Foreign direct investment (FDI) into the Philippines has been rising in recent years. But what does this mean for the country’s real estate market?
A report released last week by fDi Markets revealed that FDI into the Philippines has risen year-on-year since 2011.
In 2011, a total of 81 investment projects were recorded, bringing capital expenditure (capex) for that year to US$4.2 billion. By 2014, 160 projects generated capex of $7.42 billion. Over the four-year period, the number of jobs from FDI projects increased nearly 85 percent while total capex rose 78.5 percent.
This follows a record-breaking 2014 for FDI in the Philippines, with inflows surging 66 percent to reach $6.2 billion, up from $3.7 billion in 2013.
Sluggish Growth in 2015
Although FDI was sluggish in the first seven months of 2015, the Joint Foreign Chambers remains confident that net inflows will pick up in the second half of this year. Net FDI inflow for the first half of 2015 was $2 billion, 40 percent lower than the same period a year earlier.
Restrictions on foreign investment in the Philippines remain. In July, a report from the Economic Research Institute for Asean and East Asia (ERIA) named the Philippines as one of the more restrictive economies in the region for foreign investors. The ERIA report pointed out that Executive Order No. 98 or the ninth regular Foreign Investment Negative List signed by President Aquino in 2012—which sets out which investment areas and economic activities foreigners are prohibited from participating in—has been particularly restrictive when it comes to attracting FDI.
At the same time, the Philippines trails behind many of its neighbors in attracting foreign investment. In 2013, total FDI in the country was $3.7 billion, lagging behind neighbors including Indonesia ($18.4 billion) and Thailand ($13 billion).
Implications for Real Estate
Real estate and construction have been two of the main sectors to benefit from the increase in FDI over recent years. The property market has remained attractive to real estate investors because of the Philippines’ strong economic growth, growing demand from the business process outsourcing sector (BPO), and a construction boom.
As FDI growth has stalled in 2015, the real estate sector has also felt the pinch. Earlier this year, the Department of Trade and Industry noted that pledges for real estate projects had nearly halved to Php9.09 billion in the first quarter of 2015, down from Php17.95 billion for the same period in 2014.
The recently revised Foreign Investment Negative List, signed by President Aquino in May, has implications for real estate. Under the changes, the government allowed non-Filipinos to practice in certain professions, including real estate services and interior design. However, foreign ownership of private lands is still prohibited.
