Philippine real estate market booming

By Ken Go

LET ME share you my thoughts about my recent trip to the Philippines. I primarily stayed in the Metro Manila and Makati area for about a week. I met with several potential investors for the US market and at the same time inquired about the real estate market in those areas.

I have to say that the real estate market in those areas is booming and maybe even overheating a bit. There are high rises everywhere. Its amazing to see these developments. I was there when there were back-to-back holidays and therefore the traffic was really not that bad. The weather was also okay despite the typhoons coming and leaving the Philippines. So, it was very pleasant for me but what was really interesting is the information I gathered about what has been going on with the real estate market there based on what I gathered.

Let’s talk about the high-end areas, Rockwell and The Fort for example. High rise condos and commercial areas are really skyrocketing in prices and they keep building them. My main question is who are buying all these high-end condos to the tune of $300,000 all the way to $500,000 US dollars. That’s about 12 million pesos and up.

From what I gathered, it’s the small percentage of very rich business families and new rich that are buying up all these condos. I see most of them vacant because I believe they are all buying to speculate and resell when the prices even go higher. I also heard that most of them not only buy 1 or 2 they actually buy multiple properties in one building to wait for a good flip.

The money that is going around in the Philippines is incredible; the wealth is really staying up and not trickling down to the middle and lower classes. I suspect it’s like a musical chair for these rich investors, and whoever is holding on to the properties when the music stops will be hit hard.

Now, there are also a lot of buildings that are being built by the tycoons, like Lucio Tan, Henry Sy and the Zobels for lower-end families. Those are going for about 3 million pesos but not in the Rockwell or The Fort and they offer financing for them. These condos are small in size but much more affordable for the just above average families.

I believe the outer areas also have been booming and those properties come with land because most of them are in rural areas and are in subdivisions.

What has been doing very well in the Philippines are the “call centers” where an average employee would make about $300 to $400 a month. The amount of dollars that have gone to the Philippines from call centers have doubled since two years ago and has a 3 to 1 ratio compared to OFW dollar remittances. This is awesome for something that just really became bullish about 5 years ago.

New money is also very abundant in the Philippines, meaning money from investors from all over, especially from Asia. Real estate in the Philippines is fairly cheap compared to Hong Kong, Japan, and Singapore to name a few. Therefore, a lot of investors from the Asian region are also considering buying in the Philippines.

But remember all these investors are speculating and wanting to turn a profit, meaning if the bubble bursts, a lot of people will get hurt.

This is how I see investing in the Philippines. If you are speculating short term, you have to know when to sell. If you are buying to live in or retire there, please try to buy cash and not finance to avail of your holding power just in case the bubble bursts.

Between 1997 and 2004, luxury condominium prices dropped 30.4% (53.7% in real terms), as the Philippines experienced the biggest property crash of all economies affected by the 1997 Asian Financial Crisis. As with the present housing crisis in the US and Europe, a speculative bubble had formed in the 1990s after financial liberalization and economic reforms, pushing luxury condominium prices up 63% (35.3% in real terms) between 1995 and 1997.

But in recent years, employees of new IT-related firms such as call centers and other business process outsourcing (BPO) firms have boosted demand for rental housing, with a ripple effect on the construction, retail, and telecommunications sectors, resulting in property price increases of 59.3% (16.2% in real terms) from 2005 to 2008.

In 2009, luxury condo price growth slowed to 0.2% year on year, hit by the global financial meltdown. But the significant economic recovery of the Philippines that started in 2010 is now propelling prices up again, with 5.5% price rises in 2011.

I met some investors who are looking for properties here in the US market and I told them that I was curious about their decision to invest in the US market. They replied that it’s great to Invest in the Philippines but a turn of event in politics or other unavoidable factor could quickly turn investments into dust. The person who said this is a very seasoned investor. He said that since the dollar is weak and the US market has been depressed for close to 5 years, they believe it will turn around and the dollar is almost guaranteed to bounce back.

It’s really great to see the Philippines improving a lot and I hope that the growth and advancement stays in the long term.

Thanks for your support and inquiries. Please write to kennethgo@verizon.net or call Ken Go of 1st Innovative Finance at 562-697-7028.