A brief look behind the Philippine real estate market’s growth in 2012January 17, 2013 / By
The past year has once again showed the resiliency of the Philippine real estate market amidst the uncertain global economic conditions. The robust performance of the Philippine economy, along with the positive performance of such key real estate demand drivers as the offshoring and outsourcing (O&O) industry and remittances from overseas Filipinos, continued to sustain the property sector’s growth momentum.
In 2012, the Philippine economy experienced various challenges and risks. Foremost among the threats was the fragile global economic environment caused by the sovereign debt crises in the Eurozone and the US debt and fiscal cliff problems. Moreover, the continued unrest in the Middle East, particularly Syria’s bloody civil war, threatened to affect remittances sent by overseas Filipinos (OFs) from these areas. Despite all these, the Philippine economy was strong in 2012 and many were pleasantly surprised when the 1Q12 GDP recorded growth of 6.4%. This momentum was maintained throughout the year, with 3Q12 GDP growth at 7.1%. In addition, the country’s credit rating was upgraded in 2012. Standard & Poor’s and Moody’s both raised the country’s rating to just one notch below investment grade. These upgrades are positive signs that an investment grade may be achievable before the current administration ends its term. The backdrop of a healthy domestic economy and encouraging investor environment buoyed the property market in 2012.
The O&O industry remained the primary driver of demand in the office market. The O&O industry continued to expand in 2012, bringing total office take-up in Metro Manila over the 400,000-sqm mark. Despite the large office supply completed during the year, average vacancy across business districts in the metro remained low at approximately 5%.
Meanwhile, OF remittances continued to grow in 2012, despite economic difficulties in such source countries as the US and Europe. For the first ten months of 2012, personal remittances grew 5.9% y-o-y to USD 19.5 billion. The sustained inflow of remittances supported the retail sector and demand for residential housing throughout the year. The growth of consumer spending buoyed by remittances attracted more international and local retailers to expand in the country. In the residential market, OF remittances continued to support the healthy sales rate of major projects.
The projected growth of the O&O industry and OF remittances, coupled with the country’s strong economic fundamentals and overall positive investor sentiment, is likely to carry the real estate market through 2013, despite the global headwinds. If the Philippine Stock Exchange index (PSEi) reaching the 6,000-level early this year is any indication, then the outlook for the local economy and the real estate market looks bright.