“Can I buy a house in the Philippines?”
This is perhaps the most common question that sellers, brokers, and agents get from foreigners looking into owning a property in the Philippines.
Take the case of Ron Lin, a Taiwanese-American living in Fort Bonifacio. As an employed expat, the monthly rent for the flat he’s currently staying in is being paid for by his company. But because he sees himself and his wife settling in the Philippines for the long term, he’s considering buying a property here. There’s a catch, though: he is not a Filipino citizen and he’s reduced to buying only a condominium unit. Even with that there are restrictions.
Then there’s the case of Ian and Maritess Gray. British national Ian and his wife reside in Singapore, but they decided to purchase a lot in one of Ayala’s posh townships in Laguna, which was registered under Maritess’ name. However, Philippine laws prohibit Ian from inheriting the property if his wife passes away, so one can imagine his hesitation before they were finally prodded to make the purchase.
Ron’s and the Grays’ cases are just of one of many. Fuelled by a buoyant economy, a vibrant outsourcing sector, and promise of good returns, Metro Manila’s (and the Philippines’) housing market is fast becoming attractive to foreign buyers.
The Philippines’ current real estate boom, according to many, is unprecedented, something not seen since before the onset of the Asian financial crisis in 1997. In fact, a real estate salesperson for Alveo Land I spoke with admits that she gets plenty of inquiries from Korean, Hong Kong, and Singaporean buyers—one of the reasons why her company is ramping up effort to boost international sales through property events and partnering with brokerages in Singapore and Hong Kong.
Despite this, property ownership here remains highly regulated. Although the Philippines is not the only Asian country that prohibits foreigners from owning real property, ours arguably is one of the most restrictive.
Foreign nationals definitely are not allowed to own land (though there are a few exemptions to this) and if they are investors and want to acquire one on a leasehold basis, they can do so but only for a period of 50 years, which may be extended to another 25 years. Individual foreign buyers, in contrast, may lease land for a maximum period of 25 years only, which can be extended for another 25 years.
There is another legal way for foreigners to own land, and that is through a duly registered company. However, the company must be at least 60 percent Filipino owned and that there must be at least five people sitting on its board. Similarly, under the Condominium Act, not more than 40 percent of a condo project can be sold to foreign nationals with the other 60 percent reserved to those deemed Filipino nationals.
To some, this restriction is detrimental to economic growth.
Impact of Restriction
The Philippines, despite outperforming its neighbors’ economic growth in 2013, has one of the region’s most restrictive property-ownership regimes. It’s no coincidence then that we also attracted the lowest foreign direct investment (FDI) among ASEAN’s big economies (i.e., Indonesia, Thailand, Malaysia, Singapore, and the Philippines), which according to the Center for Strategic and International Studies stood at $2.8 billion in 2012, a far cry from Singapore’s $56.7 billion for the same year.
Citing a study commissioned by the Organization for Economic Cooperation and Development (OECD), Charlie Gorayeb, former national president of the Chamber of Real Estate and Builders’ Association (CREBA), pointed out that some countries were quick to realize the powerful roles foreign investors could play in fueling local economic growth. Two of them are in Southeast Asia: Malaysia and Thailand. Malaysia specifically is not only liberal when it comes to foreign ownership, it even encourages foreign nationals to purchase properties there. Unsurprisingly, in 2013 alone Malaysia attracted $12 billion of FDI.
“The view of the business community has always been one of pragmatism,” says Guilberto Luz, private-sector chairman of the National Competitiveness Council, which is to allow foreign ownership of land if it boosts foreign direct investment.”
Many believe that the housing market will get a boost if some of the restrictions imposed on foreigners are lifted. Something that David Leechiu, country head and international director of global estate consultancy firm JLL Philippines, encourages.
Leechiu says,
[Allowing foreign ownership] is just a way of expanding the demand of your market.
If the Philippines went to a crisis, the free fall will be overwhelming and the drop of [property] prices will be huge, said Leechiu, similar to what happened in the aftermath of the Asian financial crisis when prices of luxury condos plummeted 18 percent between 1997 and 1998 and 56.2 percent between 1997 and 2004.
[But] if you are an open market—if you allow outside parties or investors—the free fall won’t be as big, because there is a bigger market to catch,
says Leechiu.
Picture Not Always Rosy
But allowing foreign money to pour in freely is not always a good thing, and other places will attest to that. Vancouver is one such example, which became Canada’s most expensive city to own a home, thanks partly to cashed-up Chinese buyers who have been snapping up houses left and right since the early 2000s.
According to real estate consulting firm Knight Frank, Vancouver saw property prices jump 10.4 percent from 2010 to 2011 alone. In December 2012, the average price of a home stood at $734,207, compared to Canadian average of $358,261, data from the Canadian Real Estate Association show.
Closer to home, Hong Kong is another market that has gone too red hot thanks to foreign money. (Although Hong Kong does not allow private freehold ownership even to locals, foreigners can purchase condos without restrictions.)
Already one of the world’s most unaffordable housing markets, the average per-sqm price of a home in some of Hong Kong’s prime areas stood at $47,500 per sqm in 2011. Growing wealth of mainland Chinese and China’s property restrictions have led to an influx of buyers into the city, much to the dismay of local buyers. Industry estimates show that thee in 10 deals in Hong Kong’s luxury property markets are done by mainland Chinese buyers, and data from Knight Frank show that the territory’s housing prices grew a staggering 93.7 percent over a 5-year period from the fourth quarter of 2006 to the same period in 2011.
Keeping the Market Hot, But Not Too Hot
So how then do we make sure that this doesn’t happen to the Philippines?
The privilege granted to foreigners to purchase property, according to Gorayeb, must not come without corresponding mechanisms of control though.
In fact, some of these are already covered by existing laws.
For example, in order to protect our natural resources, those lands that can be acquired by foreigners should be limited to those classified as alienable or disposable. He adds that agricultural lands purchased by foreigners should remain as such, and to channel investment to poorer areas, foreign ownership should be encourage to underdeveloped areas to spur growth.
We can also follow the example of Malaysia, which prohibits the purchase of medium- or low-cost properties for foreigners, a rule put in place in order to regulate the affordable-housing segment.
The government definitely needs to provide safety nets,
says Leechiu. But then he quickly added that there isn’t any policing going on anyway and no safety net being provided by the government as well.
There’s no difference so you might as well open the market up and generate more wealth.
Leechiu also says that the chances of Metro Manila ending up like Hong Kong or Vancouver if we allow foreign money to come in are pretty far-fetched, if not too ambitious. Our real estate market may be outperforming when it comes to capital gains and rental yield, but Metro Manila’s infrastructure and quality of life are light years away from those of the world’s most livable cities, so don’t expect foreigners rushing in when we finally open the gates.
Leechiu used the province of Pangasinan as an example.
Do you know how cheap land is in Pangasinan? Ten pesos per square meter. So for Php1 million you get 10 hectares. Why then are we not rushing to the province to snap up every available parcel? Because we don’t see any business sense in doing so. Apparently, international property buyers have the same mindset.
