Demand for housing and office space in the Philippines is expected to remain high on the back of impressive economic growth. Despite an increase in new space, property developers expect vacancies in premium residential and office space across business districts to remain scarce. According to Colliers International, demand is so high that even with new projects coming on-line vacancy levels in prime districts should remain below 5% for the next two years.

Government growth forecasts see GDP expanding between 6.6% and 7.6% in 2013, with the real estate and construction sector leading the charge. National Statistical Coordination Board (NSCB) data indicates that while public construction investment grew by 45.6% in the first quarter of 2013, investment in the industry by the private sector rose by 30.7% over the same period. The total estimated cost of residential construction increased by 22.6% in the first three months of 2013, while that of non-residential construction grew by slightly more at 27.3% in the same period, according to NSCB figures.

BIG OPPORTUNITY: Besides large public works projects, mass housing, hotels and senior care housing on the outskirts of metropolitan centres are potential opportunities of growth in the real estate and construction sector. A joint study of Subdivision and Housing Developers Association and the University of Asia & Pacific’s Centre for Research and Communication on the demand and supply of housing from 2001 to 2011 showed a serious shortage of low-cost housing and a supply surplus in mid-range and high-end segments. The study showed a backlog of 6.5m housing units, of which close to 3.9m were in the low-cost market. Mass housing developers are entitled to a four-year income tax holiday and duty-free capital equipment imports. Some of the country’s top developers have begun to build more affordable mid-market residential condominiums which will account for more than 80% of the total housing units set for completion during 2013-19. South Maya Ventures, the mass housing brand of Ayala Land, launched its first project, Bella Vita, in Cavite in the last quarter of 2012, while competitor Suntrust Properties of Megaworld, is currently constructing two similar projects – Suntrust Shanata in Quirino Avenue and Suntrust Capitol Plaza in Diliman, Quezon City.

SHOPPING SPREE: The building boom is also evident in the sprouting of hotels and shopping malls. Three of the world’s biggest casino operators are currently building a $4bn, 120-ha Philippine Amusement and Gaming Corporation (PAGCOR) Entertainment City complex on Manila Bay that is expected to attract significant tourist attention. Once complete it will house four hotel and casino complexes with 10,850 hotel rooms (see Tourism chapter). Despite the rise in the number of hotels across the Philippines, there are not enough to accommodate the 10.7m tourist arrivals the Department of Tourism (DoT) expects by 2016. Developments in the pipeline cover only 40% of the demand requirement, which the DoT estimates at 37,352 rooms. The shortfall is acute in the central Philippines (20,757 rooms), followed by northern areas (16,025 rooms) and the south (570 rooms).

HIGH END: Foreign investors are eager to cash in on the real estate boom. So far their attention is almost exclusively focused on high-end developments. Donald Trump, the New York property mogul, put his name to a $150m, 56-storey, curtain-glass-walled Trump Tower in 2013. According to Century Properties, the developer of Trump Tower, more than 70% of the 220 residential units, worth $1.86m, have been sold. The firm is putting up a nearby tower designed by Versace fashion house – said to be the first of its kind in Asia – featuring individual wading pools.

There is also a growing demand for “green buildings” from foreign investors entering the market. Reduced operational costs and improved environmental and human health are some of the benefits of these eco-friendly buildings. The Philippines is catching up with this trend, and has 13 Leadership in Energy and Environmental Design (LEED)-certified buildings and 72 with pending evaluations. LEED is a US-based ratings system that measures the level of energy efficiency and environment friendliness of a building’s design, construction and operation.

GOING GREEN: The Philippine Green Building Council has its own system of certification called Building for Ecologically Responsive Design Excellence (BERDE) – an acronym which in Filipino means green.

“BERDE, the local LEED equivalent, is becoming significantly more popular as the environmentally friendly construction method,” John R Morgan, director at JCL International, told OBG. “BERDE is cheaper and is becoming adopted mostly by local companies while LEED continues to be used by multinationals, which prefer to pay a premium,” he said. According to a study conducted by CBRE International, entry-level LEED certification adds up to 3% to the property value.

RETIREMENT HOMES: Senior citizen housing projects attached to health care centres offer another largely untapped opportunity that exists in the Philippines where almost 6m citizens are estimated to be over 60 years of age. That is equivalent to about 7% of the total population, and the number of senior citizens is expected to double in the next 14 years if the current rate of population growth continues. With a disproportionately large working age population overseas supporting their dependent elders through remittances, the need for senior citizen homes is evident.

Current property payment and ownership structures make it possible to attract foreign investments in these projects. The attached health care component within such projects would require quality nursing and medical services – which the Philippines already has in abundance.

Rising land values in prime districts, however, could have a moderating effect on demand. Land prices in Fort Bonifacio have experienced an annual increase of 8.3%. Colliers expects prices in the Makati Central Business District and Fort Bonifacio to appreciate by 7.8% and 9.9%, respectively, in 2014. Yet given the improving investment flows into the country, the overall outlook for the real estate and construction industry remains generally positive.

CONCENTRATED CONGLOMERATES: The prime real estate market in the country is cornered, more or less, by half a dozen or so family-run conglomerates that enjoy preferential access to both credit and land banks. However, diversified portfolios, murky financial dealings and complex holdings make the real estate sector vulnerable to political and financial risks. The IMF has warned the government that it could face a financial crisis if any of the “highly-leveraged conglomerates” were to default on their loans. “Debt-servicing problems at a domestic conglomerate could lead to sharply rising funding costs, under-capitalised banks, and a domestic credit crunch,” the IMF said in a recent report on the local economy.