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Infra expenditure to GDP ratio doubles to 5.5% in 2018

) Allan Tripon |

In 2018 — the infrastructure spending to gross domestic product (GDP) ratio of the Philippines reached an all-time high of 5.5%, according to the Department of Finance (DOF) undersecretary Gil Beltran. For comparison, the 2018 figure is almost double the 2.8% annual average recorded for the past 50 years (SEE: Infra spending to GDP ratio doubled in 2018, The Philippine Daily Inquirer). As such, the country is now at par with Indonesia, Malaysia, Thailand, and Singapore — the top economies in the ASEAN region — in terms of relative infrastructure spending.

Moving forward, the Department of Finance expects infra spending’s share in GDP to pick up even further — to reach 7% by the end of President Rodrigo Duterte’s term in 2022. Infra pending will mainly be driven by the current administration’s trillion peso Build Build Build Program. The completion of these big ticket infrastructure projects in the coming years should serve as an additional catalyst for the rapidly growing Philippine real estate and property market.

Build, Build, Build Program
The Build Build Build program is the pet project of President Rodrigo Duterte’s administration, which aims to accelerate and expedite infrastructure spending in the country. The initiative is estimated to be worth ₱8 to ₱10 trillion  pesos — spanning over 75 infrastructure projects slated to be completed within the coming years (SEE: 28 ‘Build, Build, Build’ projects finished by 2022: official, ABS CBN News). Among the 75 projects, the two most widely publicized projects of this 75 project lineup are (1) the Metro Manila Subway System and (2) the Subic Clark Railway.

The Metro Manila Subway System
The proposed Metro Manila Subway is a ₱350 billion ($6.5 billion) state-of-the-art world class train system, which aims to connect the different cities of Metro Manila by rail. The tracks will run for 36 kilometers (km), connecting seven cities and seven central business districts through fifteen stations (SEE: Metro Manila Subway breaks ground, ABS CBN News). Once completed, the travel time between Valenzuela City — the northernmost part of the capital — and the Ninoy Aquino International Airport (NAIA) is expected to be shortened to 30 minutes.

Construction of the subway was initially slated to begin last December 2018. However, delays in the schedule pushed back the ground breaking, which occurred last February 2019 (SEE: Construction of Metro Manila Subway begins, Rappler).

Three months after the groundbreaking ceremony, the 600 ton boring machine, which will be used to drill and excavate approximately five million cubic meters of land, arrived from Japan. According to the Department of Transportation (DOTr) Secretary Art Tugade, “the actual drilling will start next year [2020] (SEE: Metro Manila Subway drilling work starts in 2020).”

The government hopes to finish the first three stations in Valenzuela before President Duterte’s term ends in 2022 and expects the subway to be fully operational by 2025.

The Metro Manila Subway, upon its completion, will provide a much needed mode of mass transportation, which will go a long way towards decongesting the traffic plagued National Capital Region (NCR). According to a research conducted by the Japan International Cooperation Agency (JICA), the Philippine economy, on average, loses ₱3.5 billion per day — almost ₱1.3 trillion annually — because of traffic. This figure is expected to almost double to ₱6.0 billion daily (₱2.2 trillion annually) by 2030 if no countermeasures are taken (SEE: ₱3.5 billion lost daily due to traffic jams, ABS CBN News). The completion of the subway, which will conveniently connect the three central business districts (CBD) (Ortigas Center, Makati Central Business District, and Bonifacio Global City) with the rest of the Metro, should definitely help in decongesting the capital.

Aside from helping to reduce traffic, the Manila Subway System should serve as a catalyst which will drive up property prices in the areas that the railway will traverse. In fact, research conducted by Colliers International, a global real estate company, shows that land and property situated within one kilometer of the subway station will see a significant appreciation in value once the subway is fully operational (SEE: Investment Appeal of the Metro Manila Subway, PropertyAccess). DMCI Homes actually echoes the same sentiments. According to a recent press release, the demand for the company’s condominium units located within the vicinity of the Metro Manila Subway saw a significant spike in demand (SEE: Subway project to boost demand for nearby condos, BusinessWorld). Thus, now would be a wise time to invest in property near the planned stations.

The Manila Malolos Clark Railway
The proposed Manila Malolos Clark Railway is a ₱225 billion ($4.2 billion) project funded by the Asian Development Bank (ADB), which will connect the Clark Freeport and Economic Zone (CFEZ) to the country’s National Capital Region (NCR). The railway will be 106 kilometers long with 17 stations in total, beginning in Manila and going through the provinces of Bulacan, Pampanga, and Tarlac (SEE: 17 stations of Manila Clark Railway announced, Rappler).

The railway’s construction began in the last quarter of 2017 and was initially estimated to last for four years. The government hopes to have all seventeen stations up and running before the expiration of President Rodrigo Duterte’s term in 2022. Once completed, the travel time between Manila and Clark is expected to be cut in half — from two hours by car to just a hair under one hour (55 minutes to be exact) by train (SEE: ADB: Malolos Clark Railway plan to cut Manila Clark travel time to 1 hour, The Philippine Daily Inquirer).

The Manila Malolos Clark Railway will help support the government’s vision to transform Clark into a metropolitan and a business district, similar to the National Capital Region (SEE: Clark: The Next Metro, PropertyAccess). First, it will help alleviate the concerns with regard to logistics. Currently, some companies are reluctant to establish factories and warehouses in Clark due to its distance from Metro Manila. This is concern is quelled by the Clark Railway, which will cut the travel time in half. Second, the railway will offer an easier access between the Ninoy Aquino International Airport (NAIA) and the Clark International Airport (CRK). The combination of these two factors make Clark more attractive to potential foreign investors looking to enter the Philippine market.