SECRETARY ARSENIO M. BALISACAN
Economic Planning Secretary and
The Philippine Economic Growth and the Growth in the Property Sector
TOPS-LRA: Measuring our Gains and Meeting the Challenges Ahead
TOPS-LRA Summit 2015
Ballroom 2, Fairmont Hotel, Makati City
28 July 2015
Ladies and gentlemen, good morning.
It gives me great pleasure to be invited to the TOPS-LRA Summit 2015 to talk about recent Philippine economic growth and the crucial role that the property sector plays in such growth. This year’s summit— with the theme “Measuring Our Gains and Meeting the Challenges Ahead”—provides an opportune and timely moment to critically assess our gains and milestones in sustaining the growth of the Philippine property industry amid the country’s robust economic performance. I would like to commend The Organization of Property Stakeholders Inc. (or TOPS), in partnership with the Land Registration Authority (or LRA), for organizing this activity that brings together major property stakeholders in the country to discuss various topics and developments in the real estate industry and to put in place action plans aimed at preserving our gains and meeting future challenges in the property sector.
The shape of real estate industry in the Philippines has changed dramatically over the years. In particular, the property market has grown robustly over the last 20 years as increasing demand for residential and commercial properties in the country became ever more evident against the backdrop of our changing economic landscape. As you know, the Philippines has emerged as one of the fastest-growing economies in the region in recent years. With an average growth rate of 6.2% per year from 2010 to 2014—even reaching 7.1% in 2013—we can proudly say that the Philippine economy is now traversing a higher growth trajectory path. The average growth in the past five years was, in fact, the highest in nearly four decades. This growth has been supported by sound and stable macroeconomic fundamentals, characterized by low and stable inflation, a robust financial sector, prudent fiscal ratios, and a healthy external position that has made our economy much more robust and less vulnerable to global volatilities. For example, our current account surplus has been accompanied by resilient remittances from Filipinos overseas, strong business process outsourcing (or BPO) earnings, and rising tourism receipts.
More importantly, the fundamental sources and drivers of our recent economic growth are changing. In particular, we are observing the growing importance of investment spending (capital formation) on the demand side and the resurgence of industry, especially local manufacturing, on the supply side. The manufacturing exports has grown despite recent global economic slowdown. We have also diversified beyond electronics and semiconductors. About 10 years ago, electronics and semiconductors comprised about 70 percent of our exports, today, it only accounts for about 43.3 percent.
The overall optimism in the Philippine economy in recent times is also at an all-time high. The country’s strong macroeconomic indicators, stable political landscape, and timely governance reforms restored the confidence of the people. This has, in turn, been reflected in remarkable improvements in our Global Competitiveness and Ease of Doing Business rankings as well as our investment grade ratings. This is similar to how legal US casino sites works as explained in this US casino sites website. Indeed, our economic gains serve as evidence that the Philippines is finally catching up with its neighbors, and that we are heading towards the right direction.
These encouraging developments in our economy bode well for our real estate industry, with the property market across all its sectors (including office, residential, logistics, retail, and hospitality segments) poised for continued growth. While the property industry has already been doing very well in the past few years—owing to a solid economic backdrop, stronger demand for BPO services, heavy consumer spending, and healthy inflow of remittances from OFWs—the sector is seen to grow even more robustly, driven by the continued positive outlook on the economy and the projected expansion of outsourcing industry within the next five years.
A key source of growth in the Philippine property market is rapid urbanization and the accompanying rise of the residential sector. As of 2010, a little under half of the Philippine population lived in urban areas (48.6%), but this is projected to rise to 56.3% by 2030 and 66% by 2050. Condominiums are becoming particularly attractive in Metro Manila, with an estimated increase in supply of 14,000 units from 2012 to 2018, mostly coming from the mid-end segment of the market. Demand for residential properties is mainly driven by our middle class, and particularly the 11 million Filipinos overseas who in 2014 repatriated about USD 24.3 billion, allocating about USD 7 billion of which into property investments. The growth of “townships”—or self-contained districts that fuse together homes, offices, shops, and schools in linked communities—are particularly attractive not only to affluent buyers but also young professionals who choose to live near their workplaces.
The country’s growing services sector is also another key driver of property market growth. As of 2014, more than half of the country’s output—or about 57% of GDP—was accounted for by the services sector which comprises not only real estate activities but also information and communication; financial and insurance activities; education, health, and social work. Among these sectors, the country’s BPO industry is proving to be particularly important for the growth of the country’s property sector. Fueled by increased new investments from large and mid-sized foreign investors, our BPO sector has remained among Asia’s brightest spots over the years. BPO services in the country started to emerge following the Asian Financial Crisis in 1997, when global companies began to outsource business processes that could be done outside the company with greater efficiency and at less cost. From a USD 3.4 billion industry in 2006, the outsourcing industry is estimated to have reached USD 18 billion in 2014, and is forecast to accelerate further to about USD 22 billion in revenue for this year . This excellent performance of the sector has translated to higher demand for office requirements and, with rising investments from BPO companies in the coming years, we expect developers to bring to market more property developments across the country’s central business districts (or CBDs), both in and out of Metro Manila.
Another promising area of real estate growth borne by the services sector can be found in the retail and hotel property markets. For years there has been a significant growth in the number of retail shopping malls (again, borne by consumption of the rising middle class), and in the future projections point to a growing expansion and market share of malls located in the provinces. In fact, some studies suggest that by 2018 more than half of total retail property supplies will be found in the provinces. Growing tourism arrivals and receipts are also incentivizing the increase in supply of hotel developments in and out of Metro Manila. In the next few years a significant number of these new hotel properties will be constructed particularly in the southern part of Metro Manila including Visayas and Mindanao. Moreover, the emergence of new hotel brands and budget hotel chains in the provinces are also expected to grow further in response to robust tourism growth.
The ASEAN integration, which is set to culminate in a few months’ time, is also expected to boost the Philippine real estate industry as the country continues to attract foreign investors, especially given its increasing attractiveness as an investment destination in the region. The demand for residential and commercial infrastructure, retail complexes, as well as tourism and hospitality services is likely to increase as the ASEAN Economic Community or AEC comes into full swing by December 2015. For the Philippines, this entails numerous opportunities for further expansion, particularly in filling the gaps for accommodation and office space requirements and needed facilities and services, among others.
Without a doubt, this is a great time for the Philippine property market. However, while opportunities abound and growth prospects in the industry are very encouraging, there remains a number of major challenges that we need to aggressively address in order to maximize the industry’s full potential. To be sure, we must continue pursuing relevant market reforms to remain competitive and reap the benefits of the booming property sector in the region.
Some of the critical constraints that need immediate action are the country’s weak public infrastructure and low property market transparency and restrictive ownership rules. For one, while infrastructure spending as a percent of GDP has been increasing in recent years, there is a constant need for the infrastructure system to keep up with rising demands in our fast-growing economy, especially these days as new property investments flood the market. Poor public transportation and congestion in our roads, ports, airports, and seaports threaten to hamper the pace of economic activity and cap the growth of many major cities if left unaddressed. For this reason, the government is already devoting greater focus on infrastructure investment and putting into place comprehensive transport roadmaps and critical logistics infrastructure roadmaps to keep up with the significant growth of the country’s primary business hubs.
Another critical area of policy reform in the country concerns low property market transparency and restrictive ownership rules. Market transparency has a general correlation with investment volume, and—more often than not—property developers and investors generally look for a stable law and regulation surrounding investment. In some cases, however, the legislation is weak or not even in place to support the property industry. As a result, property buyers face high transaction costs, petty corruption and red tape, and substandard building practices. At the same time, strict restrictions on foreign ownership could also hamper the growth of foreign direct investments in the country. Towards this end, the government is striving to improve transaction processes as well as legal and regulatory environments. These include, for example, liberalization of contractors’ licensing and registration, promotion and development of domestic and overseas construction, and the efficient implementation of dispute resolution mechanisms.
We also need to pursue a number of other important legislative measures that will further reduce the cost of doing business in the country. For instance, the passage of the Competition Law last July 21 will undoubtedly help diffuse market power and concentration in a spectrum of key industries, including manufacturing and logistics.
Reforming the tax system and raising tax efforts to levels at par with our regional peers is also crucial to sustaining fast-paced growth and public infrastructure development. Some areas that need further institutional reform include: improving the tax effort among the self-employed and corporations; curbing smuggling; improving the current regime for SMEs and PPP Projects; and rationalizing fiscal incentives.
Access to financing also plays a crucial role in the real estate industry. Unfortunately, the Philippines remains among the countries in South East Asia that have relatively underdeveloped financial markets. We continue to face limited access to finance via commercial bank loans and capital markets, especially those for business set-ups and expansion. Therefore, the challenging task is to ensure the availability of more avenues for accessible financing not just among property buyers but also among small and medium-sized enterprises or SMEs.
Finally, efforts to improve human capital formation and to foster technological growth and innovation should be intensified. The Philippines’ large population of educated, skilled, and competitive young workers and professionals serve an important role in the booming property industry, specifically in the BPO sector, and stand to benefit the most from the increasing regional economic landscape brought about by the upcoming ASEAN integration. Furthermore, the country’s growing population of young professionals proves to be a source of future demand for residential properties, as population projections point to an increasing share of the population aged 30-49 in the next couple of decades. With these prospects, there is a need to continuously identify and implement comprehensive reforms to support this critical demographic by enhancing the country’s educational system and abating the skills mismatch in the labor market.
Given the foregoing challenges and the needed reforms to further boost the Philippine property market, an all-important question to ask is: What do all these mean for investors? In sum, it is clear that the enabling factors that are shaping and supporting the growth of the property industry in the Philippines is already in place. Particularly, good macroeconomic fundamentals, low interest rates, the thriving services and BPO sector, and the upcoming ASEAN Economic Community are all key drivers that everyone should look out for. We should all capitalize on these growth drivers while continuously addressing the key challenges and barriers to the acceleration of the property sector in the country.
Truly, the property sector in the Philippines is at the forefront of Philippine growth in the medium and long term. Let us all work together so that the benefits from the country’s recent economic progress could translate to even more vibrant and sustainable growth in the Philippine property sector.
On that note, I end my speech. Thank you for your time and good day!