Hi, it’s me Nick. I often get the question, “is the Philippines real estate market a bubble waiting to burst or will it continue to boom as it has for some time now”? It depends on what factors you want to take into consideration so before I answer that question let’s look at some facts as I see them. As a specialist in premium properties in Asia and since many real estate agents target international buyers, I’m writing this from the point of view of international clients who would want to buy and/or would want to live in the Philippines.
Firstly and without a doubt, 2015 was the best time to buy especially Off Plan upmarket Condos. The average price for such a condo was around PhP 130,000 (USD $2,600) per square meter and in 2017 it’s now PhP 200,000 (USD $4,000) per square meter or higher with Ayala Land Premier and Rockwell Proscenium selling at an estimated PhP 270,000 per square meter and above. However, the average rental price for these condos is the same as 2015 and could even be argued that it is less, as more and more Pre-Selling Condos complete and their inventory becomes available on the market. For example, the Milano Residences, a Century City property, and the Park Terraces, an Ayala Land Premier property, both in Makati are good indicators of this.
So what does this mean for a real estate investor?
In simple terms, it means that in 2015, a real estate investor was getting about 8% net Yield and today an investor is probably getting only about a 5% net yield or even less if they buy at Rockwell or Park Terraces. However, on a positive note, they’ve made a capital gain based on the value of their property but that would only count if they sell it. Rockwell especially has held it’s pricing value when reselling. Just try and look for a Rockwell condo resale bargain and it’s very hard to find.
So, normal basic economics would say that if rents stay the same and property prices keep going up then there is a real estate bubble waiting to burst. But, many of those economists forget that there are other outside forces that could have an impact with real estate market such as the median age of the Philippines population which will enable the economy to continue to grow at very high rates for maybe as long as another 10 years. A very interesting article from Price Waterhouse Coopers (PWC) suggests the Philippines’ economic growth is likely to last much longer than that as well. They state in 2050 Philippines will be number 19 out of 28 in the world high growth economies with an average growth rate of 4.3%. The reason this is important is that as the economy grows at high growth rates so does the middle class and so does the amount of real estate buyers which helps the real estate market to continue to grow.
A final factor to also take into consideration is to compare the price of luxury condos in Makati City to other prime location cities throughout Asia. One example of this is the top price for a condo in Makati City which is approximately USD $6,000 per square meter compared to USD $18,000 per square meter in Bangkok and whereby the Philippines economy is performing better than Thailand. This tells you that there is still quite a bit of room for prices to grow.
With so much conflicting data are we in for Boom or Bust?
Well, real estate is very much about opinions and some are more informed than others. In my honest opinion, it’s pretty much neither. I expect to continue to see growth in pre-selling and resale prices for luxury condos but at some point down the road the bubble won’t burst but there will be some level of a correction until personal incomes grow to allow rent prices to increase in line with condo sales prices.
Should you buy or invest in the Philippines?
My answer to that is if you have some connection to the Philippines like a Filipina wife or family then the answer is a resounding yes. If you’re a long way from home and don’t plan to spend any time in the Philippines, I would suggest that there are better investments in other Asian countries and especially those who offer rental guarantees so you can have a passive income investment. These types of investments are not really available in the Philippines at this time, not with a real rental guarantee anyway.
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