Maximising gains in the Philippine property sector

June 1, 2012 / By

The news about the growth of the Philippine economy is also positively affecting the Philippine property market. Theoretically speaking, improved economic fundamentals have a direct effect on the sustained growth of the three major growth drivers in the Philippine property market: offshoring and outsourcing (O&O) activities, overseas Filipino (OF) remittances and the tourism industry receipts.

The country posted an impressive 6.4% GDP growth rate in 1Q12, the highest in the ASEAN region and the second highest in Asia. The level of remittances from overseas Filipinos went up by 7.2% to a new record of USD 20.117 billion in 2011 from USD 18.763 billion in 2010. In 1Q12, OF remittances grew by 5.4% y-o-y to USD 4.8 billion while visitor arrivals jumped 16.0% y-o-y (approximately 1.1 million) after seeing a record number of visitor arrivals at 3.9 million in 2011.

The bright prospects for a continued economic and tourism growth, coupled with the upgrade by credit rating agencies (Fitch (BB+), Moody’s (BA2), Standard & Poor’s (BB and positive outlook), and the Japan credit rating agency (positive outlook) suggest that local and foreign investors’ confidence of the country has improved. This heightened confidence is expected to fuel the growth of property-related demand in the short- to medium-term.

To prepare for these long-term gains, there is an urgent need to introduce structural reforms in the economy to maintain the momentum and sharpen the country’s competitiveness.

By introducing reforms in the educational system, we will be able to produce graduates, not just to match the demand from the O&O industry, but the demands from other developing industries. There is also a need to constantly review the performance matrix in the banking system to ensure a smooth flow of capital and investment from the public and private sectors (especially funds for developers and buyers). The other area of structural reform could involve improvement to infrastructure and transportation systems such as the construction and upgrading of telecommunication infrastructure, link roads (including farm-to-market roads to link rural areas to urban cities) rail systems, and overall improvements to the airports to minimise business disruptions.

For as long as the economy grows at its current pace, the optimism in the property sector is likely to continue. The early gains in the economy should temporarily shield the country from the external economic shocks brought about by the continued slump in the eurozone area and the slow recovery of the US market. The bigger challenge is thus to capitalise on the positive market sentiments in the local economy to advance the long term economic growth plans, attract more investors and strengthen the major drivers of the property market.

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