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Metro Manila developers facing land challenges

Posted by: In: Real Estate 29 Nov 2014 Comments: 0 Tags: , , , , , , , , , , ,
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Real estate professionals say now is the best time to buy in the Philippines

Developers are struggling to find large plots in the Philippine capital, with some willing to pay a premium, but property professionals are still overwhelmingly positive about the future, says a new report

The toughest challenge for the real estate sector in the Philippine capital Manila is finding big enough plots for development, says a leading agent.

But real estate agents and brokers remain overwhelmingly upbeat about the Philippine real estate market, with 59% believing now is the best time to invest in property and 92% having a positive outlook about the next 12 months, according to a survey from top international property website, Lamudi.

Even so, they are concerned that limitations on foreign investment and economic slowdown could constraint the property sector, according to Lamudi’s Real Estate in the Emerging Markets 2014 report.

Developers need to find areas of at least one hectare and some are willing to bid high to secure it, says Jose Romarx Salas, Head of Research and Consulting at Pinnacle Real Estate Consulting Services, in Metro Manila.

“The biggest challenge will be really finding land large enough for present development, say one hectare as a minimum. If one can only acquire 1000 or 2000 square metres, that’s suitable for just one building.

“Most developers, especially the big ones, don’t like one-off projects, unless the location is very attractive. In Metro Manila, that’s the challenge: looking for suitable land. Some developers are even willing to bid high, which pushes up already skyrocketing land prices in the capital.”

With national elections in 2016 causing political uncertainty, and GDP growth projected to be slightly lower than last year, Mr Salas fears housing market growth could be dragged down. But among factors that are helping is the money sent home by millions of expat Filipinos who live and work abroad.

“Even though we’re slowing down a bit, the Philippines is still achieving higher growth compared to its neighbours. It would be tough to sustain this with the uncertainty surrounding the upcoming national elections in 2016, and transition of power.

“Business process outsourcing (BPO) is here to stay. Overseas Filipino Worker (OFW) remittances are here to stay. These are keeping the economy afloat and not just afloat, but growing faster compared to our neighbours.”

Another option for developers, where more land is available, is on the fringes of Metro Manila. “Megaworld has just announced its Tanza project, which is about 100km away. That’s how Metro Manila-centric development has been, because Tanza seems so far to residents of the city. However, it is now considered part of the Greater Manila area.”

As so many developers are focused on residential sales, the biggest chance for growth comes through leasing, he believes. “Leasing is an untapped business model in residential real estate. In fact, while property developers are raking huge profits in sales, many of them are not exerting any efforts when it comes to leasing.

“But when all of the (upcoming) projects are online, there will be competition for rents. It will be good for tenants, and good for brokers to do leasing brokerage. So that’s an opportunity for the local real estate market.”

Mr Salas says there is no real estate bubble in the Philippines, because the banks are heavily regulated, interest rates are low and it is tough to get development loans and real estate loans.

“This is different to the Asian financial crisis in 1997 when the banks were exposed to a lot of developmental loans. We have breached the pre-Asian crisis peak of property prices last year in nominal terms, and real terms fast catching up. But this is not an indication that a bubble is forming as there is real demand for houses and real dollars coming from the BPO sector and OFW remittances. These are pushing up consumer demand for housing.”

The government is trying to address the housing backlog by tapping the private sector, but it needs to motivate smaller developers, he says,

“It has to really motivate not only the small players, but also the big players. The big players have been enjoying huge margins for doing open-market projects, so they do not have any incentive to go into the affordable segment.

“If socialized housing is not profitable, then make it profitable by giving tax incentive or facilitating easier approval of permits. Otherwise, the main players will only focus on the profitable segment of their business.

“Right now there is a House Bill that will require developers to build twenty per cent of their vertical projects (condos) to cater to the affordable market. What they will get in return is tax breaks.”

In recent years, Manila has emerged as a top destination for investors in the Asia Pacific region, says Lamudi. The Philippine capital was ranked fourth out of 23 cities for investment prospects in a 2014 report from the Urban Land Institute and PricewaterhouseCoopers (PwC). According to the Emerging Trends in Real Estate Asia Pacific report, Manila now outranks Sydney, Guangzhou and Singapore for its investment outlook.

Statistics from the Bangko Sentral Pilipinas show net inflows totalled US$588million in June 2014, a turnaround from the US$26million outflows registered a year earlier.

But current restrictions on foreign property ownership may be extended once Southeast Asia countries merge to form a single market in 2015.

“The Association of Southeast Asian Nations (ASEAN) integration is expected to further encourage international investment in the Philippine property market, while also putting pressure on lawmakers to introduce reforms that would allow foreign ownership.

“Currently, non-Filipinos are forbidden from purchasing land in the country. While restrictions remain on foreign ownership of land, Philippine real estate agents have noted a marked increase in investment over the past five years.

“Economic growth, infrastructure development and a higher standard of living have all contributed to a better investment environment within the country, according to local brokers.”

Another concern expressed by agents is the largest housing backlog, which is currently estimated at 3.9million units – and one agent contacted by Lamudi suggested the housing backlog could be as high as 6.5 million units by 2030.

Demand remains greatest in the National Capital Region, as well as Central Luzon and Calabarzon, according to brokers.

“The challenge for the property sector moving forward will be to provide a long-term solution to issues of affordability, ensuring buying property is within financial reach for Filipinos all over the country.

“Over the next decade, the country’s strong economic outlook and favourable demographics led by a young, upwardly mobile population are likely to keep the Philippine property market on its upward trajectory.”

The real estate network, which specialises in emerging nations, began a year ago with 16 countries now covers almost double that, with 31 national real estate sites in Asia, the Middle East, Africa and Latin America.

By Adrian Bishop, Editor, OPP Connect
Twitter: @opp_connect

Source: OPP

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