Underpinned by growing demand from low-cost buyers and high-end renters in Manila, the residential real estate market in the Philippines has posted strong figures in 2015 year-to-date. With vacancy rates falling and rentals on the rise, the sector is poised to maintain an upward trajectory into 2016.
Land acquisition reforms will likely remain a critical challenge for the industry, however, particularly if land values continue to rise, as expected, well into next year, which could impede future developments.
In August real estate consultancy Colliers International reported steady growth in the residential real estate sector during the first half of 2015. According to the firm, the market saw a 2% year-on-year (y-o-y) increase in the number of residential property sale licences issued by the Housing and Land Use Regulatory Board in the second quarter.
Growth was driven in large part by strong performance in the affordable and low-cost housing segments. Colliers reported a 164.5% y-o-y increase in the number of socialised housing licenses issued in the first six months of 2015, to 11,431, while licences to sell low-cost condominiums more than doubled to 2052. Meanwhile, mid-income housing licences were up 43.5% over the period at 2208.
While the total number of licenses for economic housing – units for moderately low-income families that qualify for lower interest rates and longer amortisation periods – rose by just 8% y-o-y, more robust growth is predicted in the months ahead. The Housing and Urban Development Coordinating Council raised the price ceiling for economic housing loans in June from P1.25m ($23,750) to P1.7m ($36,400), which should allow more buyers to benefit from the housing subsidies.
Lending to the property sector was up 26% y-o-y in March, despite stricter measures implemented by the Central Bank of the Philippines last year. Real estate developers continue to account for the majority of banks’ exposure to the sector, comprising 62.2% of the P1.1trn ($23.5bn) worth of lending, with residential buyers accounting for the rest.
Residential occupancy levels in central Manila also showed some improvement in the first six months of the year, as just one new project came on-line over the period. The vacancy rate in the Makati Central Business District decreased from 8% to 7.6% between the first and second quarters, with luxury vacancies down from 4.3% to 3.9%. Occupancy also rose in Fort Bonifacio and Ortigas Centre, with vacancy rates hovering around 7% and 9.5%, respectively.
Meanwhile, the condominium rental market remained tight in Rockwell Centre, which boasts the highest rental rates in the city, with vacancies falling to 4.35%.
Occupancy levels are projected to decline in the coming months, however, with 5500 new residential units slated to hit the market. In Fort Bonifacio and Ortigas Centre, condo stock is set to rise by nearly 20% by the end of the year, which could create a more competitive rental market, Colliers noted.
Looking ahead, issues related to land reform are expected to present medium-to-long-term challenges to further property development, as government efforts to address bureaucratic hurdles appear to have stalled.
One of the most significant constraints to sector growth has been a mixture of unreliable and overlapping bureaucracy in land sales and acquisition. The current process for purchasing land includes payment of a documentary stamp tax, a transfer tax and a creditable withholding tax, with the buyer also required to file a certificate authorising registration with the Bureau of Internal Revenue, followed by a title transfer request. In addition, the buyer is obliged to pay a fee for registration, as well as for the transfer of tax declaration at the relevant municipal authority.
Although the process is meant to take just a few weeks, buyers often wait more than a year due to technical issues and lost titles, according to local media.
While the country’s proposed National Land Use Act (NLUA) intends to establish a legal structure for land-use planning and delineates four major categories of land use – protection, settlements, infrastructure and production, with socialised housing among its priorities – the law has been pending in Congress since it was first introduced in 1992.
Nonetheless, several industry players remain optimistic of the prospects for reform. The Chamber of Real Estate and Builders Associations (CREBA), the largest real estate organisation in the country, has been vocal in its support for an eventual policy.
Charlie Gorayeb, national chairman of the CREBA, told local media in September that a national land-use plan remained a critical next step for the industry, and could benefit land-use and development plans across all real estate segments.
However, with several related land-use policies passed in the intervening years, Gorayeb also stressed the need to resolve any potential regulatory conflict in the final version of the legislation, including issues such as clear identification of protected lands, urban planning policies and reclassification of agricultural territory.
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