Infrastructure projects to sustain property growth amid COVID-19 disruption

The COVID-19 pandemic severely disrupted the Philippine economy. In 2020, the Philippines had its worst economic performance since the second World War with the economy contracting by 9.5 percent.

The pandemic affected major economic sectors including the property market, with office vacancy reaching 9.1 percent, condominium pre-sales at their lowest since 2013, hotel occupancies hovering at 20 percent as foregin arrivals declined by 82 percent, and vacancies in Metro Manila malls reaching 14 percent.

Disruptions in the property market 

Despite the disruptions brought about by COVID-19 to the Philippine property market, Colliers Philippines believes that the government’s infrastructure development plan could play a major role in the country’s economic recovery. Additionally, the recovery pace will likely be dependent on the government’s roll-out on vaccines.

It believes that developers should maximize the government’s infrastructure plan by developing in strategic areas outside of Metro Manila to decentralize the urban core to provinces; expand industrial hubs because of the resurgence of the manufacturing sector; and highlight the proximity of their office, residential, and industrial properties to public infrastructure.

The need for quality infrastructure is reflected in the Philippines’ global ranking in comparison to our regional peers. The World Economic Forum showed that the country ranked 96 out of 141 countries in 2019, down from 92 in 2018. A infrastructure push from the government should benefit the real estate industry and provide developers incentive to redevelop areas into integrated communities, Colliers Philippines reports.

Government spending

According to Colliers Philippines’ Flash report, government infrastructure spending was at 4.5 percent of Gross Domestic Product (GDP), P681 billion in 2020, down by 23 percent from 2019 as funds were reallocated for their COVID-19 response. For 2021, the government plans to spend at least P1.71 trillion, or 5.9 percent of GDP, as a response.

For 2021, the government has set aside P87.9 billion for the Department of Transportation and P695.7 billion for the Department of Public Works and Highways. It is believed that the construction of public infrastructure will strengthen demand in the property sector. 

Public construction

The National Economic and Development Authority (NEDA) listed 104 infra projects that are likely to be implemented even beyond 2022, and about 1.7 million direct and indirect jobs are likely to be generated from the government’s infrastructure program. Public construction was down by 10 percent in 2020 from the -3.6 percent in 2019. 

Projects scheduled to be completed by 2021 include the MRT-LRT Common Station in Quezon City, the MRT-3 rehabilitation, the LRT-2 East Extension, the Bonifacio Global City (BGC)-Ortigas Link Bridge, and the Skyway SLEX Extension. Colliers Philippines theorizes that the government’s plan to complete several infrastructure projects before the end of the Duterte administration should help in the recovery of office and residential demand.

Developers should maximize their project’s proximity to infra projects scheduled to be completed in 12 to 36 months, Colliers Philippines urges, as the infra projects should provide access to properties that could be redeveloped into mixed commercial, residential, and industrial estates.

Roads and Railways

Road projects play a major role in easing traffic; improving access to residential communities; and improving the flow of goods, people, and services within Metro Manila’s major business districts such as those located in Makati, Taguig, Ortigas, and Alabang.

According to a study conducted by Japan International Cooperation Agency (JICA), the Philippines loses about P3.5 billion daily due to traffic congestion. They claim that if the traffic situation isn’t solved, the country could lose as much as P5.4 billion daily by 2035.

The BGC-Ortigas Link Bridge, the Estrella-Pantaleon Bridge, and the Skyway SLEX Extension are among the Duterte administration’s priority projects and should improve connectivity between the major business districts.

As for the planned railway projects, the expansion of the Metro Manila Railway System should unlock underutilized areas for development. The Metro Rail Transit Line 7 (MRT-7) should improve the business hubs’ accessibility.

The proposed North-South Railway project will likely cover Calamba in Laguna; Batangas city in Batangas; Matnog, Sorsogon and Legazpi, Albay in the Bicol region. Its construction and the planned revival of the rail cargo line from Manila to Laguna should play a vital role in funneling major manufacturing investments to the Cavite-Laguna-Batangas corridor.

The railway project is envisioned as the primary rail backbone that would connect the country’s capital to the underserved areas in Southern Luzon, particularly the Bicol region.