It's 'a great time for PH property market' - NEDA chief

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Metro Manila (CNN Philippines) — With an average gross domestic product (GDP) growth rate of 6.2% per year from 2010 to 2014, the Philippines has emerged as one of Southeast Asia's fastest growing economies. The figure represents the highest growth in nearly four decades, according to the National Economic and Development Authority (NEDA).

For 2015 and 2016, the Asian Development Bank expects the economy to grow by 6.4% and 6.3%, respectively, compared to South East Asia's 4.6% and 5.1% rates. Similarly, the World Bank projects the GDP to grow by 6.5% this year and the next.

The country's balance of payments (BOP) recorded a surplus of $1.68 billion during the first half of the year, subsequently putting the government on pace to reach its $2 billion surplus forecast by the end of the year. Likewise, inflation dropped to a record low of 1.2% in June, sitting within the lower half of the government's 1.1%-2.0% target for 2015.

'Dramatic change'

NEDA chief Arsenio Balisacan believes that the country's economic gains have been a boon to 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," he said in a speech last week (July 28) in a summit organized by the Land Registration Authority (LRA) and The Organization of Property Stakeholders, Inc.

"While the property industry has already been doing very well in the past few years… 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," he added.

Growing sectors

According to the NEDA chief, rapid urbanization and the accompanying rise of the residential sector are key sources of growth for the property market. He revealed that as of 2010 a little under half (48.6%) of the population lived in urban areas. The number is projected to rise to 56.3% by 2030 and 66% by 2050.

Balisacan mentioned that the demand for residential properties is mainly driven by the middles class, and particularly overseas Filipinos who repatriated about $24.3 billion last year — nearly a third ( $7 billion) of which went to property investments.

The services sector was also mentioned as a driver of property market growth. Statistics from NEDA show that the sector accounted for 57% of the country's GDP growth last year.

"This excellent performance of the [BPO] 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."

Retail and hotel property markets are also expected to buoy the property market.

Balisacan said that projections point to a growing expansion and market share of malls in the provinces. According to the NEDA chief, some studies suggest that more than half of total retail property supplies will be found in the provinces by 2018.

Likewise, "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."

"Without a doubt, this is a great time for the Philippine property market," Balisacan said. However, he pointed out that major challenges — such as weak public infrastructure, low property market transparency, and restrictive ownership rules —have to be addressed in order to maximize the sector's full potential.

Challenges remain

According to the NEDA chief there is a constant need for the infrastructure system to keep up with rising demands in the "fast-growing economy, especially these days as new property investments flood the market."

Although Balisacan said that investors and developers look for stable laws and regulations surrounding their investments, he noted that "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."

Balisacan also said that access to financing also plays a crucial role in real estate. "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"

Looking ahead

Balisacan believes that the growing population of the country's young professionals will 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."

"[T]he property sector in the Philippines is at the forefront of Philippine growth in the medium and long term," he added.

By the year 2040, 66.8% of the country's projected population of 141.7 million will be part of the 16-64 age bracket, according to the National Statistical Coordination Board.

This essentially means that the Philippines is on the cusp of what the Bangko Sentral ng Pilipinas (BSP) defines as a "demographic sweet spot" — that is, a demographic window.

The economic phenomena marks a period when a country has the most number of people available to participate in its workforce.