“According to global real estate services firm KMC Savills, the government’s economic growth plans will create a positive impact on the real estate industry, possibly continuing the boom in the next six years.”
With its swift-growing market, solid economic fundamentals, and political stability, the Philippines provides immense advantages to potential investors who seek alternative markets amidst the global economic uncertainty. With an average investment growth of 10% and a record-high of 15% last 2015, foreign direct investment inflows are seen to rise even further as the new administration addresses macroeconomic bottlenecks through its agenda. According to global real estate services firm KMC Savills, the government’s economic growth plans will create a positive impact on the real estate industry, possibly continuing the boom in the next six years.
“The economic agenda for the country prioritizes countryside development, infrastructure and agriculture growth, and increased government spending. Pair this with the administration’s goal of positioning the Philippines as one of the top three destinations in Southeast Asia for FDI inflows by 2022, and we see a very positive outlook for the real estate industry,” said Michael McCullough, co-founder and managing director of KMC Savills. “The property sector is continuing its growth momentum, led by the strong office space segment in Metro Manila. The industrial sector, which has long lagged behind, is also beginning to pick up as foreign manufacturing companies show eagerness in opening up facilities in and outside of Manila.”
Among the plans of the new administration is to lift foreign ownership rules from 40 to 70 percent, while also lifting limits on land lease from 25 to 40 years. With the ASEAN integration offering the country participation in global production networks, relaxation of foreign ownership restrictions will appeal to investors who look at the global market for goods and services. KMC Savills Head of Research Antton Nordberg believes that this will further open the country up to competition.
“Relaxing restrictions will attract investors in key industries, where they are presently barred from entering and providing competition,” he said. “The world is taking notice of the Philippines as it is a promising investment destination. Raising the cap on foreign ownership will complement this and will further open the economy up to strategic industries, while also making current investors keen on expanding their foothold in the country. In addition to this, easing restrictions on foreign businesses would bring in more foreign investors in public utilities and other infrastructure that need big capital investments.”
Aside from this, the government’s boost in infrastructure spending and countryside development also opens more potential for Philippine real estate, as infrastructure eases the costs of logistics for industrial firms. “The industrial and manufacturing sectors have been dormant for a long time, but it looks like it could finally be on the rise,” said McCullough. “About 60 percent of FDI applications over the past five years have been directed in the manufacturing sector, and we believe that this high interest will continue given the new administration’s plans. It is, in fact, probable that the industrial sector will be the next boom. We’re optimistic that local consumption will offset the declining global demand, leading to an industrial real estate growth of 6-7% this year and exponentially after that.”
Nordberg agrees that the real estate industry is in a sweet spot. “The Philippines has a strategic location, a large and fast-growing market, and knowledge of English. Growth rates in the industrial segment could even double in the next years,” he said. “Office spaces will also continue to be on the rise, as we have a 40-million strong workforce and cheap labor.”
According to the Philippine Statistics Authority, there were 442 approved building permits in the first half of 2016 or 11.3% of non-residential buildings. Commercial buildings, meanwhile, account for 59.5%, with a total of 2,326 permits issued for the same period.
KMC Savills’ Q2 Office Briefing also reports that Metro Manila has had an impressive real estate performance during the first half of 2016, showing a positive net absorption of 291,000 sq. m during the first six months of 2016. The quarter has also witnessed tightening vacancy rates, reaching 2.9% from 3.7% last quarter. These may increase in the short-term, with the completion of 259,000 sq. m of leasable space by the end of the year.