The Other City by the BayThe Philippine capital proves there’s more to the country than beaches

Though San Francisco has laid claim to the idea of being the world’s preeminent bayside city, Manila is currently on a mission to challenge that notion. Perched on the shores of Manila Bay, the capital of the Philippines holds a distinct and strangely overlooked position in Southeast Asia. A key strategic location for trade as far back as the 15th century, Manila was often the pawn in international power struggles, be it the Chinese, the British, the Americans, the Sultan of Brunei or the invaders that left the most lasting impression, the Spanish. Since being levelled by one of the bloodiest battles of the Second World War, Manila has been rebuilt more than once to make it the increasingly sparkly modern metropolis it is today.

The metropolitan area — which includes Makati, Quezon and Pasay — has a population greater than 16 million, and Manila proper currently ranks as the most densely populated city in the world. The city has a diverse economy anchored by one of the world’s busiest ports and includes heavy manufacturing, textiles, food processing, commodities processing and vibrant cultural industries such as publishing, filmmaking and sport. Relatively new Makati is the financial heart of the country, but Manila’s renowned nightlife (which some say puts Shanghai’s to shame) attracts approximately 1 million tourists each year, though many are en route to the traditional resort hotspots like Cebu, Boracay and Bohol.

The Philippine economy is a relatively strong performer and actually grew over 3 percent in the third quarter of 2011. However, remittances continue to outpace direct investment as a source for foreign currencies (up 6.3 percent in July 2011) and the Philippines’ status as the world’s exporter of labour is well documented — as are its regular political dramas. Things could be better, but they could also be much worse.

Given all those factors, where does Manila’s urban property market sit? “Currently the investment market in Metro Manila is heavily concentrated on residential condominiums and commercial buildings,” explains Paul Chua, Colliers International’s associate director of valuation and advisory services and head of consultancy and research in Manila. As Chua points out, residential sales licensing is improving (44 percent growth in new high rise projects), demonstrating a shift from houses to higher density condominiums. “If you compare the investment climate from the likes of Singapore or Hong Kong, Metro Manila land values are on the lower end of the spectrum. This shows the upside for investments in the Philippines as the property sector is still undervalued compared to other Asian countries.” Does that make it a Hong Kong or Singapore in the making?

Not quite yet. Chua goes on to note that Philippine law makes investment tricky, and concentrated on local investors for the time being. “The main hurdle for foreign investments is that in the Philippines foreigners are only allowed to purchase 40 percent of land holdings. This, together with the unsuccessful launch of the REIT law, keeps foreign investments at a minimum. Although we do see a lot of foreign investments in other industries and investments in some real estate projects the 40 percent rule limits their scope.”

But for patient investors there is indeed a luxury market to tap into. Manila’s burgeoning shopping and entertainment districts like Ermita and Malate have been given substantial facelifts in the last few years, and major developers are starting to notice and plan projects nearby. “This year was a big jump for luxury market in the Philippines,” says Chua. “With the near completion of the Raffles Residences by Kingdom Hotels as well as the announced Trump Tower (under license from Trump Organization) and the near sold-out Milano Residences (partnership with Versace Homes), both by Century Properties, [we] saw the emergence of the luxury segment in branded residential.”

So what might 2012 look like if all legalities remain the same? Depending on what kind of investment one is willing to make and how much control is or isn’t needed, staying in Manila is an option. “We will see a lot more tourism-oriented developments as the government continues to make strides in their infrastructure projects,” begins Chua. “There will be more mixed-use developments as a key strategy for developers as this will maximise the returns on a large plot of land.” With business on the upswing the office sector is the fastest growing segment of the property market — and it will remain that way. Rental rates in Makati are rising across the board and Colliers expects them to continue doing so into 2012. Not surprisingly, Makati’s luxury residential rates are following suit. “My sense is that the market will remain upbeat with residential offerings, I see more low-cost and affordable buildings outside the main business districts … With the minimum VAT threshold for residential units being adjusted for inflation in 2012, residential units will be more affordable next year.”