If you are a foreigner living in the Philippines sooner or later your mind will turn to buying property in the Philippines.
I am no expert on the subject and I still rent but after two years here, I am now seriously contemplating all of my options.
Those options are to carry on renting or buy a condo or a house.
First, a few general observations. By European or American standards, land and homes are still cheap here. For example, about US $100,000 will get you a nice 2-bedroom loft condo on 2 levels with balcony in Bacolod.
For much less, it is possible to buy a 3-bedroom, 2-story, 2 bathroom house in a Bacolod sub-division for about US $33,000.
You can add a substantial amount to those prices for Manila and probably Cebu too.
The thing to remember is the housing market is not fueled by foreigners or foreign investors. In the main it is fueled by Filipinos and in particular by Overseas Foreign Workers (OFWs). They are the men and women that work overseas and send remittances of around $26 Billion back to this country every year.
One article I found says this: In 2015, total cash remittances reached a record high of US$25.8 billion (or about 8.83% of GDP), up by 4.62% from a year earlier.
A great chunk of that money goes into the purchasing of lots and homes including condos. Many of those OFWs already have a family home thus the new purchase is for investment or their perceived future needs.
As I say, I am no expert but I do know the law of supply and demand comes into play in the housing market. And although house prices are cheap here compared to the west, I still can’t help thinking they are expensive for the native populace. The average wage is way below that of the UK or US.
That got me to thinking why land and homes are so expensive (looking through a local’s eyes). After all there is plenty of unused land here and it strikes me a large percentage of the population simply cannot afford the down payments and the regular monthly payments required to keep a roof over one’s head. So, where is the demand?
Part of the answer to that is a scheme called Pag-Ibig, which literally means ‘love’ in Tagalog, and is a government scheme to assist lower income workers to purchase affordable housing. It provides a fixed rate of 4.5% for 30 years for socialized housing units.
But for me, it still does not explain how middle income families can afford to buy in the rung on the ladder above the social housing bottom rung.
It becomes even more of a riddle when one considers another section of the same article:
Severe problems impede mortgage market growth. Few major banks offer housing loans. And although loan-to-value ratios of 90% are now in theory being offered and loan tenors can be as long as 30 years, in fact most loans are short-term. Banks are wary because land titling and registration problems are prevalent, as are lengthy delays in the foreclosure process due to the country´s very weak court system. Therefore approval of loan applications takes a long time. In addition inter-bank collusion prevails: different banks’ loans have strangely similar terms and conditions.
Property buyers also face high transaction costs, corruption and red tape, fake land titles and substandard building practices. Plus, the large informal housing sector and their incentives make it less attractive for low to middle income families to buy or rent properties.
Because of these factors, the ratio of residential mortgage loans to GDP remains small, at around 3.36% of GDP in 2015, a slight increase from 2.03% of GDP in 2009. Most houses in the Philippines are sold for cash or pre-sold, with the developers offering financing.
Therefore, it appears that it’s tough to fund the purchase of as new home if you need to resort to bank financing. It comes as no surprise then that every major bank’s website has a long list of foreclosed properties. Again, to my non-expert eye, is indicative of a malaise in the housing market here.
Everything I see and hear about the Philippines housing market reinforces my gut instinct that it is built on sand. Is it merely an illusion?
Or, as the same report makes clear, is the robust Philippines market economy fueling the housing market?
It’s a puzzle to me but then what do I know? 🙂
If you wish to know more about the availability of homes in the local Bacolod area here is a link to a reputable source of information:
This is a useful link to various sources of information about the economics of the Philippines housing market:
And another view of the same issues:
Disclosure – The link to Bacolod Realty will take you to a Facebook page operated by my partner and wife-to-be, Zabrina. I have no financial interest in Bacolod Realty or its business.
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Hi Stephen,
Good article. I enjoy reading your weekly posts.
The demand for houses does indeed come primarily from the overseas workers, since buying a home for their family is usually the primary reason they make the sacrifice of being away from their families for long periods. The peso has lost around 85% of its value compared to the US$ (which has also lost most of its purchasing power) since my first trip here in the 70s so they know better than to just keep their money in the banks.
John
Thanks, John and I am pleased you enjoy the posts. I also agree with every word you say about the housing market here.