2.

Effects of Foreign Land Ownership in PH

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 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
countrys 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 has driven prices too high and pushed locals out of
the housing market. At the moment, prices of houses and condos
in Metro Manila are already beyond the reach of many Filipinos, so
allowing foreigners to freely purchase may push prices even
higher.

2. It may spur speculative purchases

Speculative purchase of propertythe kind that take large risks in
the hope of making quick, huge gainscould 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. Land 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. According to Gorayeb, there should be some
mechanisms of control to protect local interest. Agricultural land,
for example, should remain as such even when purchased by
foreigners, and, in order to protect our natural resources,
foreigners should only be allowed to purchase disposable or
alienable land.
____
Prohibition of foreigner owning land is justified. The Philippines
doesnt have alot of land mass. If the Philippines allowed noncitizens to own land, the prices for land would quickly escalate to
impossible levels and many citizens would be priced out of the
market which would just cause even more social strife. There are
better means of improving the economy without sacrificing
Philippine sovereignty.
Fuelled by a buoyant economy, a vibrant outsourcing sector, and
promise of good returns, Metro Manilas (and the Philippines)
housing market is fast becoming attractive to foreign buyers.

The Philippines current real estate boom, according to many, is

unprecedented, something not seen since before the onset of the
Asian financial crisis in 1997. In fact, a real estate salesperson for
Alveo Land I spoke with admits that she gets plenty of inquiries
from Korean, Hong Kong, and Singaporean buyersone of the
reasons why her company is ramping up effort to boost
international sales through property events and partnering with
brokerages in Singapore and Hong Kong.
Despite this, property ownership here remains highly regulated.
Although the Philippines is not the only Asian country that

prohibits foreigners from owning real property, ours arguably is

one of the most restrictive.
Foreign nationals definitely are not allowed to own land (though
there are a few exemptions to this) and if they are investors and
want to acquire one on a leasehold basis, they can do so but only
for a period of 50 years, which may be extended to another 25
years. Individual foreign buyers, in contrast, may lease land for a
maximum period of 25 years only, which can be extended for
another 25 years.
There is another legal way for foreigners to own land, and that is
through a duly registered company. However, the company must
be at least 60 percent Filipino owned and that there must be at
least five people sitting on its board. Similarly, under the
Condominium Act, not more than 40 percent of a condo project
can be sold to foreign nationals with the other 60 percent
reserved to those deemed Filipino nationals.
To some, this restriction is detrimental to economic growth.
Impact of Restriction
The Philippines, despite outperforming its neighbors economic
growth in 2013, has one of the regions most restrictive propertyownership regimes. Its no coincidence then that we also
attracted the lowest foreign direct investment (FDI) among
ASEANs big economies (i.e., Indonesia, Thailand, Malaysia,
Singapore, and the Philippines), which according to the Center for
Strategic and International Studies stood at $2.8 billion in 2012, a
far cry from Singapores $56.7 billion for the same year.
Citing a study commissioned by the Organization for Economic
Cooperation and Development (OECD), Charlie Gorayeb, former
national president of the Chamber of Real Estate and Builders
Association (CREBA), pointed out that some countries were quick
to realize the powerful roles foreign investors could play in fueling

local economic growth. Two of them are in Southeast Asia:

Malaysia and Thailand. Malaysia specifically is not only liberal
when it comes to foreign ownership, it even encourages foreign
nationals to purchase properties there. Unsurprisingly, in 2013
alone Malaysia attracted $12 billion of FDI.

The view of the business community has always been one of

pragmatism, says Guilberto Luz, private-sector chairman of the
National Competitiveness Council, which is to allow foreign
ownership of land if it boosts foreign direct investment.
Many believe that the housing market will get a boost if some of
the restrictions imposed on foreigners are lifted. Something that
David Leechiu, country head and international director of global
estate consultancy firm JLL Philippines, encourages.

Leechiu says,

[Allowing foreign ownership] is just a way of expanding the

demand of your market.
If the Philippines went to a crisis, the free fall will be
overwhelming and the drop of [property] prices will be huge, said
Leechiu, similar to what happened in the aftermath of the Asian
financial crisis when prices of luxury condos plummeted 18
percent between 1997 and 1998 and 56.2 percent between 1997
and 2004.

[But] if you are an open marketif you allow outside parties or

investorsthe free fall wont be as big, because there is a bigger
market to catch,

says Leechiu.

Picture Not Always Rosy

But allowing foreign money to pour in freely is not always a good

thing, and other places will attest to that. Vancouver is one such
example, which became Canadas most expensive city to own a
home, thanks partly to cashed-up Chinese buyers who have been
snapping up houses left and right since the early 2000s.

According to real estate consulting firm Knight Frank, Vancouver

saw property prices jump 10.4 percent from 2010 to 2011 alone.
In December 2012, the average price of a home stood at
$734,207, compared to Canadian average of $358,261, data from
the Canadian Real Estate Association show.

Closer to home, Hong Kong is another market that has gone too
red hot thanks to foreign money. (Although Hong Kong does not
allow private freehold ownership even to locals, foreigners can
purchase condos without restrictions.)

Already one of the worlds most unaffordable housing markets,

the average per-sqm price of a home in some of Hong Kongs
prime areas stood at $47,500 per sqm in 2011. Growing wealth of
mainland Chinese and Chinas property restrictions have led to an
influx of buyers into the city, much to the dismay of local buyers.
Industry estimates show that thee in 10 deals in Hong Kongs
luxury property markets are done by mainland Chinese buyers,
and data from Knight Frank show that the territorys housing

prices grew a staggering 93.7 percent over a 5-year period from

the fourth quarter of 2006 to the same period in 2011.

Keeping the Market Hot, But Not Too Hot

So how then do we make sure that this doesnt happen to the

Philippines?

The privilege granted to foreigners to purchase property,

according to Gorayeb, must not come without corresponding
mechanisms of control though.

In fact, some of these are already covered by existing laws.

For example, in order to protect our natural resources, those lands
that can be acquired by foreigners should be limited to those
classified as alienable or disposable. He adds that agricultural
lands purchased by foreigners should remain as such, and to
channel investment to poorer areas, foreign ownership should be
encourage to underdeveloped areas to spur growth.

We can also follow the example of Malaysia, which prohibits the

purchase of medium- or low-cost properties for foreigners, a rule
put in place in order to regulate the affordable-housing segment.
The government definitely needs to provide safety nets,
says Leechiu. But then he quickly added that there isnt any
policing going on anyway and no safety net being provided by the
government as well.

Theres no difference so you might as well open the market up

and generate more wealth.
Leechiu also says that the chances of Metro Manila ending up like
Hong Kong or Vancouver if we allow foreign money to come in are
pretty far-fetched, if not too ambitious. Our real estate market
may be outperforming when it comes to capital gains and rental
yield, but Metro Manilas infrastructure and quality of life are light
years away from those of the worlds most livable cities, so dont
expect foreigners rushing in when we finally open the gates.
Leechiu used the province of Pangasinan as an example.
Do you know how cheap land is in Pangasinan? Ten pesos per
square meter. So for Php1 million you get 10 hectares. Why then
are we not rushing to the province to snap up every available
parcel? Because we dont see any business sense in doing so.
Apparently, international property buyers have the same mindset.