“China-factor” in Philippine real estate

July 12, 2017 / By

Philippine–China bilateral relations have significantly improved over the last few months, creating more opportunities for both countries through increased investment cooperation. With slower economic growth in China, an increasing number of Chinese investors are seeking alternative locations to place their investable funds and liquidity. This is likely to drive increased investments in infrastructure and relevant property sectors in the Philippines.

Figure 1: China’s net FDI to the Philippines (in million USD)
Source: Bangko Sentral ng Pilipinas
Note: The net FDI figures in 2013 is not available.

The Philippine economy grew by an impressive 6.8 per cent in 2016, reflecting the effectiveness of the government programmes and policies to attract investment implemented over the last few years. Some of these programmes and policies include cost-competitive labour and fiscal incentives.

The local economy is also fuelled by investments in the offshoring & outsourcing sector and the steady inflow of cash remittances from overseas Filipino workers, among others, improving the purchasing and consumer power of Filipino families.

In order to sustain the growth of the Philippine economy (especially with a population still growing at more than 1.5 per cent annually), it needs to be complemented with a similar increase in infrastructure and support developments. Chinese investors have earmarked more than US$3.4 billion in 2017 alone to jumpstart the construction of irrigation, water supply and railway projects in various areas in the Philippines.

Table 1: Infrastructure projects in 2017 to be funded by China’s official development assistance (ODA)
Source: JLL Research & Consulting, Various government agencies

Clearly, there are a number of opportunities that investors can tap into with the growing Philippine economy, which will directly benefit the burgeoning local real estate market.

The growth of logistics/warehousing demand has been gaining attention of late due to the lack of significant investments in this sector over the last few years. Demand for tourism-related developments is also likely to rise, as more foreign tourists, especially Chinese tourists, are expected to flock to the Philippines.

While Chinese tourists only make up around 14 per cent of overall foreign tourist arrivals in Philippines in 2016 (which already marked a significant increase from the annual average of 7.3 per cent from 2010-2015), they make up around 20 per cent in more developed markets, such as Singapore.

Figure 2: Tourist arrivals to the Philippines, 2016 (by country of origin)
Source: Department of Tourism

To read more about our prognosis on the opportunities that exist between the Philippines and China, you may read our recent research report: “The Philippines: Eldorado for China’s growth prospects”.

Now is the most opportune time for investors to consider the potential of the Philippine economy and the local real estate industry. The improved bilateral relations between Philippines and China is a giant step to draw interest from Chinese investors, considered to be one of the major movers of capital in the global real estate market. The next important step is to sustain the level of interest by improving the degree of local market transparency to level the playing field for all prospective investors.

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