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2017 GDP Results: Economy and Property On Upward Trajectory

Manila, January 23, 2018 – The Philippine economy, as measured by real gross domestic product (GDP), rose by 6.6% in the fourth quarter of the year, bringing the 2017 growth to 6.7%. The Philippines was slightly behind China’s 6.9% and Vietnam’s 6.8% but outpaced Malaysia’s 5.2% and Singapore’s 3.5%. Although slower than the 6.9% recorded in 2016, an election year, the 2017 GDP indicates the country’s strong macroeconomic fundamentals with growth primarily driven by consumption, manufacturing, exports, and infrastructure. These segments have a positive impact on the country’s property sector.

Personal consumption grew by a slower 5.8% from 7% last year. We see consumption picking up this year due to the implementation of the first package of the Comprehensive Tax Reform program which expands the purchasing power of employees. Coupled with low inflation (3.2% in 2017 and with the government’s 2% to 4% projection this year), higher take-home pay should have a positive effect on Filipinos’ retail spending. Consumption is also buoyed by Overseas Filipino Workers (OFW) remittances, which reached USD28.2 billion from January to November 2017, up 5.1% YoY. Colliers believes that the continued growth in remittances and stable interest rates should sustain demand for housing in the Philippines, especially in urban areas outside of Metro Manila, where markets are smaller but more stable in terms of end user demand. We are optimistic that a significant part of the remittances sent in by OFWs annually will be set aside for Filipinos’ housing requirements. Higher disposable incomes also propel the Restaurants and Hotels sub-sector, which recorded an impressive 9.5% growth last year from 7.6% in 2016. The subsector continues to benefit from a burgeoning domestic travel market.

Among the top-performing segments in 2017 was manufacturing, which grew by 8.6% from 7% in 2016. After years of sluggish growth, exports rebounded to post a 20.7% growth from 9.2% in 2016.We attribute the better-then-expected figures to improving global trade and the country’s rising competitiveness as a manufacturing hub. We see the demand for Philippine-manufactured goods accelerating over the near to medium term given the continued implementation of the country’s trade deals with European and Southeast Asian economies. Among the crucial deals signed during the ASEAN summit in Manila is the Memorandum of Understanding (MOU) between the Philippine and Chinese governments on industrial park development. This should raise industrial supply in the country particularly now that major developers are heading north of Manila. Recently, DoubleDragon acquired a 6.2-hectare lot in Luisita Industrial Park in Tarlac. The site will offer about 32,000 sq m (344,000 sq ft) of industrial space. The first phase of Ayala Land’s (ALI) 64-hectare Alviera Industrial Park in Porac, Pampanga is 95% sold. Tenants include firms into food, logistics, and warehousing. This indicates strong demand for industrial space and facilities outside of the Cavite-Laguna-Batangas corridor. Outside of Luzon, conglomerate San Miguel Corporation (SMC) is developing an industrial estate in Cebu. Meanwhile, ALI will develop an industrial estate as part of a mixed-use complex that will rise on its 526-hectare estate in Laguindingan, Misamis Oriental

The implementation of the first package of the Comprehensive Tax Reform program is expected to yield close to P90 billion in additional revenues this year, 70% of which will be allocated to the Build, Build, Build Program of the government which covers projects that address congestion through better mass transport and new road networks. The additional funds will be used to concretize more than 14,000 kilometers of national roads and about 30,200 kilometers of local gravel roads. The government will also provide road access to nearly 8,000 isolated barangays and sitios. These projects should further unlock land values in the countryside.

Eight of the 10 projects that will be implemented using the additional tax revenues are in the provinces, supporting the government’s infrastructure implementation and decentralization push. The projects include Pulilan-Baliuag Diversion Road; Camarines Sur-Albay Diversion Road; Tacloban City Bypass Road; Maasin City Coastal Bypass Road in Southern Leyte; Panay East-West Road; Cagayan de Oro Diversion Road; and Valancia City-Pangantucan Diversion Road in Bukidnon. In Metro Manila, the government has committed to complete the Bonifacio Global City-Ortigas Center Link Road and C-5/Katipunan Viaduct projects which should benefit developers with office, residential and retail projects in those areas.

Multilateral agencies and financial institutions are expecting the Philippine economy to expand between 6.5% to 7% this year. The country’s economic managers, meanwhile, are projecting a more optimistic 6.5% to 7.5%. The government hopes to realize this by complementing its infrastructure push with other economic reforms. These include the planned reduction of the minimum paid up capital required for foreign retailers to open shop in the country. Aside from occupying space in the country’s brick-and-mortar malls, these companies should also contribute to office space take up across the major business hubs. Colliers also sees the entry of 100% foreign-owned investment houses and the lifting of restriction on foreign contractors driving office space demand.

The government plans to pass this year the second package of the tax reform plan. The proposed measure reduces corporate income taxes from 30% to 25%. This should benefit firms operating in the Philippines which could lead to further expansion of operations and eventually, greater absorption of office space. However, this provision might be offset by the planned rationalization of fiscal incentives currently enjoyed by a number of industries.

While we see some risks, Colliers is optimistic that the country’s growth will remain stable over the near to medium term. Overall, we expect the local property market to benefit from the government’s commitment to accelerate infrastructure spending. Aside from unlocking land values in areas outside Metro Manila, ramped up public infrastructure outlay coupled with decentralization should open more opportunities for firms engaged in construction, and operation and maintenance (O&M) of key transport infrastructure. Hence, we encourage the developers' infrastructure units to explore O&M opportunities involving transportation projects in and outside of Manila.



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Philippine Daily Inquirer

Philippine Daily Inquirer

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Joey Bondoc

Associate Director



Prior to joining Colliers in March 2016, Joey worked as a Research Manager for a research and consutancy firm where he handled business, political, and macroeconomic analysis. He took part in a number of consultancy projects with multilateral agencies and provided research support and policy recommendations to key government officials and top executives of MNCs in the Philippines.

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