Lamudi takes a look at the advantages and disadvantages of allowing foreign property ownership in the Philippines.
To say that Philippine real estate is fast becoming a favorite among buyers abroad is quite an understatement. In fact, an article published in ABS-CBNnews.com reported that Asian investors—from Malaysia to Japan—are snapping up condo units in bulk. These buyers are favoring the Philippines over Hong Kong and Singapore, where the authorities have put in place cooling measures to rein in property prices.
“There has never been this strong interest in the Philippine property market,” said Colliers International’s David Young in an interview. But despite this, the Philippines still does not allow foreign ownership of real property; foreigners, however, can purchase condo units so long as foreign ownership in a single project does not exceed 40 percent.
This may seem counterintuitive, because more established property markets allow freehold foreign ownership of real estate to attract investment and create more wealth. Hence, it makes sense for the Philippines to follow suit. By doing the opposite the Philippines may be thwarting its competitiveness.
To look into this issue closely, Lamudi Philippines compiled a list of the pros and cons of allowing foreign ownership of real property in the country.
PROS
1. Foreign Investment on Real Estate Will Boost the Market
The residential real estate market will get a boost if some of the restrictions imposed on foreigners are lifted, said David Leechiu, JLL Philippines Managing Director and Country Manager.
In an interview with the Philippine Daily Inquirer, Leechiu said that the total worth of the Philippine real estate industry could jump from $48 billion reported in 2011 to $300 billion by 2031, if certain structural changes were made, such as relaxing rigorous rules on foreign ownership and longer lease terms.
Although the Philippines’ macroeconomic fundamentals are sound, Leechiu said it could do so much better if it were less restrained.
2. The Country May Benefit from More Substantial Investment
According to Charlie Gorayeb, Chairman of the Chamber of Real Estate & Builders’ Association (CREBA), foreign investment into real estate will attract much-needed capital, which will unleash the multiplier effect of construction and real estate sectors into other industries. This multiplier effect will impact sectors closely related to real estate, and will provide additional opportunities for local businesses and employment.
3. Benefits Will Spill Over to Other Sectors
For many years the Philippines has lagged behind its neighbors in Southeast Asia when it comes to attracting foreign direct investment. According to experts, this is due in part to the country’s restrictive business climate, particularly when it comes to foreign ownership of properties. Allowing foreigners to own land for industrial and commercial purposes will benefit the manufacturing sector, which will boost employment opportunities for many Filipinos.
Cons
1. It May Cause Property Prices to Skyrocket
In certain cases, allowing foreign money to come in freely is not entirely a good thing. For example, London has become too attractive to rich property buyers from Russia and the Middle East, which drove prices too high and priced locals out of the housing market. At the moment prices of houses and condos in Metro Manila are already beyond the reach of most Filipinos, so allowing foreigners to freely purchase may push prices even higher.
2. It May Spur Speculative Purchases
Speculative purchase of property—the kind that take large risks in the hope of making quick, huge gains—could be intensified when the gates are opened to foreign property buyers. This could pose danger to the real estate market, which could go through a period of irrational exuberance, fueling the formation of a real estate bubble.
3. Lands Acquired by Foreigners May Be Converted for Another Purpose
There are certain property types that if they get sold and converted into another use may do more harm than good to the local economy. Examples of these properties are agricultural land. According to Gorayeb, there should be some mechanisms of control to protect local interest. Agricultural lands, for example, should remain as such even when they are purchased by foreigners, and in order to protect our natural resources foreigners should only be allowed to purchase disposable or alienable land.
REFERENCE & MEDIA CONTACT
Rodel Ambas
Content Editor, Lamudi Philippines
Email: rodel.ambas@lamudi.com.ph
Phone: +63 917 3015127