2019 Is looking bright thanks to Chinese capital that sustained the recent increases in property values. The first nine months of 2018 showed slow economic growth for the Philippines, with concerns that a real estate bubble was growing, due to rising prices and supply. However, the real estate sector proved to be resilient, and was driven by record-high demand and supply in for residential properties.
Based on credible but limited sources, here is the overview for property price trends in the Philippines:
Across the Philippines, the overall real estate price index increased by 5.7% in 2017, statistics from the Bangko Sentral ng Pilipinas and residential properties increased by 8.8%. Rental yields have fallen and there is an increase in vacancies.
According to Lamudi the property sector looks like its set to grow further in 2019, and these predictions are not just for Manila, but include other areas as well.
The price of a three bedroom condominium, in Makati, increased by 10.4% in 2017, compared to 9.5% in 2016. The rise in Q4 of 2017 on the same property was 2.55%.
Prices have continued to rise in other CBDs in Metro Manila: Rockwell Center rose by 11.7% to PHP 221,150 per m2. While in Fort Bonifacio they increased by 4.3% to PHP175,700 per m2. These prices are all for three bedroom apartments.
Condominium units had a price increase of 14.4% in 2017, duplex house prices surged by 17.3%, townhouse prices rose by 8.1% and single detached or attached houses fell by 0.3%.
While the National Capital Region (NCR), saw a surge of 8.8% in residential properties in 2017, the areas outside the NCR rose by 3% in the same period.
The demand for housing is increasing because of young couples who are starting families and young professionals who are looking to buy and figures show that household formation has increased by an average of 3% every year for five years now.
After almost a decade of rapid economic growth, attributed to strong government spending, recovering agriculture and increasing exports; the IMF projects that the Philippines will have growth of 6.6% in 2019. These figures are in keeping with the past eight years, where growth has been on average of 6.3% annually. This is one of the fastest growing economies in Asia, according to the World Bank. Since 2015, inflation has risen and is expected to reach 4.9% in 2019. Various factors have caused the rise in inflation, and the December 2017 law of the Tax Reform for Acceleration and Inclusion, also contributed.
The Philippine government will be spending 6, 5% of the country’s GDP on infrastructure this year and will influence the strategies of developers.
This growth will not be confined within Metro Manila, and investments will be made in other emerging hotspots cited by Colliers; the areas of Cebu, Iloilo, and Pampanga will help drive the real estate sector.
By international standards, Metro Manila has exceptional rental yields, even though they are slightly lower than in previous years.
Official income tax rates applicable to non- residents are high and include transaction taxes, known as capital gains taxes. These taxes are not easily avoidable and there is a lot of bureaucracy involved in paying them, they are levied at 6%. These are only applicable on properties that are considered to be capital assets (not used for trade or business).
Buying prices for condominiums in 2017 varied from between $2,800 to $4,200 per m2, a considerable increase from previous years. Yields are higher on bigger units, meaning that there is an oversupply of smaller ones.
The yields seem to vary from year to year, different size apartments and areas often see fluctuating yields, it is advised to do your homework if planning to buy as an investment.
Foreigners cannot own land in the Philippines, but can buy a house and lease the land on which it is built. Leases are available for up to 50 years, after which they can be renewed for another 25 years. There are no limitations on owning condominium units or apartments.
Taxes and costs
Non-residents foreigners, who have an income from work or a business, are taxed at progressive rates of 5% to 32% of their net income. Rents of PHP12, 800 and above are liable to VAT at 12% of gross rent.
Non-resident foreigners will have a capital gains tax on properties used for business purposes at the same rate as the income tax. Taxable gains are the difference between the acquisition price and the selling price.
Inheritance tax is paid by non residents on property owned in the Philippines only at a rate of 5% to 20%.
Residents are taxed on their worldwide income at progressive rates, from 5% to 32%, while non-resident citizens and resident foreigners are taxed on Philippine-sourced income at progressive rates.
Transaction costs can come up to between 7% and 16.25% of the property value. Properties are treated as capital assets if they are not used in trade or businesses, otherwise they are considered to be ordinary assets.
The nine procedures needed to register a property in the Philippines can take up to 32 day. Even though the selling of houses off plan or when still under construction has become popular, buyers should be extremely cautious and preferably buy completed ones.
The luxury rental market is pro-landlord; the rest of the market is equally balanced between the two. In Manila, rents are paid one year in advance with post-dated cheques.
The two parties can freely determine the amount of the rent and the increased.
The legal system is cumbersome with long and expensive trials if eviction is needed. Often, evicting a tenant may depend on his influence with various people in the country.
Discontent with the existing system of inequality and the incompetence of Aquino’s chosen successor, Mar Roxas, ensured a landslide victory for Rodrigo Duterte. He has vowed to bring progress to all Filipinos, fight crime and eliminate government corruption.
His popularity has generally remained high, and he is currently pushing for a charter change to move the government from a unitary to a federal system.
His ambitious plan to modernize the infrastructure saw 36 projects approved within his first 18 months in office and more have followed.
These projects will fuel strong economic growth and are set to continue until 2022. The Philippines will continue to see growth in its housing market for the next three years, according to Colliers. There are challenges ahead which include rising interest rates, inflation, construction delays, and a second tax reform package.
However, positive trends include green building, sustainability and growth in other hotspots within the country. The future is looking bright.