I’ve never seen anything like this…
Vacant land in Bonifacio Global City, the premier central business district of the Philippines, recently sold for a record US$25,000 per square metre (roughly US$2,300 per square foot).
To put that amount in perspective, prime residential real estate land in downtown San Jose, California – at the centre of Silicon Valley – costs US$300 per square foot. And that’s before a gram of foundation has been poured or a single brick has been laid.
Similar property just a stone’s throw away from downtown San Francisco can be bought for just under US$1,000 per square foot.
I remember driving down to Bonifacio Global City, Manila’s premier central business district, on Saturdays when it was still a military camp in 1992. Back then, it was mostly idle land with goats and, on occasion, cows, grazing in the empty fields.
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Today, Bonifacio Global City is more like downtown New York or Central, Hong Kong. Its nearly 600 acres of land has almost all been built on – with skyscrapers, shopping malls and parking lots. The country’s stock exchange moved into its new building there last year. If you’re in the market to buy a Maserati or Lamborghini, this is the place to go.
The highest price paid for a condominium in the Philippines was also in Bonifacio Global City. At about US$1,000 per square foot, it almost matched average prices in Singapore.
As you can see in the chart above, since 2010, home prices in the Philippines have more than doubled.
But I think prices have risen much higher than that. For example, a property I bought a one year ago has already appreciated 25 percent. At that rate, prices will double in just three years.
This rapid rise in land and property values has a lot to do with the relentless growth and development of Metro Manila – one of Asia’s great megacities, which Bonifacio Global City is a part of.
The megacity phenomenon is here to stay
In the U.S., there are only two megacities – the New York metropolitan area and greater Los Angeles.
But in Asia, there were already 21 megacities as of 2017. And that number is expected to rise to 24 by 2030, driven by a massive boom in the middle class.
Meanwhile, today’s Asian megacities are continuing to grow even bigger.
For example, the built-up land in Metro Manila’s urban area covers nearly 1,300 square kilometres. That compares with just 783 square kilometres for the five boroughs of New York City.
Metro Manila’s urban area has more than doubled since 2000 (when it was just 620 square kilometres).
As megacities grow, they attract even more inhabitants. Not just from all over the country, but they also become magnets for foreign investments, including foreign nationals looking for a second home.
Megacities offer the prospect of well-paid jobs, access to modern healthcare, good education, international airports and other urban luxuries (i.e., shopping malls and great restaurants).
In short, megacities are going to continue to grow in Asia.
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Not good for everyone
The growth of megacities has contributed to the remarkable growth in real estate values throughout Asia.
But it comes with a cost.
In some cities, regular people can’t afford to live there any more.
Hong Kong is the worst. With a price-to-income ratio of 49 times, it means the average home will cost the average Hong Kong resident 49 years’ worth of income.
Beijing and Shanghai rank as the second and third most unaffordable cities to live in. There, residents need 45 years’ worth of income to purchase a home.
Bangkok, Thailand has become very expensive over the years. Home prices there have risen over 50 percent in the last decade, and it now costs the average resident 22 years’ worth of income to purchase a home.
Manila is still relatively affordable, with the average home costing 20 years’ worth of income.
But rising prices also create new opportunities for real estate outside of megacities. There, people can opt to relocate to take advantage of lower property prices. (But this is only applicable to countries that have large land areas, like China, Indonesia, Thailand and the Philippines. In tiny countries like Hong Kong and Singapore, there just isn’t any more land.)
Pollution will be another major concern, as megacities become home to the highest concentration of cars, trucks, motorcycles and buses. The World Health Organization (WHO) estimates that one-third of global air pollution-related deaths occur in the Asia Pacific region.
But as we’ve seen in cities like Beijing, Guangzhou, Manila and Bangkok, pollution doesn’t stop more people from flocking to these megacities. These are among the most polluted cities in the world, yet their populations continue to swell.
In short, megacities are here to stay. Their impact on Asian real estate values will continue to be felt for years, bolstered by a swelling middle class population and dwindling supplies of available real estate.
That means Asian real estate should be on your radar.
One way to get exposure is through diversified property funds with significant Asian exposure like the iShares International Property ETF (Exchange: New York; ticker: WPS) and the Vanguard Global ex-U.S. Real Estate Index Fund ETF (Exchange: New York; ticker: VNQI).
Both ETFs hold over half of their investable assets in Asian real estate stocks, including many of the largest and most established property developers, real estate investment trusts (REITS) and commercial real estate operators.
Editor, Stansberry Pacific Research