AR 517B- Housing and Human Settlement

RSW-PR-01
“ISSUES AND TRENDS IN THE PHILIPPINE HOUSING INDUSTRY”
Date Issued: 22 January 2020
Date Submitted: 27 January 2020
References:
 Bondoc, J.R. (2019 December 19). Top 10 Forecast for 2019: Flexibility is the name
of the game [Web log post]. Retrieved January 26, 2020, from
https://www.colliers.com/-
/media/files/colliers%20manila%202019%20outlook%20final.pdf?la=en-gb
 Remo, A.R. (2017 January 21). Hurdling Challenges in Real Estate [Web log post].
Retrieved January 26, 2020, from https://business.inquirer.net/223262/hurdling-
challenges-real-estate
 Velasco, D. (2019 May 9). Philippine Real Estate Market Trends for 2019 [Web log
post]. Retrieved January 26, 2020, from https://www.prosperna.com/philippine-real-
estate-market-trends-for-2019/

YU, DENISE ANGELI R.

PHILIPPINES HOUSING TRENDS

1. Infrastructure-led government spending to spur property

“Colliers believes that property firms will be more aggressive in acquiring parcels of land in
Northern and Southern Luzon and ensure that they are strategically positioned, especially in
Pampanga, Bulacan, Cavite, Laguna, and Batangas. Developers’ expansions should be
supported by the completion of rail, expressway and toll road projects between 2020 and
2022 that is planned to pass through these provinces,” Colliers said. It expects the
government’s plan of frontloading infrastructure projects driving the country’s property
sector in and outside Metro Manila. It predicts a more pronounced dispersal of office and
residential developments outside metro in 2019.

2. Metro Manila office vacancy to remain at sub-6 percent

“We see strong demand being carried over to 2019, with projected demand to move in step
with the new supply. Over the next 12 months, Colliers sees the delivery of nearly 1 million
sqm of new office space and take up of about 910,000 sqm. This should yield a vacancy of
5.4 percent by end-2019. About 30 percent of office space due to be delivered in 2019 is
already about 30 percent pre-leased,” Colliers said. Colliers said it is expecting Manila office
vacancy to extend at around 5 percent by end-2018. Colliers sees the knowledge process
outsourcing (KPO) sector — which provide higher value outsourcing services such as health
information management, software engineering, and finance and accounting — driving office
demand in the next 12 months. Such demand is increased by the presence of top technology
firms in the country such as Google.

3. Offshore gaming to expand outside Manila

For 2019, Colliers predicts that offshore gaming firms will occupy 200,000 sqm to 300,000
sqm of office space, representing as much as 23 percent of the projected take-up in 2019.
“Aside from expansive office space and residential availability, offshore gaming companies
need to operate in cities that have airports offering direct flights to China or areas that have
direct access to and from Manila. This is one of the reasons why these firms are starting to
look at a number of cities in Southern Luzon,” Colliers said.

4. Flexible workspaces to grow by 10 percent annually

The tight Metro Manila office market, coupled with the emergence of a mobile workforce
and firms’ drive to bring down operating costs, has given rise to another office sub-segment,
which is the flexible workspace.
“We see Manila’s flexible workspace stock expanding by at least 10 percent per annum over
the next three years on the back of continued rise of micro, small and medium enterprises ;
influx of multinational corporations and outsourcing firms looking for plug-and-play offices;
and the implementation of a set of policy reforms likely to improve the country’s business
climate,” Colliers predicted.
Colliers also added that “Over the next three years, we expect more flexible workspaces to be
offered in malls, hotels, residential towers and dormitories for professionals.”

5. Manila Bay area to dominate Metro Manila condo price, supply

“In 3Q 2018, the Bay Area overtook Ortigas Center as the third largest submarket in terms of
condominium stock, with 200 more residential units available compared to Ortigas Center’,
said Colliers.
Colliers forecasted, that in 2019 more than 6,000 new condominium units in the Bay Area out
of the projected 15,000 new units will be completed. By 2021, Colliers also expects Bay Area
to overtake other submarkets such as Makati central business district.

6. Luxury residential market to remain strong, price to breach P400,000 per sqm

Colliers sees the luxury condominium demand to remain strong because Metro Manila has
one of the most attractive rental yields in the region, with relatively low prices and sustained
demand from affluent Filipinos, foreign investors and offshore gaming firms.
“The luxury market in the country’s capital is relatively small but demand has been stable
over the past few years. The projects being leased out or sold to the secondary market
continues to receive strong demand.”,Colliers explained.
The restrained demand also encourages mid-income condominium developers to scale up and
construct high-end projects in emerging business districts such as the Manila Bay Area. A
project between SM Prime and Federal Land that will be built along Ayala Avenue in Makati
is expected by Colliers International to breach the P400,000-per-sqm price point.

7. F&B to further dominate retail absorption

The food and beverage (F&B) segment will remain the major driver of retail space absorption
in Metro Manila, and Colliers sees this being sustained in over the next 12 months. The
continued inflow of remittances from overseas Filipino workers and rising disposable
incomes, coupled with a stable macro-economic backdrop, and a number of foreign F&B
brands opening their branches in Manila helps in contributing to the greater retail space
absorption across the country’s capital.

8. More foreign players in home furnishing, luxury retail in the Bay

Colliers said it forecasts sustained demand for home furnishings given the increasing
popularity of condominium living in Metro Manila. Nearly 60 percent of projects launched in
the third quarter of 2018 are studio and one-bedroom units.
Colliers pointed out that prices of pre-sale condominiums in the reclaimed business district
have been rising by about 30 to 80 percent since being launched early last year. This,
according to Colliers, indicates the spending profile of tourists and foreign investors in the
area.

9. More strategic land banking, township development in QC

The groundbreaking for the Manila subway, the most expensive project approved by the
government, is planned in December 2018, with the first three stations in Quezon City—
Mindanao Avenue, Tandang Sora, and North Avenue— and is forecasted to be completed in
2022.
“Colliers sees Quezon City benefiting from the planned subway as seven of the 13 stations
are planned within the city. With improving connectivity given the construction of the Manila
Subway, MRT-7 and the common LRT-MRT station, we see Quezon City becoming more
attractive for mixed-use projects that feature office, residential and retail projects,” Colliers
said.

10. Upgraded infrastructure to spur Cebu leisure

Aside from the modernized and expanded airport, Colliers sees Cebu’s tourism sector
growing due to a number of infrastructure projects which should widen the new opportunities
in the countryside. The completion of these projects should prompt demand for more hotels
and serviced apartments outside the Metro Cebu.
In the next 12 months, Colliers forecasts property firms to take a more aggressive approach in
exploring parcels of developable land especially in the Mandaue and Mactan areas.
According to Colliers International, we can look forward to new factors coming into play,
driving demand and pushing growth across the Philippine real estate sector this year. These
apparent Philippine real estate market trends are predicted to push industry players in the
property sector to adapt to these changes, which would better suit the market.

11. Manila Bay Area to dominate Metro Manila condo price and supply

The completion of new condominium units in the Bay Area has been aggressive since 4Q
2016 as developers respond to strong demand from a mix of local and Chinese investors. In
3Q 2018, the Bay Area overtook Ortigas Center as the third largest submarket in terms of
condominium stock, with 200 more residential units available compared to Ortigas Center.
We expect Bay Area to continue to overtake other submarkets such as Makati CBD by 2021.
This rapid growth of the Bay Area has been accompanied by the increase of pre-selling
condominium prices in the area. In 2019, Colliers believes that pre-selling condominium
prices in the Bay Area will remain among the most expensive, with prices in the reclaimed
business hub projected to breach the PHP300,000 (USD5,700) per sqmetre mark in 2019.

12. Luxury residential market to remain strong, proce to breach Php400k per sq. m.

Colliers believes that luxury condominium demand should remain strong due to Metro
Manila having one of the most attractive rental yields in the region with 5.1%, relatively low
prices, and sustained demand from affluent Filipinos, foreign investors, and offshore gaming
firms. The luxury market in the country’s capital is relatively small but demand has been
stable over the past few years. The projects being leased out or sold to the secondary market
continue to receive strong demand. This entices affluent locals and foreign investors to look
for similar developments in Metro Manila. In fact, the pent-up demand encourages mid-
income condominium developers to scale up and construct high-end projects in emerging
business districts such as the Manila Bay Area. SM Prime is partnering with Federal Land to
build a luxury residential project on a 3,500 sq metre(37,700 sqft) lot between Ritz Towers
and Discovery Primea along Ayala Avenue in Makati CBD. Colliers believes that the project
may breach the PHP400,000 (USD7,400) per sq metre price point.

13. More foreign players in home furnishing and luxury retail in the Bay
We see sustained demand for home furnishings given the increasing popularity of
condominium living in Metro Manila. Nearly 60% of projects launched in 3Q 2018 are studio
and one-bedroom units. Hence, we encourage foreign retailers to focus on the furnishing
requirements of the more compact condominium units.

ISSUES AFFECTING THE PHILIPPINES HOUSING INDUSTRY

1. TRAIN Law

The Tax Reform Acceleration and Inclusion (TRAIN) Law took effect in January 2018,
which had significant effects on the real estate sector.

For one, Estate Tax is now at a standard rate of 6 percent; prior to the TRAIN Law, it ranged
from 5 to 20 percent, depending on the value of the property. Moreover, properties valued at
P10 million and below are now exempted from paying Estate Tax.

The Donor’s Tax has also been pegged at 6 percent. Previous rates were at 15 percent of
property value (if the property is donated to immediate family members) and 30 percent of
property value (if the property is donated to strangers).

On the flipside, brand new properties valued at P1.5 million and higher (for vacant lots) and
P2.5 million (for house and lots and condominium units) are now subject to Value Added
Tax. Previous thresholds were at P1.9 million and P3.2 million, respectively.

2. Bigger demand for co-working spaces

According to a BusinessWorld report, there are 1.3 million freelancers in the Philippines as of
March 2018, and the figure continues to grow. This market will be looking for workspaces
designed with connectivity and flexibility in mind, presenting a challenge to property
developers and businesses in this particular niche to fill the gap.

3. Rising interest rates and the weakening peso

When inflation rates are high, the Central Bank attempts to manage its effects by increasing
interest rates. Higher interest rates make it more expensive to borrow money, which reduces
the amount of money circulating in the market. This, in turn, will eventually slow down the
rise in prices.

While increasing interest rates may prompt real estate developers to increase mortgage rates
and discourage potential buyers, fund managers are confident that banks could not raise
mortgage rates immediately and in full because the market is very competitive.

The weakening peso, on the other hand, is giving foreigners and overseas-based Filipinos the
financial power to invest in real estate. In fact, home reservations jumped 23 percent to P215
billion ($4 billion) in the first half of 2018 for the nation’s six biggest developers, according
to data from AP Securities.

4. Build, Build, Build Program

Over the next decade, the Philippine government will be spending an estimated $180 billion
on infrastructure projects, which will be comprised of six airports, nine railways, three rapid
bus transits, 32 roads and bridges, and four seaports. The ambitious move is seen to
encourage countryside investments, facilitate the efficient movement of people and goods,
and create more jobs – all good news for the real estate sector.

5. Warmer ties with Asian neighbors

As the Philippines strengthens its diplomatic ties with countries such as China and Japan, the
country is expecting an influx of international visitors and joint partnerships in real estate
developments all over the country.

“We see greater potential for partnership with foreign developers as Colliers Philippines has
observed more inquiries from firms based in Hong Kong, Japan, and mainland China,”
Colliers said.

All in all, these issues are more of challenges for our real estate players to branch out and
work double time to cater to market demands and create a level playing field for developers
to take advantage of the massive opportunities that are in store for them. At the end of the
day, all these efforts will ultimately contribute to a more robust local industry that will
contribute to the country’s economic growth and sustainability.

Prospects of other urban centers

As I was extolling the dynamic changes in Metro Manila today, some you no doubt wondered
whether the property boom will reach the other urban centers and regions of the country as
well.
If the growth momentum is sustained, there is no question that it will spread and be sustained.
But it’s a very big if – because as you know the growth figures from the first year of the
Aquino administration have not impressive.

Under spending and parsimony have been the hallmark of the administration’s economic
policy and philosophy. This has resulted in the contraction of the Gross Domestic Product
(GDP) to just a little over 3 percent. Infrastructure, from lack of projects was starved of
funds. And this lack of government spending swelled the ranks of the unemployed among us.

The much-touted Public-Private Partnership program of the government has not taken off.
Not a single project has been approved or bided out so far. And yet the country is looking to
the PPP as the vehicle for modernizing the nation’s infrastructure.

As with other industries, infrastructure modernization is indispensable for the growth of the
real estate industry. Property projects mushroom in tandem with good infrastructure, because
people want their homes to be near their workplaces. And shopping malls would be
meaningless without good infrastructure.

The latest word from Malacanang palace is that the government is now accelerating the
release of funds in the second semester of the year. This is good. But economists say that it is
probably already too late to change the full picture of GDP for this year.

6. The housing shortage

Although I remarked earlier on the growth of the residential sector of the real estate industry,
the fact is that the boom is mainly occurring in the middle-class and high-income segment of
the market.
The larger reality is that there is a huge housing shortage in our country. The housing backlog
is estimated to reach 5.8million housing units by 2016. In metro manila alone, the total
backlog has been projected to number about half a million housing units the housing problem
is manifested by the proliferation of slums and informal settlements in our urban areas.
Recent government estimates project that a third of our urban populations are slum dwellers.

Government allocates less than 1 percent of the total national budget for the housing sector –
which is less than one-tenth of a percent of GDP on the average. This makes Philippine
public spending on housing one of the lowest in Asia.

The government has identified housing as a key part of its new Philippine development plan.
It sets the following as key objectives:

– Provision of housing infrastructure,

– Integration of basic services, and
– Implementation of appropriate housing/construction standards.

Development of a financing framework for relocation and resettlement of slum dwellers.

The dream of most national leaders is to turn their country into “a nation of homeowners.”
But the gap between the dream and its realization is colossal. Even President George W.
Bush could not realize it in America. The housing problem resulted in th us government
abolishin fanie mae and freddie mac – which is the equivalent of out Pag ibig fund.

At the root of our housing shortage is this basic reality: the majority of Filipino households
cannot pay the cost of their housing needs. The minimum housing cost of p150,000 per unit is
3.8 times the yearly wages of an unskilled laborer. A p250,000per unit housing cost would be
3.1 times the annual income of an employee earning p6,700 per month.

The average housing price appreciation in the Philippines is 32 percent per year – the highest
in the major cities of Asia.

Compounding the problem is the high cost of land in our urban centers where slum dwellers
proliferate.

Likewise, we have failed to develop coherently a strong rental housing market.

Socialized housing is the principal policy and program of the government for meeting the
huge housing backlog in our country.
Our efforts to develop long-term financing for housing – in order to offset the high unit cost
of housing relative to income – are still not successful. Long-term funds for housing are
constrained and highly dependent on government social security systems.
Government housing finance programs have been unsustainable. Sadly, graft has marked the
approval and release of loans to the low-income sector.

Creation of Housing Department

The need to address the huge housing shortage, and the perennial inability of our low-income
households to pay for the cost of housing is the principal reason why we are discussing in
congress today the proposal for the establishment of a new department of housing and urban
development. It was tagged as the top priority in the Ledac meeting called by President
Aquino several months ago.

The creation of such a department will naturally call to mind for many the ministry of human
settlements, which sought to creates with a holistic approach to housing and urban
development. Along with addressing the need for shelter, it envisioned the provision of basic
services.

As everyone will recall. The Human Settlements Department was among the first national
agencies abolished in 1986. In its place was created the Housing and Urban Development
Coordinating Council (HUDCC), which became a mere coordinating agency, without
executive powers and no implementing responsibilities.

I wish we could say that the housing agency, strategy and program of the government
progressively became better and more effective in the last two decades.
But it has not. The core agencies are weaker and less effective. While Pag-ibig has
commendably survived and become a veritable social-security system for housing, it is today
not lending very much for housing. Many developers and prospective homeowners turn to the
commercial and thrift banks for financing socialized housing projects.

Comprehensive Housing Policy

In deliberating on the creation of the new housing department, I believe congress and the
nation should see this as an opportunity to develop a comprehensive policy and strategy for
meeting the housing needs of our people.

The end result should be a housing department that can tackle the housing challenge head on,
and make a significant dent on the problem.
We should shape a housing policy that is realistic, implementable and sustainable. Declaring
that we want our country to become a “a nation of homeowners” may sound very enticing.
But it’s an unrealistic and unaffordable dream – for now.

The equally huge need for rented housing – which is the best option for millions of our
countrymen. We should aim to build a strong housing sector which offers homes at
affordable rents and decent rights for tenants.

Finally, our housing policy and strategy must address the improvement of our slum
communities and the problem of homelessness in our society. Our collective vision of a better
country to live in will be empty if it did not include within its scope the slum dweller and the
homeless.
I started my remarks by saying that we are witnessing today strong recovery and growth in
the real estate industry in our country.

Key sectors of your industry are experiencing a boon with Metro Manila in the lead. Slowly,
this boon is spreading toward other urban centers across the archipelago.

The boon has not banished the huge housing backlog from our society. The shortage still runs
into the millions, and it will take many years before the gap can be fully filled.

Socialized housing as the principal government response to the housing needs of low-income
groups is still not quite successful. It cannot measure up to the demand.
The creation of a new department of housing and urban development is a priority goal of the
Aquino administration today