The Journal The Authority on Global Business in Japan

When Eri Tamura moved to Manila in 2015, she was surprised at how international and Japan-friendly the Philippines capital was. Today, ramen shops are nearly as ubiquitous as Starbucks, and Uniqlo is considered high-street fashion. Attracted by a large English-speaking workforce, favorable demographics, and rising gross domestic product (GDP), the Philippines has become a hotspot for foreign investment—and Japan is taking note.

“Generally speaking, many Japanese have viewed the Philippines as underdeveloped. We were surprised to see the prosperous side of this country, with people living the same as in other first-world countries,” Tamura told The ACCJ Journal. “There’s a large Japanese community that is growing each year. I come to like living here more and more.”

Japan consistently ranks among the top foreign economies investing in the Philippines, along with the United States, Singapore, and, most recently, China. Japan committed the highest share (24 percent) of total approved foreign investments in the fourth quarter of 2017, at 5.2 billion pesos (¥10.9 billion), followed by the United States with 3.2 billion pesos (¥6.7 billion). Data from the Central Bank of the Philippines also shows that real estate activities came in second during the quarter for foreign investment commitments, just behind manufacturing.

Federal Land, Inc. is one Philippines real estate developer with close Japanese ties. Its parent company, GT Capital Holdings, was chosen as Toyota’s local partner some 30 years ago, and Federal Land counts Orix Corporation, Nomura Real Estate Development Co. Ltd., and Isetan Mitsukoshi Holdings Ltd. among its largest international partners.

The developer is currently building a Mitsukoshi depart­ment store in the Bonifacio Global City (BGC) district of Metro Manila, an upscale neighbor­hood with many foreign residents and businesses. BGC is home to the Manila Japanese School, as well as many embassies and top international schools.

Residences are available for purchase above Mitsukoshi, with sales to begin by mid-2018. Cathy Casares-Ko, executive vice president for business management at Federal Land, told The ACCJ Journal, “When we started this residen­tial development, the question our Japanese sellers asked was not, ‘How much will units cost?’ but rather, ‘How many can you give us?’”

The developer is working closely with its Japanese partners to build units that appeal to Japanese buyers, with many of the same features found in Tokyo or Osaka apartments. Open planning and hidden storage, for example, make even small units appear spacious. Many of Federal Land’s residential projects are in the BGC district, though developments are planned across Metro Manila. The company is also adapting Japanese construction technology to protect buildings from natural disasters.

Though foreigners are generally prohibited from owning land outright in the Philippines, they can buy condominium units. As long as ownership by non-natives in a condominium project does not exceed 40 percent, any nationality is welcome to buy.

“Our Japanese investors are seeing great progress here,” Casares-Ko said. “Plus, the Japanese government has recently relaxed visa requirements, so now more Filipinos can travel easily to Japan. There is more exposure to the culture now than ever before.”

Tamura views the Filipino and Japanese cultures—though distinct—as harmonious. “I hear that Japanese managers work well with Filipino workers, who seem to respect our country and culture,” she said.

According to a 2016 survey by the Japan External Trade Organization, the top five reasons given by Japanese companies for investing in the Philippines are:

  • future growth potential of the local market
  • inexpensive labor
  • current size of the local market
  • availability of qualified human resources
  • the country’s potential as a supply base for assemblers

With a population of more than 100 million, there are indeed plenty of human resources in the Philippines—and most of them are young. In contrast to Japan, which has a median age of 46.5, the Philippines boasts a median age of just 24. The healthcare sector is strong, which attracts retirees, and it is not difficult to obtain a long-term visa—there’s a Special Resident Retiree’s Visa category with fairly low financial obligations.

Casares-Ko notes that many Japanese who have worked for companies such as Fuijtsu Ltd. or Toyota Motor Corporation in the Philippines opt to retire there, drawn to the Filipino hospitality and the “pampering” style of treatment common in the country’s upper-class facilities.

Pampering aside, the base motivation for most real estate investors in the Philippines is financial.

Anna Ramos is the marketing head for Ayala Land Inter­national Sales, Inc., one of the country’s largest real estate devel­opers. While US nationals comprise its largest foreign client base, Japan comes in third. Ayala Land has done roadshows in Tokyo for several years now, and just completed its first Osaka roadshow in May.

“The first and most important question is always about returns. When we discuss Philippines real estate with the Japanese, they always want to see the financials. Capital appreciation and rental yield are strong selling points for real estate here,” Ramos told The ACCJ Journal.

Eva Marzan, president of Infinity Realty, also emphasizes rental yield as a leading draw for investors. Marzan’s client base is largely foreign, and she focuses on residential properties in high-end areas of Metro Manila such as BGC, Makati, and Rockwell.

When asked why her investors choose the Philippines, she said: “First, they see the growth and potential of the country; there’s still a lot of room for improvement, and it’s always best to invest in a growing economy. Second, they can buy luxury properties that are still affordable compared to other prime locations for investments abroad—especially compared with European countries and the United States. And the yield is fast here as long as you buy in the right location.”

“Plus, the fact that all contracts are in English is a huge plus, as it’s easier for buyers to understand yields, ROI, etc.,” she added.

Data from a 2017 World Bank report shows a 6.7-percent growth rate for the Philippines’ GDP, just behind regional competitors China (6.9 percent) and Vietnam (6.8 percent). Japan’s GDP rose just 1.9 percent last year. Despite currency fluctuations surrounding the Philippine peso, the country receives about 10 percent of its GDP from overseas foreign workers, which helps stabilize and boost the economy. U.S. News & World Report recently ranked the Philippines “the best country to invest in,” noting the strong and steady inflow of foreign direct investment.

“We keep asking, when will the bubble burst? But things have been quite steady,” Casares-Ko said. “If anything, investors have become more choosy with the developments they invest in.”

A two-bedroom condo in the prime residential and business districts of Makati or BGC, for example, costs 8–30 million pesos (¥16–63 million). The Rockwell area is slightly more expensive at 15–38 million pesos (¥31–79 million). According to Marzan, roughly 90 percent of foreign buyers pay cash out­right for real estate investments, though financing is available for long-term residents.

There are some less-than-rosy conditions to bear in mind when considering a real estate investment in the Philippines. One major drawback is the country’s high tax rate, which is capped at one percent for properties located within Metro Manila and two percent for those outside the capital. For non-residents, rental income is taxed at a flat rate of 25 percent, with no deductions or allowances permitted if the owner resides abroad for most of the year.

However, the current government administration, led by President Rodrigo Duterte since June 2016, has already passed some tax reforms and rumors suggest more may be on the way. Though factors such as inadequate infrastructure, instability, and corruption continue to sway investments in the Philippines, in general the current government has signaled a willingness to open its doors to more foreign investors.

On the heels of Duterte’s October 2017 visit to Tokyo, 20 Japanese companies signed letters of intent indicating their interest in investing in the Philippines. Most signatories were Japanese companies working with local Filipino partners or govern­ment agencies, such as Marubeni Corporation and the Department of Trade and Industry of the Republic of the Philippines.

Companies from the United States also continue to invest and expand in the country due to a shared history, strong cultural proximity, and the Philippines’ strategic location in the dynamic Association of Southeast Asian Nations (ASEAN) region. Two of the country’s largest foreign employers, Intel Corporation and Texas Instruments Inc., are US-owned and operated.

Trump Towers and Westin Residences, both luxury US residential interests, have also built properties in Manila, signaling Western confidence in the country’s future. While neither project is complete, a representative from the Trump Towers sales office said they were no longer actively showing apartments in the building, as most units were presold to buyers from countries such as Japan and Singapore, or to Filipinos living and working abroad.

Businesses from across the globe remain bullish on the Philippines. The 2018 ASEAN Business Outlook Survey, published by the United States Chamber of Commerce and the American Chamber of Commerce in Singapore, indicates that 70 percent of respondents in the American Chamber of Commerce of the Philippines (AmCham Philippines) are planning business expansions this year—higher than the overall ASEAN average of 62 percent.

Ebb Hinchliffe, executive director of AmCham Philippines, feels the time is right to invest in the country. “Although there are a number of challenges and problems, the efforts of the Philippines’ administration to pass wide-reaching tax reforms and overcome the infrastructure deficit should create lucrative opportunities to tap into demand from the growing middle class,” he said.

Brandi Goode is a freelance writer and editor based in Manila, and previously Editor-in-Chief of The Journal.
Japan consistently ranks among the top foreign economies investing in the Philippines