Not only is there a serious shortage of water in Metro Manila.
There is also a serious shortage of land – for residential, commercial, industrial, warehousing and factory space. Office and residential housing are also in short supply. Demand is outpacing supply.
Consequently, land prices, office rent, and residential housing prices in the national capital have seen the highest increases in Asia, outpacing the inflation spiral of traditionally expensive properties in Hong Kong, Singapore and Tokyo.
The deficit and the high prices in Metro Manila are likely to last over the next five years, continuing an explosion in Philippine property that began in 2006, for a solid decade and a half of boom.
Regional hubs
The supply deficit in properties and their price spiral are not unique to Metro Manila.
Key regional hubs like Clark, Cebu, Iloilo, Davao, Puerto Princesa and San Vicente (the next Boracay) are experiencing a property boom not seen in the last half century.
In north Luzon, Clark will provide the biggest supply of office space in the next five years. Down south, the resort town of San Vicente (Palawan) has doubled beach front property prices to P10,000 per sqm.
“We are seeing all-time high in real estate values across all sectors in 2019,” reports David Leechiu, CEO of the property consulting company bearing his name. “This is the biggest real estate boom in the history of this country,” Leechiu gushes.
For office, the best bet is still Bonifacio Global City where land now sells at P1.3 million per square meter. In Makati, commercial land now sells for P1.5 million per sqm., up from P3,000 per sqm 25 years ago.
For residential, Dasmariñas in Makati has seen an increase to P400,000 per sqm from P300,000 last year.
Drivers of boom
The boom is fueled by three sectors: 1) Chinese investors and workers; 2) overseas Filipino expats or OFWs; 3) business processing outsourcing and IT.
Rudy, a realtor, bought 45 units of condo residences at SM’s Mall of Asia area. He now rents out the units – P40,000 a month for 20 square meters; P50,000 to P55,000 for 32 sqm; and P65,000 a month for units over 32 sqm. Nearly all his renters are Chinese – workers in online gaming shops nearby and whose employment contracts include board and lodging. Meanwhile, condo units have appreciated 30% to 50% in value. “There are no sellers,” says Rudy.
“The Chinese have made a significant impact on the market,” notes Leechiu. He suggests that the government should allow foreigners to have at least 50% equity in property. (The Constitution limits foreign ownership of land to 40%). “A 10 to 11 percentage-point increase in equity ownership (to 50% or 51%) will have a substantial impact and push the boom for another 10 years,” he says.
“Allowing the foreigners to come in is the only way to solve our poverty,” David argues. “The locals have had a 40 to 50-year headstart in the property market and yet we still have this poverty.”
Leechiu notes “a surge in mainland Chinese buyers in the residential condominium sector and we anticipate for this to continue for the long term especially with rekindled diplomatic ties between Philippines and China.”
Leechiu sees resurgence in the IT-BPM industry because of the rise of hourly wages in the United States from $7 per hour to $15. IT-BPM has diversified in the past years and have returned to the country for expansion.
In Leechiu’s Market Report dated March 2019, here are the highlights in the current Philippine property market:
• The highest land value in Bonifacio Global City at P1.3 million per sqm and the highest condominium price at P540K per sqm in Shang at The Fort.
• Offices at Bay and Alabang still enjoy the lowest vacancy rate at 1%— translating to record rental rates with P1.2K/sqm/month in the Bay and P750/sqm/month in Alabang. Makati City and Bonifacio Global City will have very low supply of office space by 2021.
• There is only 216K sqm of PEZA accredited space so far this year in Metro Manila against forecast demand of 450K sqm from the IT-BPM industry – this deficit will be the biggest hurdle for growth in IT-BPM expansion – there are 29 buildings (totaling 544K sqm of vacant office space) under PEZA application across Metro Manila. LPC pleads for the government to approve more PEZA zones in Metro Manila and across the Philippines. Quezon City has the largest supply of PEZA Accredited space from now until 2023.
• The Philippines has recorded more than 200K sqm of office demand as of 1Q 2019. The IT-BPM industry led the Philippine office demand with 115K sqm or 56% of the 1Q 2019 take-up followed by the Offshore Gaming industry with 36K sqm. With Metro Manila making 92% (187K sqm) of that demand. Regional districts have started strong with Clark, Tarlac, and Davao leading the provincial sites.
• Offices at Bay and Alabang still enjoy the lowest current vacancy rate at 1%. Makati City and Bonifacio Global City will have a very low supply of new buildings coming in by 2021. We are seeing record high office rental rates across the districts.
Build, Build, Build
For his part, Finance Secretary Carlos Dominguez believes the government’s tax reform program and “Build, Build, Build” infra have contributed to the economic boom.
He said:
The tax reform ensured robust and recurrent revenue flows to fund our infrastructure investments and social services. Investments in infrastructure, as we all know, have the highest multiplier effects.
The 75 flagship infrastructure projects under Build, Build, Build program will improve the efficiency of the local economy as well as open many new opportunities for investments.
The Metro Manila Subway Project is, by far, the largest single infrastructure project we will be undertaking. It is also the recipient of the largest ODA we have ever received from Japan. With the generous support of the people and the government of Japan, what was once considered a dream subway has now become a reality for the Philippines.
Tax reform
Apart from raising the much-needed additional public resources, TRAIN tax reform has been a 100% successful in putting more money in the pockets of our consumers, ensuring strong domestic demand in our economy. 99% of individual taxpayers enjoy reductions in their personal income tax rates.
Filipinos earning below $4,500 annually are now exempted from paying personal income taxes while workers earning above it now receive about a month’s extra take-home pay each year from the deductions in their tax rates. To emphasize that point, by correcting the tax rate for our average wage earners, we have basically given out a 14th month pay annually.
Robust real estate sales
The robust double-digit growth in sales and the high-profit margins of publicly-listed retail giants and real estate companies in 2018 prove that Filipinos have significantly increased their spending power as a result of last year’s implementation of the tax reform law.
In the real estate industry, Ayala Land, Inc., the Philippines’ premier and oldest property company engaged in the planning and development of large scale, integrated estates, posted sales amounting to $3.11 billion in 2018, 18% higher than the 2017 level. It reported net income of around $558 million in 2018, or an increase of 16% from the previous year.
SM Prime Holdings, the Philippines’ owner of the biggest and most number of Malls as well as the second largest high rise condominium developer, posted sales of almost $2 billion in 2018. This is 17% higher than the 2017 level. Its net income was also up by 17% at $616 million last year. SM Prime reported that growth in its malls operating income was driven by its new mall openings in the provinces.
The second largest bank in the country in terms of assets—Metrobank, reported its interest income increasing by 13% to almost $1 billion in the first nine months of 2018 on the back of 16% customer loan growth.
Metrobank reported net income of around $352 million in the first three quarters of 2018, or an increase of 18% from the same period in 2017.
The second package of tax reform program includes the reduction of corporate income tax rates and the rationalization of fiscal incentives. DOF will gradually reduce the corporate income tax rates from 30% to 20% to bring us closer to the regional average.