Of the 7,000 islands that make up the Philippines, most of us are familiar with a handful of locations — Boracay, Cebu, Bohol and Bicol — and we don’t put much more thought into it. But the country could well be Southeast Asia’s stealth superstar, as more and more foreign investors flock there with a new understanding of its key position within the region, both geographically and theoretically. Not surprisingly the Philippines’ real estate market is reaping the benefits.
Like its neighbour Indonesia, the Philippines had a pretty good year in 2013, which should continue in 2014. Heavy financial hitters like HSBC and Goldman Sachs have high hopes for the Philippines, predicting its economy will be the fifth largest in Asia by 2050. The country is the world’s biggest producer of coconuts (so all that trendy coconut water is likely coming from here) and agriculture remains one of its largest industries. But mining, shipbuilding, tech hardware, financial services, tourism and business process outsourcing (BPO) — commonly known as call centres — are quickly eclipsing the traditional industries as the Philippines continues to industrialise. The BPO sector has been pointed to as one of the primary reasons for the speed with which the burgeoning middle class is growing, and for the country’s economic growth in general: call centres added 700,000 jobs to the economy in 2010 and the Philippines now outranks India as the world’s premiere BPO location.
Additionally, with manufacturing on the rise, the industrial sector is poised for a strong year. Japanese firms that have long histories in Thailand have increasingly started looking to the comparative stability of the Philippines as CBRE Philippines chair Rick Santos told ABS-CBN News. Industrial properties are some of the most economical in the region: Bangkok prices are upward of 50 percent higher, and Beijing’s are over three times more.
But it is the aforementioned BPO industry that is truly underpinning the demand for office space, which in turn is driving other property sectors. Metro Manila (which includes Makati, Fort Bonifacio and San Juan) and Cebu still win the lion’s share of multinationals moving in, but as the industry widens, “lifestyle” locations like Clark and Mactan will also reap benefits. Manila’s office rental rates are still the lowest in Asia — and no one wants to chase away tenants by jacking the prices too quickly — but they are rising in the wake of dwindling stock. Overall office vacancy rates for the key Makati district sat at approximately 2.2 percent — 1.6 for premium space — at the end of last year.
As is the case with other states in the region, foreign ownership is restricted to structures; only Filipinos can own land. However, with condominiums the current darling of Philippine property, that’s not too much of an obstacle. Indeed recent Chinese, Hong Kong, Singapore and Malaysian cooling measures have raised the Philippines profile for overseas investors considering Asia. “For the price of one condo in Hong Kong, you could buy 12 here,” said Santos. Jones Lang LaSalle pointed out in its February 2014 Philippine Property Monitor that Bayswater Realty launched its new 45-storey 27 Annapolis in San Juan that quarter. In the same way office developers are picking up their game with regards to premium office stock, so are residential developers. 27 Annapolis “is expected to have around 124 units and is slated to be complete by 2017. Further, the building will feature facilities such as a lap pool, gym and function rooms,” noted JLL.
With so many BPO operators moving into Metro Manila residential development is on the rise. In its fourth quarter market overview, Colliers International noted, “More than 4,400 high-rise residential units were completed in 2013 in the five major CBDs … while 19,700 units will be turned over in the next three years. Seventy-five percent of the units will be located in Fort Bonifacio and Makati CBD, with 85 percent of the units classified as Grade A units.” The vacancy rate in the luxury residential sector hovered around 4 percent at the end of 2013.
The other property option, of course, is resort investments like UK developer Yoo’s Aqua Boracay project. The Philippines may not be at Thailand’s level of branded residential development yet, but the resurgent tourism industry is on the upswing — there was a 9.6 percent rise in arrivals in 2013 over the previous year — despite a raft of natural catastrophes that struck last year.
Healthy markets are those with strong and continuing local demand by end-users and tenants, and right now the Philippines has both. Lest we forget, the country has a wealth of capital that contributes to its economy but which isn’t officially recorded: remittances by overseas Filipino workers. JLL: “The continued inflow of overseas Filipino remittances is expected to support the growth of the property sector.”