipino Workers (OFWs).
Looking at condominiums, around 20,000 units were completed in the second quarter of 2019 with most of the supply allocated to Taguig and Makati. Pasay City will also see much growth until 2021 thanks to the increased investments in the Bay City.
From 2019 to 2021, Colliers International Philippines predicts that 8,300 new condominium units will be built yearly, amounting to 142,000 units by 2021. That’s a 33% increase compared to 2017.
In addition to Manila, we also see increased activities in emerging cities outside of Metro Manila, including Cebu, Iloilo, and Davao. Firms now outsource to other parts of the Philippines.
This will most likely have a positive impact on the local residential markets in the long-term.
Property prices have increased much in Manila over the years. Below you can see the year-on-year price increase for 3-Bedroom Luxury condominiums in Makati from 2013 to 2018:
Overall, prices increased by 5.7% on average nationally in 2017, where we saw the highest increase for duplex houses, followed by condominium units. Prices for single-detached/attached houses fell slightly.
There was also a considerable difference in price increases in the NCR (National Capital Region) and areas outside of the NCR. In NCR, residential property prices increased by 8.8%, but the price increase was merely 3% in the rest of the country.
In 2018, luxury home prices increased by 11.1% year-over-year on average, the largest growth rate among 100 key global cities.
At the end of 2017, there was a growing concern that a housing bubble started to evolve, mainly due to the increased property prices and supply. However, in Q1 2018, the supply decreased significantly.
According to Colliers, the number of new housing units went from 27,000 to 12,700 per quarter during this time. At the same time, the vacancy rates improved much during the first two quarters of 2018.
Even if the economy was the slowest in years during the second quarter of 2019, the economy caught up and the real estate market remains strong.
It’s always difficult to predict when a real estate bubble will occur, but there are no signs that we will see a burst in 2020.
The real estate market seems to remain strong throughout 2020, where the commercial property market will play a vital role. The supply-to-demand remains at healthy levels and see increased investments in emerging cities outside of Metro Manila.
The increase of remittances from overseas Filipinos coupled with increased outsourcing operations from foreign companies all benefit the local market. We also see an increased purchasing power among local professionals where young professionals and wealthier families look for property investments.
The offshore gaming industry is also considered as one of the key drivers of the real estate market, both in the office and residential sectors. In 2018, the gross gaming revenue increased by 9.4%, which represents a flourishing industry backed by Chinese investors and gaming companies.
The Agency for Real Estate Affairs conducted interviews with many real estate experts during the Real Estate Expo in Manila in 2019. They and asked what their views are for the real estate market in 2020.
The results showed a more positive outlook for the property market in 2020 compared to 2019.
It’s always hard to say, but looking at the current climate and in fair terms, no. You might wonder if the continuous price increases seen over the last years tells us that the market has already reached its peak.
This is probably not the case, at least if you look back at the time of the Asian Financial Crisis in 1997. At that time, the property market went through a sharp decline. But if you compare recent prices adjusted by inflation, prices are still around 20% lower compared to 1997.
Looking historically, the market is still far from its historic peak, even if it crashed hard at that time. Having said that, it’s always hard to foresee a bubble and investors should make their investments wisely.
Around 2.1 million square meters of office space will be added until 2020, where a majority will be dedicated to Makati, Pasig, and Taguig.
According to Colliers, 8.600 condominium units will be provided quarterly from 2019 to 2021, while the condominium vacancy rate will remain at around 12-13% during this time. Vacancy rates will remain at around 12-13% during this period.
The increase in rents will stay the same with only a marginal increase until 2021.
There are several reasons why the real estate market continues to grow in the Philippines. Having one of the fastest-growing economies in Asia, I’ve listed some of the main drivers below.
The Business Process Outsourcing (BPO) industry is one of the main drivers of the economy in the Philippines. Thanks to its young and English-speaking talent pool, increasingly more foreign companies turn to the Philippines when looking for outsourcing options.
The industry is predicted to double by 2020 and has grown exponentially. Firms from particularly the US, the UK, and Australia invest heavily in this industry.
The flexible workspace industry is here to stay and will grow tremendously in the Philippines and other Asian countries in the coming decade. It’s said that 30% of all office space will be flexible work-space by 2030.
Colliers believes that the flexible workspace area will expand by 10% at a minimum in the coming three years. Co-working spaces will not only cater to small companies and digital nomads, but also to multinational and outsourcing companies that look for flexibility.
An increased number of Chinese buyers contributes to the current and future growth. According to Bloomberg, the gambling/gaming market has attracted around 100,000 Chinese workers to the Metro Manila area since September 2016.
Philippines is the third-largest recipient of foreign remittances in the world. Overseas Filipinos sent additionally USD 3 billion to their families in 2017 compared to 2016.
With a depreciating peso, and with the increase in foreign remittance, many families now have the purchasing power to buy and invest in the residential property market.
According to market statistics, previous trends, reports by leading real estate agencies like Colliers and JLL, Philippines remains an attractive spot for real estate investments in 2020.
Prices are increasing, the demand is high, and the market is growing at a sustainable pace, which is predicted to remain the same for the coming two years.
The key drivers are: Business Process Outsourcing (BPO) from multinational companies, demand from Chinese investors and other foreigners, increased purchasing power among locals, increasingly more remittance from overseas, and a flourishing gaming industry.
Yields are comparatively high and it’s generally easy to do business. You also have the option to apply for many long-term visas,, allowing you to stay indefinitely, with low requirements.
It’s always hard to predict the future, but with the information on hand, it seems like the Philippines will continue to perform well in 2020.