News Column

Foreign Investments, Focus on Middle-income Housing to Power Growth in Philippine Real Estate Market

September 3, 2014

MANILA, Philippines, Sept. 3, 2014 /PRNewswire/ -- The outlook for the Philippine economy remains positive, with the economy expected to grow by 6-7% despite the slight fall in the country's gross domestic product (GDP) growth due to the devastation caused by typhoon Haiyan. Favorable demographics, strong macroeconomic figures, and an administration committed to reform have created a stable foundation for the real estate sector, which is expected to continue its positive trajectory within the next few years.

In its Midyear Report>, real estate services agency KMC MAG Group, an international associate of Savills [SVS: LN] noted that the combination of a stable economic environment and an administration committed to cleaning up the system have madethe Philippines more attractive to potential investors. The report also highlighted that foreign direct investment (FDI) in the country has increased toUSD 1.9 billion, with real estate accounting for aroundUSD 57 million.

While the country's current progress is encouraging, KMC MAG Group Managing DirectorMichael McCullough> believes that more needs to be done in order to keep investors interested.

"Compared to other countries in Asia, foreign direct investment in the country is still low, and part of it is due to the overseas ownership restrictions that hinder potential growth," adds McCullough. "One of the ways to encourage more FDIs is to amend the rules, but another way of tackling it is to look at where investments are being made. Foreign capital usually goes through securities-- foreign portfolio accounted for USD 10.4 billion inflows in the first half of 2014-- and it would be critical to find out how to continue stimulating investments in that area."

In the residential market, investors can expect a lot of good news. First-time homeowners will have a lot of options to choose from, as the residential supply is expected to peak in the coming year. Condominium production has also shifted to focus on the middle-income market, which will make it easier for more Filipinos to invest in their own units.

"The middle-income and low-cost demand in Metro Manila is expected to keep the market demand buoyant and occupancy rates high, even as we see growth slowing down in the high-end segments," says McCullough. "We have additional supply coming in, and while that puts pressure on the market, the backlog of housing will offset that and keep the market sentiment positive." (seeFigure 1>)

A growing middle-class is also powering the retail market (see Figure 2>), inspiring retail developers to pursue aggressive expansion plans. The SM Group is looking to investPhp 38.8 billion, concentrating on areas outside of Metro Manila. The group is looking at expanding its mall portfolio to 7.5 million square meters, which is nearly half of the total retail space in the country. Ayala Land Inc. is looking at operating 500 convenience stores within the next five years and has also entered a joint venture with Rustan's to open the first Wellworth department store in Fairview Terraces.

IT-BPO/KPO Industry & SMEs Continue to Drive Office Demand

Meanwhile, in the office market, the information technology-business process outsourcing (IT-BPO) industry continues to drive growth in the leasing market. The leasing demand pushed the rental growth to 7.9% year-on-year (seeFigure 3>), and net take-up was recorded at 100,000 square meters in the major central business districts. The take-up is expected to reach 280,000 square meters this year once the market absorbs the majority of the new supply.

Business process outsourcing and knowledge process outsourcing operations, along with small and medium enterprises, drove the growth in the serviced office market (seeFigure 4>), owing to the low-risk, low-capital nature of the space. The concept of serviced offices has also proven to be successful in areas outside Metro Manila, such as Bulacan, Pampanga, Cavite, and Laguna, and is expected to remain in demand over the next few years as prime office supply in central business districts will remain low until 2016.

"Serviced offices are a very attractive concept because it allows new enterprises to test the waters without risking too much," notes McCullough. "Provinces such as Bulacan, Pampanga, Cavite, and Laguna have also shown that they could attract foreign investment by providing the spaces for new enterprises to flourish. We hope that more local governments would be inspired by their example and invest in infrastructure, talent, and even in crafting business-friendly policies."

Lastly, the hotel market is also getting a boost in order to keep up with the growth in arrivals. There is approximately 9,500 rooms in the pipeline, with majority of the new supply located in the Entertainment City in Manila Bay and the rest of Metro Manila. Other developments in the market include a partnership between Anchor Land and Accor Group to redevelop a property in Old Manila into a five-star boutique hotel, and a similar arrangement betweenAyala Land and the Mandarin Oriental Hotel Group to develop a new luxury hotel in the old Mandarin Hotel's location in the Makati central business district.

"We believe that there are a lot of opportunities in the real estate sector, and that the growth it is experiencing is sustainable," says McCullough. "What the Philippines will need moving forward is the political will to maintain its current economic status and pursue both reforms and public investments. A commitment to good, effective governance will ensure competitiveness and higher productivity."

About KMC MAG Group

KMC MAG Group, Inc.> is an award-winning real estate services firm based inthe Philippines. The company employs over 100 employees that are directly involved in transactions for office and retail space, industrial locations, as well as residential properties. KMC MAG Group is also an International Associate of Savills, a leading global real estate services provider listed on the London Stock Exchange. For more information on the company, please visit

About Savills

Savills> is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows and now has over 500 offices and associates throughout the Americas,Europe, Asia Pacific, Africa and the Middle East. A unique combination of sector knowledge and entrepreneurial flair gives clients access to real estate expertise of the highest calibre. Savills is synonymous with a high-quality service offering and a premium brand, takes a long-term view to real estate and invests in strategic relationships.

For more information about this release, please contact:

Yves LuethiVP for Marketing and Business Development, KMC MAG GroupTel: +632-403-5519 ext. 126Email:>


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Source: PR Newswire (Hong Kong Feed)

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