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Why the soaring Philippines property market remains unruffled by political bluster
October 13, 2016Article by Paul Avery
With Thailand’s military junta tightening its grip, Myanmar navigating the obstacles of its hard-won democratic transition, and Malaysia clamping down on freedoms to deflect attention from an alleged corruption scandal, is Southeast Asia still a safe bet for property investors?
The Philippines serves as a pertinent case to test whether political concerns overshadow the region’s fundamentally lucrative opportunities.
Dynamite in a booming region
Southeast Asia is one of the brightest spots in an ailing global economy. The World Bank forecasts GDP growth of 6.2% for the East Asia and Pacific region next year, far outpacing the global average of 2.8%, while the middle income population of the Southeast is set to increase by 70 million to 194 million in 2020 (Jones Lang LaSalle).
A dynamo in the world’s new economic engine, the Philippines grew at 7% in the year to June – faster even than China and the 13th nimblest globally (Trading Economics). In June Bangko Sentral ng Pilipinas released its first ever real estate index, signalling the country’s awakening as a serious property market and revealing its upward thrust. Residential prices rose by 9.2% in the year to Q1 2016, building upon an increase of 42.2% between 2010 and 2014.
The country’s enormous opportunities are, like all the markets we assess, naturally accompanied by some potential threats, and there is no hiding from the colourful comments cascading from newly elected, controversial President, Rodrigo Duterte.
What is there to worry about?
‘Duterte Harry’, as the President was dubbed during his crime-fighting 22-year tenure as mayor of Davao City, is becoming renowned for off-script and profane streams of political invective that make Donald Trump sound like Nelson Mandela. In the firing line are petty criminals, longstanding military alliances, and occasionally Barack Obama.
Because foreign direct investment has heaped fuel on the Philippines’ fireball economy in recent years, even trebling between 2009 and 2015, the main worry for investors is that it may fizzle if political composure is not restored (Economist).
But while onlookers in the West dutifully raise eyebrows, Filipinos are unfazed, increasing their lead as the most optimistic population in the region when it comes to their county’s economic and political prospects. In the last quarter, their score in the Financial Times Economic Sentiment Index jumped five points to 72.3. By comparison, Malaysia’s score declined to 9.6.
For locals, the President’s can-do attitude and progressive line on business, social, and environmental policy compensate for his erratic behaviour. In our opinion, that behaviour also poses little threat to the property market.
Indeed, the President is so occupied with an odious crackdown on drug abuse that economic policy has been delegated to a team of acknowledged experts. That team has since demonstrated its finesse with a solid ten-point plan focusing on infrastructure spending, cutting red tape, more straightforward land ownership, rural development, and tourism – a heady combination for property investors.
Opportunities in the property market
More heartening still, the market is underpinned by robust population growth – expected to continue at the fastest rate in the region – and a booming tourism industry (ASEAN). International arrivals in the six months to July grew by 13.8% on the same period last year, and visitor receipts are up 14.1% (tourism.gov.ph). Tourism also explains why coastal towns are far outpacing Metro Manila’s comparatively sluggish 2.4% price increase to Q1 2016 (Bangko Sentral ng Pilipinas).
We believe that the best investment opportunities right now are to be found on paradisiacal islands with burgeoning infrastructure and as-yet untouched beaches, where plots of land large enough for hotels are appreciating considerably faster than residential units (Focus ASEAN).
These beautiful bays and coves are also sheltered from the winds of political bluster. The apparent drift of the President’s foreign policy towards China rather than America may even boost tourist demand on the islands, as China’s growing jet-set class continues to bloat its share of visitor numbers. China was the top source of arrivals to Asia Pacific in 2016, with 15.7% of the total (Mastercard Pacific Destinations Index).
Emerging Asian markets are full of promise for investors willing to keep a close watch on their galloping transformations. While Vietnam and Indonesia merit greater attention as they open wider to foreign ownership, no country better illustrates the region’s unique blend of dodgy politics and teeming investment potential than the Philippines. As the property market stands, it appears that the belligerence of the toastmaster hasn’t diminished the quality of the feast.