ANALYSIS PAPER ON THE STATUS OF REAL ESTATE INDUSTRY

IN THE PHILIPPINES

Presented to :

Presented by : Amelyn M. Balantac

Submitted on: April 18, 2023

INTRODUCTION / BACKGROUND

Real estate is defined as the land and any permanent structures, like a home, or
improvements attached to the land, whether natural or man-made. A real estate is a
form of real property. It differs from personal property, which is not permanently
attached to the land, such as vehicles, boats, jewelry, furniture, and farm equipment.
Real estate is considered real property that includes land and anything permanently
attached to or built-on, whether natural or man-made.

The terms land, real estate, and real property are often used interchangeably, but
there are distinctions. Land refers to the earth's surface down to the center of the earth
and upward to the airspace above, including the trees, minerals, and water. The physical
characteristics of land include its immobility, indestructibility, and uniqueness, where
each parcel of land differs geographically.

Real estate encompasses the land, plus any permanent man-made additions,
such as houses and other buildings. Any additions or changes to the land that affects
the property's value are called an improvement. Once land is improved, the total capital
and labor used to build the improvement represent a sizable fixed investment. Though a
building can be razed, improvements like drainage, electricity, water, and sewer systems
tend to be permanent. Real property includes the land and additions to the land plus
the rights inherent to its ownership and usage.

There are types of Real estate. First is Residential real estate, is any property
used for residential purposes. Examples include single-family homes, condos,
cooperatives, duplexes, townhouses, and multifamily residences. Second, Commercial
real estate is any property used exclusively for business purposes, such as apartment
complexes, gas stations, grocery stores, hospitals, hotels, offices, parking facilities,
restaurants, shopping centers, stores, and theaters. Third, Industrial real estate is any
property used for manufacturing, production, distribution, storage, and research and
development. Fourth, Land - includes undeveloped property, vacant land, and
agricultural lands such as farms, orchards, ranches, and timberland, and the last one is
Special purpose, it is property used by the public, such as cemeteries, government
buildings, libraries, parks, places of worship, and schools.

The real estate industry is facing great uncertainty due to COVID-19. At an

individual level, social distancing precautions have reduced house views, a key part of
the selling process, and both buyers and sellers are having to reconsider their plans.
Increasingly, sellers are looking for reassurance regarding the health of potential buyers
coming to view properties. Some brokers are offering house tours via Google Meet,
Zoom, and Video calls to minimize the risk of infection propagation. Brokers around the
Philippines are also asking potential buyers to preregister for viewings in order to gauge
their level of interest and likelihood of purchase. Additionally, thousands of workers
around the world have been made redundant or have been placed on a temporary,
unpaid leave of absence. Inevitably this will have a significant impact on individuals’
abilities to pay rent, mortgages, and various household expenditures.

According to Mydhili and Dadhabai, residential property is the most important

part of the real estate sector and has been foreseen as the main source in the
development of the market. Also, the Philippines is in growing motion in undertaking
environmental initiatives. The Philippine real estate industry’s stable development in the
previous periods is recognized as the rise in demand for residential and commercial
properties determined by numerous influences. According to Leechiu Property
Consultants, the demand drivers include increasing city population growth; residential
property needs of BPO (business process outsourcing) workforces; and overseas
Filipino workers (OFWs) remittances (Ortiguero, 2018). Central Bank of the Philippines
Consumer Expectations Survey results showed that a share of families deliberated last 3
months of 2017 was the right time to purchase a house and lot (Gonzales, 2018).
Likewise, condominium units provide people with a more reasonable way to
homeownership, converting the city tenure construction, from a city mainly
characterized by tenants to a mix of homeowners with changing levels of responsibility
for maintaining collective areas (Rosen & Walks, 2013; Kern, 2007; Lees, 1994; Cribbet,
1963). The level of importance of the consumers’ choice in terms of price, location,
safety and security, facilities and amenities, and exclusivity in the Philippines has not yet
been expounded. The value of the real property can be influenced by many factors, such
as location and type of use; however, when appraisers make/render an opinion of
market value, they must also take into consideration how typical buyers and sellers are
responding in the market.

The Philippines’ real estate sector contracted by 6.8% in 2020 because of the
COVID-19 pandemic. However, the market is anticipated to bounce back as a result of
an anticipated rise in demand from industries such as IT-BPM and offshore gaming, as
well as from e-commerce companies. As the country continues to urbanize, more retail
spaces and mixed-use townships open outside metropolitan areas. Rapid economic
recovery domestically and globally will likely strengthen the demand for both residential
and commercial spaces in large cities such as Metro Manila and Cebu City. Foreign
investors seeking attractive returns are likely to be enticed by the introduction of Real
Estate Investment Trust (REITs) and fewer restrictions in the retail real estate segment.

Despite the volatility in the global banking sector, the local banking system is
seen to exhibit the same stability as it does in the recent global financial crises.
Investments in real estate, however, may slow down amidst higher borrowing costs,
unfavorable market environment, and recessionary pressures on a global scale. The
overall economic improvement spurred greater activity in the retail segment resulting in
an upsurge in footfall and retail space demand. As the retail segment heavily depends
on household spending, the unprecedented price increases may dent its recovery
momentum in the short term as consumers may cut spending to mitigate the cost-of-
living crisis. (Claro Cordero Jr. , 2023).

The world is changing quickly, and since the pandemic hit, things have changed
even more in real estate status in the Philippines. In addition to consumers' altered
purchasing patterns, various markets are now welcoming millennial customers and
adapting their sales tactics for them. The Philippines' real estate market has seen a
change as a result. Along with the adjustments brought about by the epidemic, the
rising demand for office, commercial, and industrial space is transforming the real estate
market into one that is more realistic and sustainable. The real estate sector is
positioned to prosper in the coming decades as a result of technology making it simpler
for users to traverse the fundamentals of home buying.

OBJECTIVE OF THE STUDY

This analysis study about the status of the real estate industry in the Philippines
aims to help aspiring real estate agents stay up to date with the latest real estate
industry standards, rules, and regulations. This study aims to help develop a thorough
understanding of concepts unique to the real estate industry and develop the skills
necessary to analyze real estate markets, investments, risk, and financing.

SIGNIFICANCE OF THE STUDY

Whether you are considering being a real estate agent or wanted to augment
your knowledge of the industry, this analysis study on the status of the real estate
industry helps you stay up to date with the latest industry standards and regulations,
lets you market yourself as an agent in a competitive manner, and helps you to stay
current with the ever-changing market trends.
LITERATURE REVIEW

Real estate refers to the physical property technically define as land

and its attachment. It represents a significant portion of most people’s
wealth. There are two types of real estate property, commercial real estate
property, and residential real estate property. Typically, a property can be
purchased by an individual for their own use consumption, or for
investment purposes with the aim of earning a high return by selling it in
the future.

In the study of Lee, Jose & Ong, Eduardo. (2020) entitled Consumers'
Choice Factors for Buying Residential Property in the Philippines: An
Empirical Investigation. They studied and investigated the level of
importance of consumers’ choice mainly price, location, safety and security,
facilities and amenities, and exclusivity in the Philippines.
Price, location, safety and security, facilities, and amenities are great
factors to consider in buying properties.

Reshidi et al. (2015) stated that real estate Price-performance

increases due to an increase in demand and rapid economic growth and
recognizes the structural shocks that may affect both the demand and
supply sides. Based on studies real estate typically generates gross
domestic product (GDP), creates jobs, and is the source of a nearly big
percentage of local government revenues. Because of the significant
influence of real estate on the nation’s economy, housing starts, and sales
are widely viewed as leading economic indicators.

According to Romer (2017), globally, the real estate sector is one of

the most profitable ventures of several economies and one of the indices of
measuring the economic growth of a society. It mirrors the economic
viability and sustainability of an economy and its poverty level. In general,
the level of infrastructure development in a country says a lot about its
economic status.
METHODOLOGY

This analysis study used a qualitative approach. This qualitative design is concerned
with establishing the status of the real estate industry in the Philippines. The findings of
this study are gathered in a written format.

FINDINGS

After recovering from the COVID-19 crisis' effects, the country's real estate market is
expected to have excellent chances of continuing to improve this year 2023.

Last year, the Philippine GDP grew by 7.6%. According to the business world
online, this expansion, which is the nation's fastest in more than 40 years, could be a
"positive signal" for the real estate market. This is due to the market's reflection of the
nation's economic output's boom-bust cycle throughout the past decades. It is
anticipated that this economic expansion will help the office and housing sectors.

The office market in the Philippines is recovering unevenly but steadily, helped by
consistent transaction activity in Metro Manila and provincial locations becoming a
cornerstone in locators' portfolios.

In the meantime, occupancy in the hotel sector is anticipated to increase this

2023 as tourism also improves. According to the business world online, the average
hotel occupancy rate in Metro Manila increased to 55% in the second half of 2022 from
the first half's 47%. Colliers predicted that by 2023, average hotel occupancy in Metro
Manila would surpass 60% due to increased foreign traveler arrivals and the local
staycation market's sustained expansion.

ANALYSIS AND DISCUSSION

With a projected gross value added of 529 billion Philippine pesos in 2021, the
real estate sector is a major contributor to the Philippine economy. Filipinos' purchasing
and investing power in real estate holdings have been steadily rising in recent years as a
result of the expanding middle-class population and the consistent remittances from
overseas Filipino workers (OFWs).

Residential real estate in the Philippines

The Philippines has a diverse range of residential real estate, from public and
private dwellings to middle-class subdivisions, condominiums, and affluent
communities. In 2020, a poll found that the majority of Filipino households resided in
single-house units, with more than half either owning the home outright or having a
possession that is indicative of ownership. Apartment rentals, buy-to-own home
purchases in subdivisions, and condo leases are all quite typical in major areas like
Metro Manila. The typical selling price might be as high as 220,000 Philippine Pesos per
square meter for a condo unit, depending on the size of the property.

The demand for inexpensive housing has, however, never been higher due to the
departure of households from rural areas. Low-income families have an increasing and
ongoing need for socialized and affordable housing as a result. Additionally, the
Philippines' geographic location puts it vulnerable to natural calamities, which makes
the nation's housing situation even more difficult. A resolution was accepted by
government organizations and the commercial sector to alleviate the housing shortage.
It would hasten the inventory of unused public lands and speed up the creation and
release of socialized housing for the expanding number of settlers who live informally.

State of commercial real estate

Office space, industrial properties, retail stores, and hospitality assets make up
commercial real estate, which is steadily recovering from the COVID-19 pandemic's
effects. The Information Technology and Business Process Management (IT-
BPM) business dominates the demand for office space, but the Philippine offshore
gaming operators (POGO) sector is anticipated to rebound in the near future. As
businesses reoccupy office space, the vacancy rate of offices will also improve in the
ensuing years. The vacancy rate for retail properties has also decreased, particularly in
Taguig and Makati, the areas with the greatest concentrations of shopping centers and
retail establishments. Future retail real estate supply in the nation will continue to be
dominated by the industries of food, beverage, clothes, and apparel.

Highs and lows of Philippines real estate

The Philippine real estate market has matured into an established industry that
now makes a considerable contribution to the nation's economy as it continues to ride
the ups and downs of a cyclical market, from international financial crises to instability in
politics to the current pandemic.

Although the Philippine real estate sector has had periods of recession and
difficult financial conditions, as can be observed from the past, it always returns to
expansions in concept and design and a general property boom.
 The pandemic continues to provide a challenge to real estate players as
uncertainty lingers, but with the economy's progressive, optimism has begun to build
among property advisory firms. Return-to-office initiatives, which are anticipated to fuel
economic recovery, have also begun to be implemented by numerous enterprises.

Although the economy is expected to gradually open up this year, the pandemic
still presents a hurdle to real estate companies. Despite this, optimism has started to
grow among property advisory firms. Numerous businesses have also started to
undertake return-to-office efforts, which are expected to accelerate the economic
rebound.

Although difficulties may yet lie ahead, the real estate industry has already shown
that it is strong and resilient, able to adjust its tactics and keep up with the constantly
changing environment.

Philippine Real Estate Industry 2023: Expert Predictions and Expectations

The Gross Domestic Product (GDP) of the Philippines is heavily influenced by the
real estate sector. Real estate seems to be a strong industry with lower risks compared
to other long-term investment vehicles in the face of inflation and a pandemic, like what
the global community experienced in 2020. The real estate market's general forecast for
the days and months ahead in 2023 is positive.

1. Philippine Property Recovery Will Persist

According to a survey published by Lobien Realty Group, commercial real

estate had an outstanding year last year. The survey also shows that the
average lease rate for these commercial buildings and retail spaces in the
National Capital Region (NCR) is 1,150 pesos per square meter, or 21%.

The property consultant organization projects its hope that 2023 would be
a year to continue the Philippine real estate market's recovery from all the
economic hardships faced since the onset of the epidemic. This rising trend is
what gives rise to their optimism. Furthermore, according to Lobien,
warehouse facilities will expand. In actuality, this industrial real estate sector
was the only one to rise by 8.2 percent while the epidemic was still going on.

It goes without saying that a large portion of this gain was caused by the
phenomenal increase in e-commerce sales that occurred during the pandemic
when the majority of physical retail outlets were forced to close due to
concerns over the spread of the coronavirus.
2. Real Estate Property Prices Will Increase

A rise in market demand is partly responsible for rising real estate property
prices. In addition, one of the main economic hindrances driving up housing
prices is the nation's increasing inflation rate and consumer price index (CPI).
Inflation rose from an 8 percent rate in November 2022 to an 8.1 percent rate
in December of the same year. The Bangko Sentral ng Pilipinas (BSP) recorded
an inflation rate of 8.7 percent as of January 2023, which is 0.6 more than
December 2022.

Another factor influencing the increase in real estate property values is

rising interest rates. The growing demand for real estate holdings has led to
higher interest rates. Additionally, this rise makes it more difficult for
borrowers to apply for and be approved for loans.

3. Property Supply Will Remain High

In its official report, Colliers, a leading property investment consultancy

company, deduced that the improvements in office leasing deals, greater
supply and demand in the pre-selling condominium market in Metro Manila,
and an upsurge in hotel occupancies and average daily rates (ADRs) in 2022,
among others, will spill over 2023.

a. Office. Colliers believes that there will be a positive net take-up for the
office sector this year. This means that the supply of commercial spaces
will be met with high demand and actual physical occupation of
leading industries such as IT-BPM companies and other sectors in the
legal, government, and engineering fields. With this, Colliers
encourages office developers to take advantage of this recovery in
office leasing and build new office towers.

b. Residential. Colliers' housing market predictions conclude that there

will be 5,600 new condominium units. In the latter part of the year
2024, the total number of condominium units in Metro Manila's major
business districts is expected to reach 166,400 units. As this part of the
residential market recovers, Colliers urge real estate developers to
invest in "sustainable and green features," as well as to integrate
favorite amenities such as large, open spaces and greener areas.

c. Retail. Colliers sees the completion of 448,900 square meters' worth of

new retail spaces this year. Colliers also expects that rents will recover
due to the improvement in retail space absorption and an increase in
mall consumer traffic. Both foreign and local retailers are also
anticipated to occupy physical mall spaces, as more and more
shoppers frequent malls as they do during pre-pandemic times.
 d. Industrial. With the new administration pushing for better
industrialization, Colliers deems it highly likely that investing more in
the manufacturing sector will be instrumental in the bigger inflow of
investments. To boost economic growth outside the metro, prioritizing
this sector will greatly benefit industrial parks located in the provinces,
particularly in northern and central Luzon. Colliers also reported that
about 112 hectares of industrial supply are set to be available in the
provinces of Laguna and Batangas.

e. Hotel. Finally, hotel occupancies are also expected to continue

increasing in this post-pandemic setting. According to the Department
of Tourism, the targeted 1.7 million foreign arrivals were already
exceeded and reached 2 million as of November 14, 2022. With eased
travel restrictions and the state-greenlighted resumption of classes and
physical meetings, the hotel sector, Colliers confides, can expect the
opening and development of more hotels.

4. OFW Remittances Will Continue Being a Boon to PH Property Market

The demand for residential real estate in the nation has always been
heavily influenced by Overseas Filipino Workers (OFWs). The demand for new
housing units will be fueled, according to all official reports, in part by
remittances from overseas Filipino workers.

OFWs have consistently had a significant impact on the market for

residential real estate in the country. According to all official reports, the demand
for new housing units will be generated in part by the remittances of Filipino
workers who are employed abroad.
CONCLUSIONS / PERSPECTIVES

One of the most essential life objectives anyone can have is to own a property.
After a long day of work, nothing compares to the thrill of arriving at your front door.
Sadly, despite the fact that the size of the country's territory doesn't change, every new
year sees an increase in the number of Filipinos. Add to that the reality that the most
sought-after areas are either booked solid or too expensive for the majority of Filipinos.
The desire for every Filipino to own a home can still be realized, according to the real
estate market in the Philippines and its numerous local developers.

The experiment of using work-from-home as the primary style of employment is

about to come to an end. Most businesses have already resumed operations, so many
employees are back at work. However, this rush of activity surrounding the return to
regular work highlights a few crucial aspects. First off, COVID-19 is still very much alive
and the epidemic is still far from ending. Therefore, whatever progress made in 2022
could potentially disappear in a split second. Second, the world economy is still in a
perilous position.

Overall, the outlook for the Philippine real estate market in 2023 is quite positive.
All of the developers believed that the industry's growth momentum from 2022 would
carry over into this year and push it even further. Additionally, it is anticipated that the
following patterns will continue to emerge starting in 2023:

a. The national government keeps upping its efforts to upgrade important

infrastructure and transportation hubs. These initiatives seek to reduce traffic
on Metro Manila's highways while enabling provincial centers to develop into
metropolitan hubs. The Cavite-Laguna Expressway, MRT-7, LRT-1 Cavite
expansion, and North-South Commuter Railway are also expected to be
finished within the next three years. Additionally, the expansion of Clark
International Airport to accommodate more daily travelers can aid in the
movement of people and commerce to Pampanga and nearby provinces. The
daily journey of suburban workers into and out of Metro Manila will be made
easier by these new transportation hubs, which will also provide accessibility
to the surrounding provinces.
b. Many households continue their spending patterns into 2023 despite the
current concerns about inflation. Many families have been idle for the past
few years due to the extended periods spent indoors and the scarcity of
transportation options. With the economy improving, many are turning to
spending in retaliation and making far larger purchases than the typical
Filipino does on a regular basis.
c. The Department of Trade and Industry (DTI) claimed that international
companies have committed to investing more than P500 billion between 2023
and 2024. The present administration's efforts to revitalize the nation's
industrial sector will be aided by these investments. New business parks are
 being built and developed by developers right now. This is especially true for
regions that gain from better transportation infrastructure.
d. The further decongestion of Metro Manila is also anticipated for this year. In
fact, they noted that some outsourcing corporations and significant local
businesses are reevaluating their business continuity plans. Many companies
are hiring local people to fill their various positions as they realize that remote
work is the future of business. In the beginning, the dispersion of business
from Metro Manila necessitates a rush to build offices and centers in
important regions. To meet the need for residential dwellings, a similar step
was also inspired by the first. This is particularly true in other important
provinces like Baguio, Pampanga, and Iloilo.

The data and trends indicate that the real estate market will perform well in 2023.
A restoration to the nation's pre-pandemic levels of prosperity may be pushed by the
openness of the market to domestic and foreign companies as well as the projected rise
in purchasing power. The country will become more appealing to investors as long as
infrastructure, transportation, and the economy continue to grow. The real estate market
in 2023 has the greatest potential of any sector.

The most, if not all, important signs show that real estate investing will continue to
be a successful business for investors in 2023. With predicted real estate price increases,
this is the perfect time to invest in the Philippine real estate market and benefit from
long-term property value growth.

Delaying your real estate investment and home-buying journey may not be the
greatest decision if you have the money now. A global viral outbreak and other periods of
an economic slump are not known to have a significant impact on the real estate market.
Because of this, investing in this industry carries lower risks but has a higher likelihood of
generating the necessary profits in the future.
REFERENCES:

[Link]

Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., Agha, M., &
Agha, R. (2020). The socio-economic implications of the coronavirus pandemic
(COVID-19): A review. International Journal of Surgery (London, England), 78, 185-
193. [Link]

Lee, Jose & Ong, Eduardo. (2020). Consumers' Choice Factors for Buying
Residential Property in the Philippines: An Empirical Investigation. International
Journal of Research in Business and Social Science (2147- 4478). 9. 271-276.
10.20525/ijrbs.v9i4.732.

Mydhili & Dadhabai, 2019)

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