Updated: February 23, 2017
Despite real estate long being one of the most dependable investments to make, like all others, it still has its fair share of risks and is not always guaranteed.
Past circumstances like the 1997 Asian financial crisis and the more recent U.S. housing bubble that led to the global recession are lessons that investors remain wary of, resulting in constant analysis of the industry’s foreseeable future. The beginning of each year is when this is most pertinent, with 2016 no different.
While the Philippine economy grew at its fastest for 2015 with a rate of 6.3 percent in the fourth quarter, a report by Colliers International also revealed that that had not been enough to recover the prior quarters’ slower pace, with the year’s overall rate ending at 5.8 percent.
This, coupled with residential development licenses dipping 14.8 percent, makes it understandable why there’d be some hesitation to invest in Philippine real estate this year.
Yet, even if the Philippines’ overall 2015 economic growth rate underwhelmed compared to the year prior, the country’s trajectory remains upward, and some of the reasons why suggests local real estate remaining investible for the foreseeable future.
The continued rise of townships and mixed-use communities make for good investment returns
According to Lamudi Philippines’ research, the continued success of mixed-use developments has led to local developers aggressively expanding their land bank.
The market shows no signs of slowing down, with townships provide the areas they are located in a great deal of improvement, both in terms of aesthetics and livability, as well as increase livelihood for locals.
Notable developers aiming for these developments include Megaworld Corporation, with its McKinley West and Uptown Bonifacio projects in Taguig, the Iloilo Business Park in Iloilo, and the Mactan Newtown in Lapu-Lapu City, among others.
Then there is Ayala Land, which allocated a record capital expenditure in 2015 of Php185 billion, geared toward major projects like Arca South, Alvierra, and Vermosa, and a host of others in lesser scale.
Since there is a limit in developable land in the Philippines’ major metropolitan areas, township development is gradually moving out to other areas in the country, and subsequently increasing their property values.
Expectedly, the investment potential of the areas with upcoming townships have increased, with now being the recommended time to purchase property as values are all but guaranteed to increase in the future.
Property values are consistently increasing
As reported by Colliers, 2015 saw the pace of land appreciation quicken in the final quarter, doing so much faster than the quarter prior.
Major district Fort Bonifacio posted a growth of 4.2 percent to land an average of Php417,000 per square meter, while the Makati central business district increased by 7.9 percent to average Php500,200 per square meter. Ortigas Center, the third of Metro Manila’s major central business districts, on the other hand, grew by 4 percent to reach an average of Php179,500 per square meter.
Values in the country’s major business districts are anticipated to grow between 4 and 5 percent in 2016, indicative of the almost guaranteed return that would result from investing on property in the Philippines’ major cities, despite the limited choices of developable land and the associated higher prices.
Development is expanding outside of the major metropolises thanks to increased infrastructure
As prices continue to increase in Metro Manila, areas around it and other major metropolitan locales are also garnering more interest from the market and similarly increasing in value as development expands outward.
As previously mentioned, more townships are being built outside of places like Metro Manila due to the absence of an abundance of developable land.
While limited infrastructure remains a challenge to the development of external locales, projects such as the Cavite–Laguna Expressway (CALAX) and the Laguna Lakeshore Expressway aim to change that. Primarily addressing traffic, these projects also increases accessibility of various areas which would have been otherwise hard to reach, subsequently increasing investment/development potential of properties that at this point are still modestly valued.
From an occupancy standpoint, common conveniences and overall livability are projected to increase in these areas, where it would only be a matter of time before more businesses want to invest and more home seekers will want to reside in these currently still-in-development locales.
Expectedly, highly urban locales like Metro Manila and Metro Cebu receive a significant amount of infrastructure projects due to their large populations, subsequently helping in the appreciation of property values in the area.
Commercial real estate opportunities abound
Michael Mabutol, the President and Managing Director for Pinnacle Real Estate Consulting Services, was quoted in Lamudi’s real estate market report to have mentioned income generating-assets as the next big opportunity in real estate.
Rentals alone present a vast opportunity for recurring income, with Colliers reporting an annualized growth rate for office property to have been at a rate of 7 percent in 2015, with Makati garnering the highest individual rate at 10.4 percent.
Residential property, on the other hand, also grew, albeit modestly, increasing rental rates by 1.1 percent in the final quarter.
It had also been reported that during the second half of 2015, hotel occupancy rates increased to 70 percent.
While the Philippines’ hosting of the Asia-Pacific Economic Cooperation (APEC) was a significant contributor to this increase, local government has always gone to great lengths to promote tourism in the country, and a significant influx of local and international tourists is always expected to be in search of accommodations and other places to do some spending.
From a labor force standpoint, the Banko Sentral ng Pilipinas reports that revenue from the Business Process Outsourcing industry is set to outpace that from Overseas Filipinos.
This, coupled with the Philippines’ demographic where the number of people within working age will outnumber those who aren’t, makes for spending power that is at its strongest in recent decades. This means more buyers, renters, investors, and simply more spending that leads to recurring income for property owners.
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Note: Lamudi Philippines contributed to the writing of this article.
Is it better to pay in cash or get a loan when buying a land? Let’s say the cash out will be 25% of your savings. Would it be a liquidity risk? Is it better to take advantage of paying it over time when you get a loan?
Thanks for the information. The risk of investing on real estate is just too high and may prove to be unstable but I think the property market this year is going to be better than last year and in the years to come.