Interview: Manuel Paolo A Villar
What will be the balance between high-end developments and low-cost housing in the coming years?
MANUEL PAOLO A VILLAR: Growth has been experienced in both low- and high-end housing, each fuelled by different factors but centred on the strong macro fundamentals of the Philippine economy. Demographics have been a major driver for increased demand for housing products, particularly as the population continues to grow and the median age remains just over 23 years, while the residential market faces a shortage of quality housing stock and a backlog of over 4m units. Given these conditions, the potential for residential developments is immense, primarily middle-class housing but also high-end products. The latter’s growth has less to do with demographics and more to do with investment-driven demand generated by confidence in the overall Philippine growth story and political stability.
Condominium demand has also risen in response to the investment-driven market created by higher demand for rentals in the metropolis, mostly catering to business process outsourcing agents and the emerging middle class. There has also been a growing foreigner demand component for condominiums, which is not present in middle-class housing. Given that 40% of condominium units in a high-rise development can be sold to foreigners, who otherwise are not allowed to own land in the Philippines, this demand is expected to grow.
The scarcity and costly nature of land in Metro Manila hampers efforts to provide affordable housing to low-income individuals. Decentralisation, through government promotion of provincial centres and areas, is important to decongest the metropolis from residential developments but also commercial centres, as people prefer to reside near their workplaces. For these efforts to be viable there must be supporting infrastructure and mass transit extending to the outlying provinces, where affordable land and housing exists. Another solution is to have dense housing in Metro Manila, with the government providing land and subsidies for very-high-density housing projects.
What value proposition do regions outside of Metro Manila offer for residential expansion projects?
VILLAR: Rising purchasing power in the provinces, not just in Metro Manila and first-tier provincial cities, has fuelled the need for housing and incentives for real estate developers to establish a presence in less well-known regions. The Philippines has over 10m overseas Filipino workers whose income is not correlated with the economic development of their regions. As a result, we have economically underdeveloped areas with strong purchasing power due to the large number of families with members who are employed overseas. Outside of Metro Manila the majority of housing consists of affordable or low-cost products, with the exception of a few higher-end vertical developments in first-tier provincial cities such as Davao or Cebu.
On the commercial front, prospects are also very good in the provinces due to strong consumption demand and purchasing power, which is rising quickly from a smaller base. Due to a lack of quality commercial retail stock, the provinces offer massive growth areas for the development of retail malls and modern facilities. There are challenges in establishing large commercial and residential centres in areas with inadequate infrastructure, however, which is why participation from the government is key. The government has endeavoured to build airports, seaports and roads, all of which will help the development of provincial areas.
What can be done to increase access to mortgages?
VILLAR: Existing tax incentives for affordable housing are crucial in maintaining growth in this segment, particularly as the government is not heavily involved in the large-scale building of housing units. The government participates actively in the housing market through various housing agencies that provide low-interest long-dated loans to its millions of members. The Philippines’ good macroeconomic fundamentals, including a historically low interest rate environment, have also helped make mortgage financing more readily available.
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