Market in Depth

The Philippines is now in its 8th year of a house price boom

Lalaine C. Delmendo | September 23, 2020

The Philippines' residential property market continues to perform very well, due to robust economic growth. Makati CBD property prices have risen by almost 132% from 2010 to 2018. Yet prices are not high, and yields are good, and the Philippine economy is in the 8th year of strong growth.

The average price of a luxury 3-bedroom condominium unit in Makati central business district (CBD) soared 15.55% (9.91% inflation-adjusted) during 2018 to PHP230,000 (US$4,371) per square metre (sq. m.), from y-o-y rises of 10.46% in 2017, 9.95% in 2016, 13.43% in 2015, 7.11% in 2014, 14.37% in 2013, and 10.06% in 2012, according to Colliers International. During the latest quarter, condominium prices in Makati CBD increased 5.02% (5.55% inflation-adjusted) in Q4 2018.

House prices continue to rise in other major Metro Manila CBDs:
  • In Rockwell Center, the average price for a 3-bedroom condominium rose by 10.6% (5.2% inflation-adjusted) to PHP244,500 (US$4,650) during 2018
  • In Fort Bonifacio, the average price for a 3-bedroom condominium soared by 17% (11.3% inflation-adjusted) to PHP205,500 (US$3,908) per sq. m over the same period.

However, house price growth is more muted nationwide. During the year to Q3 2018, the nationwide residential real estate price index rose by 4.4% (-2.2% inflation-adjusted), according to the Bangko Sentral ng Pilipinas (BSP), the country's central bank. Quarter-on-quarter, the index dropped 0.6% (-2.8% inflation-adjusted) in Q3 2018. The residential real estate price index, published every quarter, is based on bank reports on residential real estate loans.

By property type:
  • Condominium units saw y-o-y price increase of 5.8% (-0.8% inflation-adjusted) in Q3 2018 from a year earlier
  • For single detached/attached house, prices rose by a meager 0.2% (-6.1% inflation-adjusted) during the year to Q3 2018
  • Duplex house prices surged 30.7% (22.5% inflation-adjusted) y-o-y in Q3 2018
  • Townhouse prices rose by 18.3% (10.9% inflation-adjusted) over the same period

In the National Capital Region (NCR), residential property prices increased 6.8% (0.1% inflation-adjusted) during the year to Q3 2018 while in Areas Outside the NCR (AONCR), prices rose by 2.2% (-4.2% inflation-adjusted), according to the BSP.

Demand remains strong. In 2018, the take-up of pre-sold condominium uits throughout Metro Manila, including fringe locations, reached 54,000 units – surpassing the previous record-high of 52,600 units in 2017, according to Colliers International. This was mainly due to strong demand from starting families and young professionals and the influx of Mainland Chinese in the Philippines. Household formation has increased by an average of 3% every year in the past five years.

Residential property demand is expected to remain robust this year:
  • Colliers believes that pre-sales in 2019 will likely remain strong given the strong end-user demand. However, topping the 2018 sales figures might be a challenge given Colliers' projected slowdown in launches due to the dearth of available developable land in Metro Manila and the continued acceleration of land prices in the country's key business districts.”
  • “Local and foreign high net worth individuals continue to drive the residential sale market, typically securing the biggest and most expensive units from high-end and luxury brands to maximize the value appreciation in major markets,” said Jones Lang LaSalle in its 2018 report.

In 2018, the Philippine economy expanded by about 6.2%, according to the Philippine Statistics Authority (PSA). It was lower than the average annual growth rate of 6.6% from 2012 to 2017 but still places the country as among the fastest growing economies in Emerging Asia. The economy is expected to grow at a faster pace of 6.7% this year, amidst improving macroeconomic conditions and slowing inflation, according to ADB President Takehiko Nakao.

Philippines house prices
Foreigners cannot own land, but can own condominium units or apartments in high-rise buildings as long as the foreign proportion does not exceed 40%. They can also buy a house but not the land on which it is built. Leases on land up to 50 years, renewable for another 25 years, are available.

Analysis of Philippines Residential Property Market »

Rental Yields

Philippines: yields good, though lower than in recent years

Yields in Metro Manila are exceptional, by international standards.

However transaction taxes (known as ‘capital gains taxes', but not actually such), and (if observed) official income tax rates applicable to non-resident investors, are high. You may think that it will be easy to avoid these taxes, it being the Philippines. But it ain't necessarily so. Once the local authorities have their eye on you, they won't willingly let go. Plus, the sheer bureaucracy of actually paying can be irritating.

Buying prices for condominiums are from US$2,800 to US$4,200 per square metre, considerably up on previous years. Unusually, yields are not always highest on the very smallest units, which suggests that smaller condominiums are oversupplied. It therefore makes a lot of sense to get a larger unit, since the general management cost and hassle of a larger unit is less.

The highest-yielding units that we found are 50 square metre units in Ortigas (which have gross rental yields of nearly 9%). Great! We don't have enough information to know whether these high yields apply in Ortigas to other apartment sizes.

The year before last we found that yields were surprisingly good generally on very large condominiums in Metro Manila (250 square metres), at around 9%, but this year we were not able to assemble a database of this dimension. This may be an optimal size for investment.

Read Rental Yields »

Taxes and Costs

Moderate taxes for foreigners
engaged in trade or business

Rental Income: Nonresident foreigners who are engaged in trade or business are taxed at progressive rates (0% to 35%) on their net income. Rents above PHP12,800 (US$26) per month are also liable to VAT at 12% of gross rent.

Capital Gains: Capital gains realized by nonresident foreigners from selling properties used in trade or business are taxed at the standard progressive income tax rates (5% to 32%). Taxable gains are the difference between selling price and acquisition cost of the property.

Inheritance: Non-resident foreigners pay estate tax only on property located in the Philippines at rates from 5% to 20%.

Residents: Resident citizens are taxed on their worldwide income at progressive rates, from 0% to 35%. Resident foreigners and nonresident citizens are taxed on Philippine-sourced income at progressive rates.

Read Taxes and Costs »

Buying Guide

Transaction costs can be very high in the Philippines

The total roundtrip cost of property purchase is around 4.50% to 16.25% of the property value.

For taxation purposes, properties are treated as capital assets if it is not used in trade or business, and properties are treated as ordinary assets if it is used in trade or business, such as rental property. The 6% Capital Gains Tax applies only on properties treated as capital assets and not on properties treated as ordinary assets.

It takes about 32 days to go through the nine procedures to register a property in the Philippines. Pre-selling, or the selling of units during construction, is the fashion nowadays. The buyer should be careful when buying unfinished buildings or condominiums.

Read Buying Guide »

Landlord and Tenant

Rents are paid one year in advance in Manila

The luxury rental market is generally pro-landlord. However, for the rest of the market the balance of power between landlord and tenant in the Philippines is neutral.

Rents: The parties can freely determine the amount or rent and rent increases. At the upper end of the market, the landlord receives one year’s rent in advance in post-dated cheques.

Legal System: The legal system is cumbersome. Tenant eviction can go through a long and expensive trial. In practice, the landlord’s success in evicting a tenant may depend on his influence in influencing the police (or local gang members) to apply pressure.

Read Landlord and Tenant »


Uninterrupted economic growth

In 2018, the Philippine economy expanded by about 6.2%, according to the Philippine Statistics Authority (PSA). It was lower than the average annual growth rate of 6.6% from 2012 to 2017 but still places the country as among the fastest growing economies in Emerging Asia. During Q4 2018, industry had the fastest growth, with 6.9%, followed by services (6.3%) and agriculture (1.7%).

The total number of foreign tourist arrivals rose by 7.7% to 7.1 million people in 2018 from a year earlier, according to the Department of Trade and Industry (DTI). South Korea remained the country’s top tourism market with 22.3% share, followed by China (17.6%), the US (14.5%), Japan (8.9%) and Australia (3.9%).

Philippines gdp inflation
The economy is expected to grow at a faster pace of 6.7% this year, amidst improving macroeconomic conditions and slowing inflation, according to ADB President Takehiko Nakao.

In 2018, the nationwide unemployment rate stood at 5.3%, down from 5.7% in 2017, 5.5% in 2016, 6.3% in 2015, 6.6% in 2014 and 7.1% in 2013, according to the PSA. Unemployment is expected at 5.5% this year, from an annual average of 6.6% from 2008 to 2018, according to the IMF.

In February 2019, the country’s inflation rate was 3.8%, down from 4.4% in January 2019 and 5.1% in December 2018 and within the government’s target range of 2% to 4%, mainly due to slower price increases of food and non-alcoholic beverages. Nationwide inflation stood at 5.2% in 2018 – the highest in a decade – as a result of oil price hikes and the impact of the Tax Reform for Acceleration and Inclusion (TRAIN) law signed last December 19, 2017.

The Philippine economy grew by an average of 6.3% annually from 2010 to 2016, thanks to the previous administration’s socioeconomic reforms. Former president Benigno (Noynoy) Aquino III (president June 2010 - June 2016) instituted a no-holds barred anti-corruption campaign which wowed foreign investors and caused consumer confidence to surge. The Philippines’ investment ratings were upgraded to investment grade by Moody, Standard & Poors’, and Fitch Ratings. The Philippines’ competitiveness improved sharply, with a Global Competitiveness Index rank of 47th out of 140 economies in 2015-16, up from 52 in 2014, 59 in 2013, and 65 in 2012.

However, the country’s competitiveness rank slipped back to 57th in 2016-17 and to 56th in both the 2017-18 and 2018-19 ranking.

During the May 2016 presidential election, former Davao City mayor Rodrigo Duterte won a landslide victory, capitalizing on discontent with rising inequality and on the perceived incompetence of Aquino’s chosen successor, Mar Roxas. Duterte vowed to bring progress to all Filipinos, to eliminate government corruption and to substantially reduce crimes, especially the use of illegal drugs. While the government’s "war on drugs" is now very controversial having resulted in the death of over 7,000 Filipinos, Duterte’s net trust rating remains either “excellent” or “very good”, based on the Social Weather Stations (SWS) surveys.

Duterte’s push for a charter change to shift to a federal system of government from the current unitary system was also very controversial.

Duterte’s "Build, Build, Build" infrastructure program
President Duterte’s ambitious US$180-billion "Build, Build, Build" program is designed to modernize the country’s infrastructure by rolling out 75 flagship projects, including 6 airports, 9 railways, 3 bus rapid transits, 32 roads and bridges, 4 seaports, 4 energy facilities, 10 water resource projects and irrigation systems, and 5 flood control facilities, among others.

Nine of these projects are currently under construction, including the Clark Airport expansion; the first phase of the Metro Manila subway; the North-South railway projects; the 130-km first phase of the Mindanao railway; the Kaliwa water supply project; and the Cavite flood control project, among others.

Some 28 projects are projected to be completed before the end of Duterte’s term in 2022. These projects are expected to sustain strong economic growth, raising annual infrastructure spending by about 3% to 7% of GDP until 2022.

"We will make the next few years the golden age of infrastructure in the Philippines to enhance our mobility and connectivity, and thereby spur development growth," said Duterte. "In other words, we are going to build, build and build."

Unsurprisingly, the Philippine government breached its budget deficit cap last year, as expenditures exceeded target and outpaced the increase in revenues. In 2018, fiscal deficit reached PHP558.3 billion (US$10.6 billion), up 59% from the PHP350.6 billion (US$6.66 billion) gap recorded in 2017, according to the Bureau of the Treasury. As percent of GDP, the deficit was equivalent to 3.2% of GDP in 2018 – overshooting the 3% target for the year.

Revenue generation increased 15% y-o-y to PHP2.85 trillion (US$54.13 billion) in 2018, thanks to the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law, which was projected to add PHP63.3 billion (US$1.2 billion) to state coffers in its first year. On the other hand, government spending surged 21% y-o-y to PHP3.4 trillion (US$64.58 billion) in 2018, amidst heightened social protection and infrastructure spending, particularly massive projects under its “Build, Build, Build” program.

For 2019, the government has set a wider deficit ceiling at PHP624.2 billion (US$11.86 billion).

Get GPG fortnightly newsletters delivered to your inbox

A quick summary of global real estate trends.