Investors studied and learned that the real estate industry is feasible due to the three key macroeconomic variables. These are Robust economic growth potential, low levels of interest rates and planned big-ticket infrastructure spending. How do these factors work will be discussed briefly below.
In the first half of the year, the Philippines had a slow start of economic growth. Despite this, analysts are confident that the economy will regain in the remaining months. True to this, the country recovered in the latter half of the year. Also, it is considered as one of the fastest-growing markets in the world.
Although the year started slow, the Philippines is still on the right track. As foreseen, the country can still double the gross domestic product at around $700 billion within the next six years. By 2032, it is expected that the Philippine economy to breach one trillion dollar mark. The GDP growth rate, however, must be between 6% to 7% every year for the next decade.
It is greatly anticipated that the projected economic growth will be on higher levels of personal disposable income. By 2030, the annual per capita income is expected to be at around $5,000. If you check it from the previous year, 2018, the annual capita income was only around $2,500. This proves the gradual development of the country over the years.
The economic overall growth is the key factor for capital appreciation in the country. It has two main reasons.
1. The higher economic development is the higher levels of disposable income of individuals. To elaborate, here is an example. If an individual experienced an increase in personal income, the demand for residential real property and commercial property is imminent. Real estate investment for houses and condominium units is the best option.
2. The higher the economic growth is the higher the population is encouraged for investment. This results in a higher demand for office spaces and warehouse spaces across the country.
The governor of the Bangko Sentral ng Pilipinas (BSP) is Benjamin Diokno. He implemented a reduction in the tightness of financial markets through the cuts in some of the banking rates.
It is evident since he had slashed the policy rates twice this year. The basis point is 25 in April and 25 points in early August.
As of today, the reverse overnight repurchase rate stands out at around 4.25%. This is based on the main policy rate of the BSP.
Also, Governor Ben Diokno intends to bring this figure down up to 3%, fully reversing the 175 basis point rate hike from 2018.
In addition, Diokno is looking forward to decreasing the reserve requirement ratio of banks lower than 10%. For illustration, the reserve ratio requirement is currently at 18%. This is the highest rate in the Asia Pacific region.
With these adjustments, the real estate investments benefit in three main ways.
1. The lower interest rates allow investors to finance asset acquisition using cheap debt.
2. The interest rates have a reverse relationship with asset prices. For example, as the rates go down, the value of assets like land increases.
3. Low-interest rates improve real estate asset liquidity. This allows more investors to sell their property easily. Improving real estate investment status.
Planned Big Ticket Infrastructure Spending
The last but definitely not the least factor is the success or failure of the current administration’s “Build Build Build” Initiative. It can make or break the country’s rapidly growing real estate market momentum.
There are three multiple big-ticket infrastructure projects that are worth billions of pesos. Once it is completed, it will have a very significant impact on property values within and outside the National Capital Region (NCR). These projects are allocated in the Bulacan Internation Airport, Metro Manila Subway System, and Manila Malolos Clark Railway.
- P743 B Bulacan International Airport Project
Bulacan International Airport is a world-class airport that can accommodate over 100 million passengers per year. It is said to be built and operated by Ramon Ang’s San Miguel Corporation.
It targets to exceed the Ninoy Aquino International Airport that can only handle 31 million annually.
- P350 B Metro Manila Subway System
A world-class train system is the main idea for the Metro Manila Subway System. It aims to connect the entire capital by train.
Once it is fully functional, it will run for 36 kilometres to connect seven cities and three central business districts through fifteen stations. By 2025, the government expects it to operate.
- P225 B Manila Malolos Clark Railway
A 106 kilometer long railways system is proposed in Manila Malolos Clark Railway. The 17 stations would connect the Clark Freeport Zone, Bulacan, and Tarlac to the National Capital Region.
After the construction, travelling is more convenient and faster between Manila and Clark. This railway project aims to stimulate economic development to the nearby provinces of Metro Manila.
If the Philippines maintains its worldwide ranking, the projected economic growth is possible. This will lead to the accomplishment of the proposed projects for the country. Once all of this is completed, the citizens will benefit the most. Let us help and improve our economy by promoting real estate investment.