Philippines Property Market

The Philippines has been growing at a fast pace of late, and this has contributed to a strong property and equity market. Its apparent that the economy is growing on global recognition that the Philippines has turned a corner. I see a rosy future for the Philippines with the following reservations:
1. The Philippines economy will only remain strong as long as the Peso keeps rising. The peso is being supported by repatriation of earnings by Filipinos abroad
2. The Philippine peso will only continue to rise if it can boost productivity and its terms of trade. The laxed 'work culture' in the Philippines is a testimony to Spanish influence, and Chinese ownership of most 'influential' business does not offer an attractive model for improvement.
3. There are 3 sectors which are critical to boosting exports - mining, agriculture and call centres. The mining/commodities boom started in earnest in 2001, yet the Philippines really has failed to position itself. There is constant harrassment of miners in this country by environmentalists, politicians and other collectivists. There seems to be an unwillingness on the part of Filippine companies to engage foreign companies to explore their title, which they have long held. It has helped that the Philippine government now requires title holders to meet expenditure commitments. Agriculture is another weak sector, largely because of the lack of institutional support for farmers. One positive development has been the development of a system of 'roll-on, roll-off' ships to facilitate cheaper cartage of goods between islands with multipl handling. These vessels are able to transport farmer vehicles to market. Clearly the 'work ethic' in the Philippines is the biggest problem for foreign investors in food production. In call centres the Philippines has a natural advantage, though I was amazed to realise that Filipinos English is not so good. I had always assumed it was good because they display good fluency and alot of confidence. But they win hands-down over the Indian call centres.

The Philippines property market has some similarities to Japan, but otherwise its more western in its institutional framework. There is one important exception. The ease with which land is offered for development in the Philippines means that there is a great deal of surplus land, though its mostly controlled by the developers (eg. SM, Robinsons, Ayala, Filinvest, etc). With property magnates driving development in this countriy, its hard to make good investment decisions. Nevertheless I offer the following advice:
1. Buy apartments for lifestyle reasons - not for investment yields. Apartments on the surface look like great investments because their prices are going up. But having looked at the offerings I would caution. There is some inflation in the asset price rises, rents tend to fall as buildings age, the quality of the construction, particularly the facade is not particularly good. The best buys are apartments connected to the bigger, newer shopping malls and rail networks, as well as those along the waterways.
2. Buy land based on existing patterns of land usage: There is a lack of clear planning in the Philippines because the government appears to adjust its development plans to suit developers. You can however grasp a sense of future developments for railways and even shopping malls, so you should be attempting to buy land in those areas. You need to anticipate where future buying will occur.
3. Anticipate future changes in investment: The biggest change in the way Metro Manilans will live is likely to be in transport. It seems likely that pollution is here to stay for another 20 years, but regardless there is another compelling reason to buy outside Manila. They are: Beaches and cool mountain retreats. We can already see that property prices in Tagaytay and Baguio are already very high, and we can expect prices will rise as transport conduits improve and incomes rise. But these are not the only areas offering potential. Places like Antipolo and Lipa are relatively 'cool' places to live. Beaches in the Philippines for expats are nothing to write home about...even Boracay is just OK. There just isnt enough 'wave action'. But thats OK, there are other ways to create a lifestyle, and at the end of the day, you are looking for areas with a 'high-end classy' trend going on. Alabang is a little like that, but is too controlled by developers. It really lacks atmosphere.
4. Identify future development centers and corridors: In the Philippines, most commercial development seems to be centered on Manila, Batangas and Subic in Luzon, and Cebu-Mactan in Cebu. Clearly these areas have infrastructure advantages that make living or buying along their corridors attractive. These are the first areas to attract road upgrades and rail lines. If you are buying for lifestyle reasons, take care to avoid busy centres, but you can still focus on satellite centres of development, which are cheaper.

Expect the property market to get stronger in the Philippines as the investment fundamentals have never looked better. The attraction is the sustainable inflow of earnings from Filipinos abroad that is driving an investment and spending boom. The implication of this is a stronger peso and rising incomes which is boosting foreign and domestic demand for property. New investment is creating jobs, and combined with a strong peso, ensuring that inflation stays low. The implication is interest rates are going down as inflation falls. The Philippines has had a very weak currency and high interest rates for so long, that there is pent up demand for property. For that reason, as interest rates fall and the capacity for Filipinos to buy improves, expect banks to be offering much cheaper and competitive loans. That will spark alot of investment and rising property prices, just as we have seen in other countries.

I just dont think the property boom will be as big as other countries because the Filipino work culture and Chinese anti-intellectual management culture in the Philippines will constrain improvements in productivity. for foreign investors, I would be pouring into Vietnam when they open up that market. Focus on the estuaries (for land) and lakes (for apartments) around Hanoi! I particularly like the estuaries because I can see in a few decades there will be house boats plying the Red River to get to the Halong Bay area. This area must be one of the most under-rated tourist attractions in the world. A few years ago I stayed on Catba Island for just $US4/night....actually $2 because I was such a tight bastard then, that I sharedwith an Australian I met on the ferry.

But back to the Philippines market. If you are going to buy property here, take a look at the offerings of foreclosed properties. Not the over-bid listings by the major universal banks that advertise in the newspapers, but the smaller rural banks that dont even have websites or marketing departments. They work through local agents with no idea about property. The serious agents are in Metro Manila. But there are opportunities in rural areas. eg. Filipinos can buy land in estates for P2500-6000/m2, but actually there are more appealing offerings.