According to World Property Journal (WPJ), multinational commercial office investment in Asia is increasing. Major global brands and their corporate offices are being set up at new locations to expand their reach. Thus, the hunt for most cost-effective and efficient real estate begins and one strategy is to buy property instead of lease them to defer on federal taxes (according to WPJ).
Major Asian Central business districts (CBD) in Hong Kong and Singapore can no longer allure investors, as rapid expansions have made them the most expensive cities with regards to rentals. Here is where Philippines comes in, namely its capital city Manila, as the new attractive Asian destination in the global real estate market.
Reichele Demot, Assistant Manager of International Sales, Rockwell Land Corporation, explains in an interview, the appeal of Philippine real estate properties to foreigners.
1. Economic growth: Philippines have seen record GDP growth rates in recent years compared to their neighboring countries. It’s GDP has even surpassed some of wealthiest nations such as Japan and Hong Kong, and currently holding the second position after China at 7.2% (2013). This is due to a couple of factors such as Consumer spending, Remittance, BPO Center (Business Process Outsourcing) and Tourism.
2. Investment grading: Due to Philippines’ stable government policies and receiving investment grading upgrades, the investment grade will continue to improve rapidly from its current level.
3. Residential prices: Even for high end properties, Philippines boasts one of the lowest residential prices, at around 3,000 US$ psm, on regional comparison. In contrast, countries such as Singapore & Hong kong are above 15,000 US$ while India & Japan are at around 11,000 US$. This fact coupled with other factors such as vacancy rate, rental prospects & yield etc. makes real estate in Manila highly attractive to foreign investors.
4. Rental yield: Philippine has the highest rental yield in all over Asia at 7.5%, while following closely behind are Indonesia, Thailand, Japan and Cambodia at above 5%. However, others such as Hong Kong, India, China, Taiwan and Singapore are either below or only at 3%, which fuels the drive to invest in Philippine property even further.
5. Vacancy rate: There are three prime residential locations in Manila; Rockwell, Makati CBD and Fort Benifacio, which have all adapted to a clever system of keeping the vacancy rate and prices stable.
Instead of developing the whole area and releasing all the condominiums and houses at once, the management of each property releases only a given amount of units at a time. What this means is for example, in Rockwell (having its own management team), even though it shows 15 hectares residential stock, but as Ms. Demot explains, the property is actually around 19 hectares and supply was increased an additional 441 units in mid 2014.
BPO: Manilla is ranked third in the global outsourcing market. This means, more expats are established to create jobs and increase consumer spending. This in turn injects more demand for property.
Why invest on Residential sector?
Ms. Demot illustrates the main reasons you should invest in the residential sector.
1. Low Volatility: Even through financial crisis and several Typhoons that batter the Philippines recently, property prices are quite stable as shown in the graph. Blue represents property prices.
2. Capital appreciation: Within a span of just 10 years, apartment prices have risen by an average of 7% per annum. In 2013, the apartment prices have been an average of around 130,000 pesos.
3. Rental growth: Apart from Capital, there is also rental growth which has been rising steadily about 8% per annum for the past 10 years. In 2013, it was about 750 to 800 pesos/month/sq meters. In terms of rental yield, among all the locations, Rockwell has the most stable, hovering around 8.5% to 7.5%.
Considerations in Property Investment:
1. Location: When buying property, location is the key. A good location ensures growth and revenue for any prospective business.
2. Rental Prospects: Always look for strong rental. Do not just look at transaction prices but also vacancy rates. “What’s the point of high rental if no one is actually taking up the rent?” says Ms. Demot.
3. Developer Track Record: Identify the fast projects in an area. Do not only focus on quality of plan but also do your homework on the developer. Try to find out, what kind of projects they are doing and how?
4. Price: Last but not least, buy the best you can afford. By going for a low end property you may incur more losses by paying more maintenance charges and reducing your rental yield.
Some important regional laws that foreigners should keep in mind while buying property here:
- When buying Condominium, the building must not have beyond 40% foreign ownership
- During purchase, Developers or individuals only have to pay a total of four taxes; Capital gains tax, Document stamp tax, transfer tax and registration fee.
Note: All the information provided here were done through a third party researcher, Colliers International.