Philippines Tax Authority

World Bank Philippines page

The Philippines property market remains attractive to foreign investors equipped with accurate information and awareness of the local legal regulations on foreign ownership. The Philippines will be impacted by global economic downturn, however, reforms and strict banking policies which the Philippines adopted after the 1997 Asian crisis should help the Philippines property market avoid severe credit problems such as the US and Europe are facing. The following will help you determine whether the Philippines property market is the optimum investment strategy to fulfill your objectives:

1.

Although prices in the Philippines property market have risen since 2004, strong ongoing growth is vulnerable to i) lower economic growth due to global economic slowdown and reduced consumer spending and ii) a 10% depreciation of the US dollar against the Philippine peso, impacting the ability of 8 million overseas Filipino workers to invest in the Philippines property market.

The Philippines is one of the cheapest places in Asia to buy a luxury condominium unit, offering strong rental yields for investors.

3.

Property developers are increasingly catering to local demand, including i) local Filipinos with rising incomes on the back of recent economic growth and ii) a growing professional expatriate community relocating to the Philippines for employment or retirement.

The Philippines government revised its 2008 growth forecast down to 5.7-6.5% from its previous target of 6.3-7.0%. But in September, the secretary of the Philippines' National Economic and Development Authority (NEDA) further reduced the 2008 forecast for Gross Domestic Product (GDP) down to between 4.4-4.9%. GDP growth projections for 2009 have also been reduced to a lower range of 4.1-5.1%.

The Economist Intelligence Unit (EIU) predicts 2008 GDP to be 4.5% with 2009 dropping to 3.9%. The five year forecast is for growth however, with 2013 figure predicted to be 5.7%.

The Philippines also faces the issue of inflation. According to the Philippines national statistics office, the latest monthly figure (October 2008), shows core inflation of 7.8%. While the EIU predicts inflation to drop to 4-4.5% between 2010-2013, inflation can have a negative impact on the Philippines property market by increasing the cost of borrowing and general living expenses, hence, reducing the buying power of investors.

In 1997, the Philippines experienced the biggest drop in property prices among all economies affected by the Asian financial crisis. Political crises contributed to a further deterioration of the Philippines property market from 1998 to 2003, until a mild recovery began in 2004. However, even with gains from 2005 to 2007, property prices were still 50% below their 1995 peak in real terms.

The strong position of parts of the Philippines property market could be the result of the initiatives put in place after the financial crisis. Tighter lending rules and the requirement for a substantial up-front cash payment help to protect against mortgage problems such as the US and other countries are experiencing.

Positive aspects of the Philippines property market include i) the climate of the Philippines ii) lifestyle values of Filipinos iii) strong population growth iv) proficient English speaking country v) western legal system vi) land title reform vii) regional proximity within Asia viii) tight property supply ix) low cost of living along with others.

By law, foreigners don’t have the right to buy land in the Philippines. However, foreigners are able to invest in the Philippines property market, including the sectors of residential real estate and commercial real estate. The three ways are:

Having a Filipino spouse

Foreign ownership as Philippine corporation

Property without land such as a condominium

The Philippines is hampered by its international image as a country to do business. This image is supported in its low ranking in the 2008 Corruption Perception Index by Transparency International. The Philippines ranked equal 141st out of 180 countries on this index, a decline in the rankings from 2007 where it was equal 131st (out of 179 countries).

For more information on the Philippines property market, call our Singapore office at (+65) 67350120 or contact us at email@healyconsultants.com