Tax reforms and transport projects support Philippine real estate sector in new areas


The Philippines’ real estate sector has enjoyed robust growth in recent years, fuelled by remittances, rapid economic expansion and a comprehensive public infrastructure programme that has opened up new opportunities beyond Metro Manila and the affluent business districts of the capital. Actions set to further strengthen activity in the sector include reforms to the tax system and the establishment of a new regulator. While stark income inequality and a chronic shortage of affordable housing continue to pose challenges for policymakers and social cohesion in the near term, the recent developments aimed at addressing these issues demonstrate a positive start to securing the long-term growth of the industry.

New Department

In February 2019 President Rodrigo Duterte signed a law creating the Department of Human Settlements and Urban Development (DHSUD), though the position of secretary had yet to be appointed as of early August 2019. The DHSUD consolidates the administrative functions of the former Housing and Urban Development Coordinating Council, and the regulatory functions of the Housing and Land Use Regulatory Board. By doing so, it is hoped that the new streamlined department will be able to tackle the significant affordable housing backlog more effectively. The DHSUD will work in close partnership with the National Housing Authority (NHA), which is the agency responsible for public housing; and National Home Mortgage Finance, which aims to increase the availability of housing loans.

Tax Reforms

President Duterte has also embarked on a sweeping reform of the tax system, which should make homeownership a more realistic proposition for low- and middle-income earners. The cost of renting and purchasing homes will be decreased for the lowest earners and for those purchasing lower-value properties. This group’s lower tax exemption thresholds for will be offset by higher thresholds for those at the upper end of the pay scale and for those purchasing higher-value properties. Rental demand is expected to increase following the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) initiative, which was signed into law by President Duterte in December 2017. The legislation exempts those earning below P250,000 ($4650) per year from paying personal income taxes, effectively returning about P150bn ($2.8bn) to Filipino taxpayers, according to the Department of Finance (DoF).

For lessees, the law also raised the threshold for exemption from the 12% value-added tax (VAT) from P12,800 ($238) per month to P15,000 ($279). This will support workers at the lower end of the pay scale, such as office workers, who wish to rent apartments rather than remain in their family home. The law also aims to stimulate the development of affordable housing by exempting socialised housing transactions under P450,000 ($8370), as well as low-cost housing valued at P3m ($55,800) and below, from VAT. Previously, only low-cost units valued at P1.9m ($35,300) were exempt. According to Philippines-based property consultant Pronove Tai, in December 2017 families eligible for the VAT exemption could expect to save up to P360,000 ($6700).

TRAIN also raises the exemption threshold for estate tax from P1m ($18,600) to P5m ($93,000), and to P10m ($186,000) for family homes. Transactions in excess of P5m ($93,000) are now subject to a flat rate of 6% as opposed to the prior sliding rate of 5-20%.

Conversely, TRAIN lowered the tax threshold for the purchase of residential lots, houses and condominiums. Previously, the VAT threshold was P1.9m ($35,300) for vacant lots and P3.2m ($59,500) for houses, lots and condominiums. The prices of vacant lots valued above P1.5m ($27,900), and houses, lots and condominiums valued above P2.5m ($46,500), are set to increase, as they are subject to VAT.

Second Tax Package

Unlike the positive results expected from the TRAIN law for the residential segment, the next proposed tax package, known as the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO), could hinder the office space market by curtailing tax incentives for industries investing in the Philippines’ special economic zones (SEZs). Real estate developers have been concerned that TRABAHO may lead to an exodus of business process outsourcing (BPO) companies, which accounted for more than 40% of office transactions in Metro Manila in the first nine months of 2018, according to a 2018 report by global real estate consultancy Colliers International.

Though the bill failed to pass in the 17th Congress, the DoF announced in mid-2019 that it will try to file it again in the 18th Congress. If passed, the bill could initiate the staggered withdrawal of the tax holidays – including the exemption from corporation tax, VAT on purchased goods and services, and withholding and local government taxes – that make doing business in the country’s SEZs such an enticing prospect. For the time being, however, the proposed tax reform has yet to impact the real estate sector, especially given the country’s strong performance. “Currently, there is increasing demand for retail space and mixed developments located near SEZs as a result of overall economic growth,” Ray Manigsaca, CEO and president of local AppleOne Properties, told OBG.

Macroeconomic Performance

Though the GDP growth of 6.2% in 2018 missed the government targets of 6.5-6.9% and was slower than the 6.7% recorded in 2017, it remained more than sufficient to sustain the strong demand for new property.

Moreover, according to the DoF, the Philippines is on track to become an upper-middle-income nation by the end of 2019, when the country’s GNI per capita is forecast to reach the World Bank’s qualifying metric of between $3996 and $12,375, as of the end of June 2019. With a national median age of approximately 24.3, both residential rentals and sales are being sustained by a young population that is increasingly willing to move out of their parents’ homes and into their own accommodation.

The Philippines is also one of the most rapidly urbanising countries in Asia, with an additional 20m people expected to be living in cities over the next 20 years. Indeed, by 2050 some 102m Filipinos will reside in urban centres, up from 51.7m people – or 51.2% of the population – in 2015. Urbanisation is driving demand for projects in secondary cities including Iloilo, Davao, General Santos City and Cebu, Alejandro Mañalac, chairman and co-founder of local property consultancy Havitas Developments, told OBG.

Ryan Go, president of Grand Land, a real estate developer in the Philippines, expects the high demand in major cities to have a spillover effect on other areas of the country, given stable economic growth. “Cebu, a major centre in the country, has limited space. Mountains and hills cover 80% of the island and flat land is in short supply. The scarcity of land has encouraged reclamation projects in Metro Cebu, as well as further developments in growing areas like Mactan,” he told OBG. “Given President Duterte’s push for decentralisation, key cities in the south, such as Cebu and Davao, have been given a number of infrastructure projects that will spur development of real estate in the country,” he added.

Build, Build, Build

In addition to strong macroeconomic growth and rapid urbanisation, President Duterte’s flagship Build, Build, Build (BBB) infrastructure development programme is also set to stimulate the real estate sector. Government spending on infrastructure rose by 41.3% to P803.6bn ($14.9bn) in 2018, building on the average annual growth of approximately 21% between 2015 and 2017. Infrastructure spending is projected to reach P909.7bn ($16.9bn) in 2019; however, a delay of several months in passing the budget, alongside Senate approval of a bill that bans short-term and labour-only contracts, could push that target out of reach.

Nevertheless, a host of BBB transport projects in Manila are set to come on-line in the next few years, including the Light Rail Transit Line 1 Cavite extension by 2020, the Metro Rail Transit Line 7 and the Metro Manila Bus Rapid Transit by 2022, and the Metro Manila Subway by 2025, which is expected to boost real estate demand and prices in Quezon City in particular. These are in addition to projects such as the Cavite-Laguna Expressway – better known locally as CALAX – and the North Luzon Expressway-South Luzon Expressway Connector Road – known as the NLEX-SLEX Connector Road – both of which are expected to be operational by 2020, as well as the Clark rail link to Manila, due to be completed by 2021.

Also in Metro Manila, local real estate company Ayala Land’s 74-ha Arca South mixed-use development in Taguig is positioned to take advantage of the C5 South Link to the Manila-Cavite Toll Expressway, known in the Philippines as CAVITEX, with the first phase of the transport project expected to open in the second half of July 2019 and the full link is scheduled to be completed by 2020.

According to some experts, BBB is being ushered in at the right time, both for developers disinclined to incur the relatively high costs of constructing real estate in the congested capital, as well as for those whose plans were too ambitious.

“Some condominium projects have already been cancelled, and there is little room for new upper or high-end condominium projects in Metro Manila,” Telesforo Peña, founder of local consultancy T&D Design, told OBG. “It is not just a matter of demand, but also space: some high-end projects were built in underdeveloped or unattractive areas of the city, and now they cannot sell the units.”

Secondary Cities

Clark City is a prime example of the stimulus effect of the BBB programme. The government-owned Bases Conversion and Development Authority is upgrading existing facilities at Clark International Airport and leading the construction of a new terminal that is expected to triple capacity to 12m passengers per year when it opens sometime in 2020. In April 2019 real estate firm Filinvest Development announced that a bulk of its capital expenditure of P38.9bn ($723.5m) earmarked for that year will go to projects in Clark, including the international airport, a logistics park in New Clark City and a 201-ha leisure city.

Meanwhile, infrastructure developer MTD Philippines is on track to complete the P120bn ($223.2m) New Clark City Phase 1A by mid-October 2019, in time for the growing city to host the South-east Asian Games, which are set to commence in late November 2019 (see Tourism chapter).

These investments in Clark are expected to benefit from new transport infrastructure, such as the Philippine National Railways line linking the city to Metro Manila, which broke ground in January 2018 ahead of a planned 2021 opening. Similarly, other areas of the country are set to see greater demand for property as transport interconnectivity improves. Thus, Colliers International expects that in 2019 property firms will be more aggressive in acquiring land in Northern and Southern Luzon, especially in Pampanga, Bulacan, Cavite, Laguna and Batangas.

There is also growing interest in the development of land in Cebu. “Currently, supply and demand in Cebu is balanced, but the saturation point is close, as a result of an influx of new players focused on vertical developments,” Beverly Dayanan, president and CEO of local Contempo Property Holdings, told OBG. Meanwhile, land values in Metro Manila are expected to keep rising as demand continues to outstrip supply. In Makati, for example, the price of land rose by 36% in 2018 to as much as P1.5m ($27,900) per sq metre, while prices in Bay City were up 42.9%, according to local firm Leechiu Property Consultants.


Robust domestic demand and strong interest from Chinese nationals are stoking the residential market across all segments, particularly in Metro Manila. The central bank, Bangko Sentral ng Pilipinas (BSP), reported that the residential real estate price index rose 2.9% in 2018, led by strong growth of duplexes and town houses. Condominium prices were up 4.4% that year, offsetting a slight decline of 0.4% in the prices of single and detached houses. Overall prices for residential property were up 4% in the National Capital Region, compared to an increase of 2.7% in areas outside Metro Manila.

Chinese nationals employed by Philippine Offshore Gaming Operators (POGOs), which accounted for one-quarter of total office transactions made in the capital in the first three months of 2018, according to Colliers, are buoying the affordable housing segment. Meanwhile, the middle and high-end brackets are sustained by skilled Chinese professionals and investors. In 2018 take-up of pre-sold condominium units throughout Metro Manila reached 54,000 units, beating the previous record of 52,600 units in 2017. Total condominium stock in Metro Manila’s business districts rose about 11% in 2018 to 118,870 units, as almost 12,000 new units came into the market.

“In Manila there are a lot of condominiums going up because of the take-up from Chinese buyers,” Guillermo Luchangco, founder, chairman and CEO of financial services and property development conglomerate ICCP Group, told OBG. “The prices of high-end condominiums continue to rise, and there is broad agreement that the market has a way to go.”

The thriving market is spurring residential property construction: in 2018 the number of approved building permits for housing rose by 3.6% to 114,905 units, total floor area grew by 27.5% to 20.8m sq metres and total value increased by 38.5% to P227.4bn ($4.2bn). According to the Philippines-based research and advisory firm Global Property Guide, gross rental yields in Metro Manila range from 7.01% on studio units measuring 45 sq metres to 7.16% on 80-sq-metre condominiums. Notably, monthly residential rents in Fort Bonifacio surged by 40% in 2018 to P1134 ($21.09) per sq metre, according to Colliers.

Cebu remains the largest market for condominiums outside of Manila. Colliers forecast stock will grow by 16% by the end of 2021 to reach more than 45,000 units, primarily located in Cebu IT Park. “The relocation of workers to Cebu from other regions, including Metro Manila, has fuelled real estate demand,” Richard Ray King, founder and president of real estate development company RFK Holdings, told OBG. “Employment opportunities from industries, such as BPO, are the main drivers of this trend.”


According to Colliers, in 2018 the average price of a luxury three-bedroom condominium in Makati cost P230,000 ($4280) per sq metre, up 15.6%, with other central areas of the capital also enjoying double-digit price growth. In the first quarter of 2019 Manila Bay recorded the highest growth in residential unit selling price, which rose by 64% to an average of P286,277 ($5320) per sq metre, according to international real estate consultancy Knight Frank.

Speaking at a media briefing in March 2019, David Leechiu, CEO of Leechiu Property Consultants, said that luxury condominiums were sold for as much as P540,000 ($10,000) per sq metre in Taguig, which includes the rapidly developing business and commercial district of Bonifacio Global City (BGC), and P533,000 ($9910) in Makati. According to Leechiu, domestic investors accounted for 35% of the demand, professionals for 30%, Filipino workers for 20% and the remaining 15% was accounted for by foreign investors, a third of whom were Chinese.

The premium residential segment maintains a robust growth outlook for 2019, according to Charmaine Uy, senior vice-president at local Daiichi Properties. “Despite the increase of prices due to the limited availability of land for new developments, high-end demand continues to grow, both in the horizontal and vertical segments,” she told OBG.


Mid-range residential condominiums in Metro Manila continue to enjoy high take-up rates, with 95% of floated condominium inventory in the capital having been sold as of the end of the third quarter of 2018, according to Knight Frank. Studios are especially popular, with investors targeting POGOs and economic zone workers, mainly in Makati’s Century City and Circuit Makati, and BGC in Taguig.

However, there are signs that Manila’s mid-end market is slowing as developers seek opportunities in areas outside of the capital, such as Laguna, to match shifting preferences. “People are willing to change their lifestyle and commute, so demand in the middle segment has been moving away from the city centre. People buy new condominiums as an investment and because they want to raise their children in a healthier environment,” Uy told OBG. “Consequently, the trend is continuing to push demand for undeveloped land among the major developers.”


The Philippine Housing Industry Roadmap, released in 2012, aims to eliminate the housing backlog by 2030 by partnering with developers and industry players to increase housing production by 12% annually, producing 2m new homes in the 2017-22 period, and then 1m new homes each year thereafter until the deadline of 2030. As of 2015 the backlog of affordable housing – which denotes properties valued below P3m ($55,800) – stood at 6.7m. With the number of affordable homes needed over the 2016-30 period revised to 5.6m, this means that the total backlog of affordable housing is estimated to stand at 12.3m by 2030, according to a 2016 study by the Centre for Research and Communication of the University of Asia and the Pacific in conjunction with the Subdivision and Housing Developers Association.

However, housing production is failing to keep pace with demand, with 82,883 homes produced in 2017, down from 94,895 in 2016 and from a record 204,961 in 2014, according to figures from the NHA. Northern and Central Luzon saw the largest regional increases in new homes in 2017, up by 40,966 units. If successful, President Duterte’s tax reforms would create the economic conditions to enable more lower-income Filipinos to purchase a house, encouraging developers to build more affordable homes.

Some players have already made moves to capitalise on the demand for housing in this segment: in March 2018 Century Properties Group established an affordable housing development company with Mitsubishi that aims to build 33,000 homes outside Metro Manila over the next five years.

Indeed, opportunities are ample in areas beyond the congested capital. According to ICCP’s Luchangco, the moment is ripe to develop economic housing in the P1m-3m ($18,600-55,800) range in Calabarzon and provincial centres, which are experiencing strong demand as a result of the backlog and of the appetite for consumption driven by the record $34bn in remittances registered in 2018. “Sales have grown by double digits in the past three years in these areas,” he told OBG, adding that many units are currently being subdivided for sale to meet demand.


In the commercial market average vacancy rates nationwide held steady at 7% in 2018 amid strong uptake from BPO firms, POGOs and flexible workspace providers, according to property consultancy agency JLL. That year approximately 1m sq metres of office space was added, building on an existing 9.1m sq metres, of which 72% was leased.

Perhaps unsurprisingly, office vacancy rates were not evenly distributed across the country. Vacancy rates in Metro Manila declined in 2018, falling from 4.5% in the second quarter to 4% in the third quarter, according to local real estate firm Santos Knight Frank. One of the areas most impacted by rising vacancies was Quezon City, according to local real estate services firm KMC Savills: at the end of the fourth quarter of 2018 vacancy rates stood at 16.4%, compared to 8.7% in the previous quarter, with an additional 92,048 sq metres of office spaces in the pipeline until 2022, indicating an oversupply.

Growth in the commercial segment was hampered somewhat in 2018 by delays to approvals of new SEZs, with only six IT park applications out of a pending 62 being signed off, compared to 26 in 2017. Nevertheless, IT companies continue to lead the take-up of office spaces, albeit by an increasingly smaller margin as the POGO industry continues to grow. Monique Cornelio Pronove, CEO of Pronove Tai, told local media that in the first quarter of 2019 the IT-BPO sector remained the top demand driver for office space, accounting for 36%, or approximately 130,000 sq metres of transactions, followed by traditional companies with 35% and POGOs with 29%. Pronove added that Chinese POGOs are expected to move into pre-leasing office space in cities such as Pasig and Parañaque in 2019.

Colliers forecast office space supply of just under 1m sq metres in 2019 and uptake of 910,000 sq metres to yield a vacancy rate of 5.3% by the end of the year. POGOs could account for up to 23% of projected uptake in 2019 as companies look to expand beyond Metro Manila and into Cebu, Pampanga and Laguna, where the bulk of available space is located.


Some 348,900 sq metres of retail space was completed in 2018, increasing total stock to 6.5m sq metres, according to JLL. The average vacancy rate of shopping centres was registered at 3.7% as of end-2018, backed by demand for spaces by foreign and domestic retailers. Food and beverage (F&B) was the primary driver of this healthy performance, while clothing stores also did well. “The demand from F&B companies for retail, office and industrial space keeps growing,” Nathan Go, owner of local construction materials company United Harvest Corporation, told OBG. “However, e-commerce operations appear to have a great impact on the retail sector and is seen to challenge classic retailers and developers,” he said.

Despite such fears, demand in cities that are underserved by retail is expected to sustain the market in the near term, particularly as commerce remains relatively underdeveloped and visiting a shopping mall remains an event enjoyed by Filipino families.


As of the end of 2018, housing loan rates offered by major banks ranged from 4.99% to 7.5% for one-year fixed loans, and from 7.5% to 9.75% for 10-year fixed mortgages, according to the Global Property Guide. The research and advisory service maintained that the mortgage market remains impaired by banks’ unwillingness to offer credit due to complications in affirming land titles and registrations, as well as delays in the foreclosure process due to the weakness of the courts.

Although not a major issue in cities, access to credit poses a challenge in rural areas. While the financial needs in these more remote areas are small compared to the needs coming from the main cities, public credit entities are unable to offer the services required and private financial entities often lack the scope to extend to these areas. Alongside other inhibiting factors, including the prevalence of informal housing settlements in cities, and a preference for cash purchases or developer-backed financing, these challenges limited the ratio of residential mortgage loans-to-GDP, at 3.85% in 2018. According to BSP data, total outstanding residential real estate loans rose by 12.8% to hit P677.1bn ($12.6bn) in 2018.


The real estate sector is on track to enjoy positive growth, as commercial demand from BPOs and POGOs, as well as sustained interest from Chinese participants, continues to underpin a bubbling market. Momentum is shifting away from saturated areas of Manila towards areas set to be served by the infrastructure rollout planned under the BBB agenda, encouraging ongoing investment in secondary cities such as Davao, Cebu, Clark, Cagayan de Oro and Iloilo. Clouds on the horizon include the potential impact of the second tax reform package and further delays in Philippine Economic Zone Authority accreditations on the commercial segment, although there remains scope for the government to resolve these issues in consultation with stakeholders moving forward.


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The Report: The Philippines 2019

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