Will Manila still be a global property investment hotspot in 2021?

In the Global Residential Cities Index published by Knight Frank in 2020 Q1, Manila top the list of 150 cities with a whopping 22% rate of annual growth in the year to March. This is the second consecutive quarter Manila came in first in the list of global cities. There is no doubt that Manila just became a global property investment hotspot given the rapid rising prices of condominiums especially in the luxury segment. However, given the current global situation, will the property market of Manila continue to do well?

Challenges and uncertainties in the property market

Manila’s property market is facing one of the biggest challenge in nearly a decade in the form of a global pandemic. In April 2020, Colliers was quoted in a Bloomberg report saying that Manila’s condominium prices will fall 15% as a result of an economic contraction this year. Asian Development Bank forecasted the Philippine economy will contract by 7.3% in 2020 amid the coronavirus disease (COVID-19) pandemic before growth returns to 6.5% in 2021.

The Philippines Offshore Gaming Operators (POGOs), one of the growth drivers of the property market, are expected to decline in numbers. The Inquirer reported the exodus of POGOs will empty more than a tenth of Metro Manila office space and condominium unit. This may put short term pressure on rental yields for investors holding condominium units in Metro Manila. Nikkei Asia however presents that many Chinese property investors have not completely left the market and are waiting out for bargains amid falling real estate prices.

Signs of resilience in the property market

Despite the odds, property interest in key areas seem to be holding well. According to survey done by online property portal, Lamudi, investments in property is thought to be a safe haven during a crisis. In Lamudi’s report, 26% of the leads were looking for a property to buy or rent from Quezon City from January to the first half of June. Following are Makati (12%), Pasig (10%), and Taguig (9%), all NCR cities with a central business district. Three CBDs are in Quezon City: Eastwood City, Araneta City, and Triangle City. Makati City’s CBD is in the Ayala Makati area. Meanwhile, Pasig City has the Ortigas Center, and Taguig City has Bonifacio Global City.

Figure 6. Top Viewed Cities on Lamudi January-1HJune 2020

The central bank of the Philippines reported residential real estate prices of various types of new housing units rose by 27.1 percent in the second quarter of 2020 despite the onset of the coronavirus pandemic. In the quarterly, Residential Real Estate Price Index poll, banks cited higher demand for high-end projects, which drove the average price per square meter upwards. In Metro Manila, all types of housing units registered an increase in prices in the second quarter of  2020. Prices of condominium units rose the fastest at 30.1 percent.

Favorable drivers of the property market looking forward

Geopolitical tensions could benefit Philippines

Geopolitical environment have changed dramatically since U.S. and China gone into a trade war. Global businesses are starting to rethink their supply chain strategy. The idea of China Plus One is rapidly developing from a buzzword into reality as companies are adapting and relocating their low cost manufacturing locations and outsourced processes. Southeast Asia is seen to be a beneficiary of the China Plus One strategy and Metro Manila in the Philippines is well-positioned to capitalize on this opportunity with low cost operations and English speaking work force. Business process outsourcing (BPO) is predicted to grow further and take over some of these office space POGOs are leaving behind

Infrastructure building will create jobs and increase efficiency

The current government under President Rodrigo Duterte is building tons of infrastructures. The President’s “Build, Build, Build” campaign is spending 8.4 trillion pesos to accelerate growth and create 12 million new jobs during his term. These infrastructures includes expressways, railways, subways, bridges and airports within Manila. These infrastructures will greatly alleviate the infamous traffic congestions and provide a timely boost to the economy in during the pandemic. The country is starting to see these projects bear fruits. As of this writing, Skyway 3 has just been completed, cutting travel time between North Luzon Expressway NLEX and South Luzon Expressway SLEX from 2 hours to just 20 minutes. Indeed, Filipinos are calling this period a golden age of infrastructure.

OFW remittance contracted less than projected

The industrious Overseas Filipino Workers or OFWs contribute to some 10% of the country’s GDP. Data from the central bank of Philippines, Bangko Sentral ng Pilipinas (BSP) showed that remittance from OFW reach an all time high of 33.5 billion USD. Over the decade, the amount of remittance had almost doubled and not showing any signs of relenting. Granted the pandemic may put a dampener of the remittance sent in 2020, the central bank remains upbeat on the prospects of dollar remittances from the Philippines’ estimated 10 million expatriates. In a message to reporters, Bangko Sentral ng Pilipinas (BSP) Gov. Benjamin Diokno said that, although overseas Filipinos would be sending home fewer dollars this year, remittances from Filipino workers contracted by only 2.6 percent, which is lower than BSP’s revised forecast of negative 5 percent.” Many of these OFWs are also buying or investing in property in their home market.

Young population will continue to propel GDP growth

The median age in the Philippines is estimated at 23 years, or just half of Japan’s 47 years. Philippines is entering a demographic window, a period when a significant portion of the population comes of working age. With the number of productive working-age population at its highest, the economic growth accelerates sharply . With a bigger workforce that can generate higher income and a less dependent population, the government can allocate its resources for economic development and social services (education, health and nutrition). This is also often referred to as the demographic-economic window of opportunity. Investors entering the property market for the longer term can capitalize on this opportunity.

The property market in Metro Manila faces headwind but will prevail.

In summary, the global pandemic and geopolitical uncertainties has stalled the spectacular property market performance in Metro Manila. We see this as a chance for the market to catch a breather, as new units are absorbed and short term speculators are weeded. Infrastructure building, OFW remittance and a young working population bodes well for the country’s economy in the coming years. Investors buying into the Philippines economic growth story will reap benefits taking a longer term perspective. Metro Manila, capital of the country will no doubt be in the heat of action and on the crosshairs of astute property investors globally.

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