You should buy Philippine property - The Business Mirror, December 21, 2006

Not sure whether that makes sense? Read this: “Over the coming decade the housing market in the Philippines will likely go from strength to strength and anyone who invests now could net up to 400-percent profit on their investment in the next 10 years.”

That sounds like something from a brochure distributed by one of our local property developers but in fact is from an evaluation by a European property consultancy firm.

During the 1990s prior to the Asian currency crisis of ’97, the property sector was one of the blooming bright spots of the Philippine economy. Perhaps you remember when reservations in Makati condominiums were traded like stocks with people doubling their money buying and selling a piece of paper that only gave the holder the right to purchase a new condominium. Back then, office occupancy rates were sky high as well as the rents in the Makati financial district. The Ortigas area was just beginning to be constructed and Eastwood and Fort Boni were dreams.

Now 10 years later, in addition to those four areas, the Filinvest development in Alabang is in full swing and it would seem that we ought to be reaching a saturation point in both office and residential units. You might also think that prices, too, have reached the limit but the facts show otherwise.

In a survey of prices of real estate around Asia before and after 1997, some interesting facts occur. The prices of residential units are far below, when adjusted for inflation, what you would have paid for your condo back in 1997. The year 1997 is somewhat of a benchmark not only for the economic crisis but also as the peak year for prices in most Asian countries. However, prices are much lower than at that peak. For example, Hong Kong values are still 60-percent below the high as in most other countries.

The list show all countries are priced below the highs: Indonesia at 50-percent below; Malaysia, 10 percent; Singapore, 37 percent; South Korea, 38 percent; Thailand, still 10-percent below 1992 peak, and the Philippines is still 55-percent below peak.

In other words, you can buy a local condo for almost half, adjusted for inflation, of the price quoted in 1997.

No wonder so much foreign and balikbayan funds are flowing into local property.

However, it is not just capital appreciation that is attracting investors to the Philippines. For the Europeans, in particular, they are interested in buying property that they can make a substantial rate of return from renting. The Eastern European countries used to lead the market for this European capital, but unfortunately, most investors came away dissatisfied because of the low rental rates. As a result, this money is flowing into Asia where comparable rents are higher.

The Philippines is one of the most attractive places when buying property for this purpose.
“In Eastern Europe, they are far away from offering any comparison. Condo Hotel or Condotel Investments in the Philippines were more likely to deliver higher returns than in Bulgaria, Poland or Romania.” Foreign investors are averaging up to 18 percent per year just on the rental income for higher end high-rise developments. No wonder, so many of these units are being sold to foreigners.

Property companies have become creative in attracting these buyers. This announcement recently appeared regarding a financing program from Banco de Oro. “The new financing scheme, a first providing Philippine mortgages to foreign nationals residing overseas for the purchase of condo units in the Philippines, is now available to unit owners (i.e., Filipinos, Filipino-Americans and foreign nationals alike) who are looking to purchase a condotel suite through BdO’s Home Loan”.

However, there are some cautions for the international investor in the Philippines. Number one on everybody’s list is political uncertainty. In fact, in spite of all the glowing comments, the Philippines rates only two out of five stars on a major global property consultant’s ratings.

So if the rest of the world is becoming increasingly sold on buying Philippine property, why should we as local investors now become enthusiastic about it?

It is simple. If the great over hang is the perception of political uncertainty and instability, what great leaps forward will come when that perception is wiped away?

I wrote some time back that the greatest fear that the President (and any politician) should have is not of terrible approval ratings, but that the public would ignore her. For 2006 the economy has shrugged off, if not almost ignored, the machinations in the political arena.
The prayer rally at the Luneta on Sunday may be a clear indication of that fact. The somewhat low turnout certainly does not show disapproval of the purpose of the gathering.
Even the administration would not be so foolish as to say that. Opposition to constitutional change is high as indicated by the polls. However, even on a Sunday, there were more important things to do, such as making and spending money.