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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 favor 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 as long as foreign ownership in a single project does not exceed 40 percent.
This may seem counterintuitive because more established property markets allow foreign freehold 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 has compiled a list of the pros and cons of allowing foreign ownership of real property in the country.
Pros
1. Foreign investment in 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. These changes include relaxing rigorous rules on foreign ownership and allowing 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 a 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, unleashing the multiplier effect of construction and real estate sectors into other industries. This multiplier effect will impact sectors closely related to real estate and provide additional local businesses and employment opportunities.
3. Benefits will spill over to other sectors
For many years, the Philippines has lagged behind its neighbors in Southeast Asia regarding attracting foreign direct investment. According to experts, this is due partly to the country’s restrictive business climate, particularly regarding foreign ownership of properties. Allowing foreigners to own land for industrial and commercial purposes will benefit the manufacturing sector, boosting 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 has driven prices too high and pushed locals out of the housing market. Currently, prices of houses and condos in Metro Manila are already beyond the reach of many Filipinos, so allowing foreigners to purchase freely may push prices even higher.
2. It may spur speculative purchases
Speculative purchase of property—the kind that takes 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 a danger to the real estate market, which could go through a period of irrational exuberance, fueling the formation of a real estate bubble.
3. Land acquired by foreigners may be converted for another purpose
Certain property types may do more harm than good to the local economy if they get sold and converted to another use. According to Gorayeb, some mechanisms of control should protect local interests. Agricultural land, for example, should remain as such even when purchased by foreigners. Foreigners should only be allowed to purchase disposable or alienable land to protect our natural resources.
