Seeing light at the end of the tunnel: Metro Manila residential market recovers

Colliers Philippines believes that the residential market will greatly benefit from a strong rebound of the Philippine economy.

Equity analysts and private sector economists are projecting the Philippine economy to expand between 5.5 and seven percent in 2023, after a 7.6 percent growth in 2022, the fastest pace in more than 40 years.

This economic optimism is supported by a bright outlook from the country’s economic  managers.  Colliers is optimistic  that this pace of expansion bodes well for the Philippine property market and should ensure the segment’s rebound after a disruptive two-year period, from 2020 to 2021.

In our view, a more optimistic forecast about business expansion and attraction of more foreign investments will help drive the property sector, especially the residential market.

According to the Philippine central bank, consumers and businesses are more optimistic and this should support further expansion of businesses and eventually acquisition of more properties, including residential units across the Philippines.

Over the next 12 months, developers are likely to be more cautious with their new launches; with land banking likely to rely heavily on the government’s massive infrastructure program.

Colliers believes that the residential market is starting to see some recovery but this will hinge mainly on economic expansion, including the level of remittances and investments that will flow into the country.

Residential leasing picks up

Over the past six months, residential leasing has picked up partly backed by demand from foreign employees of outsourcing firms, consular offices, and multilateral lending firms based in Makati CBD, Ortigas Center, and Fort Bonifacio.

These business hubs have also been benefiting from improving office space take-up. Declining residential vacancies have positively influenced rents and prices. In the pre-selling market, launches and take-up picked up in the first half of 2023.

What’s positive for the residential market is that recovery is seen not just in the secondary market but also in the pre-selling market. Definitely, we are still far from pre-pandemic demand, especially as we no longer see demand from the offshore gaming sector which helped fuel the market from 2017 to 2019.

Colliers believes that developers should be guided by the interest rate environment and future modifications should have an impact on the promos and payment schemes that they will implement for the remainder of the year.

Given the compressing yields in the market, property firms should also continue highlighting the capital appreciation potential of condominium units especially those located in masterplanned communities.

Developers should zero in on the residential units’ viability as a hedge against inflation. In our view, developers should also explore the viability of launching more horizontal projects outside Metro Manila. As I previously noted, there is a strong end-user market outside of Metro Manila and developers are definitely banking on this demand. Hence, we are likely to see more masterplanned and horizontal projects in the provinces moving forward.

Monitor interest rate changes and reassess promos and payment schemes

The country’s inflation rate is decelerating but the central bank noted that it is unlikely to cut interest rates for the remainder of 2023. Colliers believes that developers and investors need to constantly monitor inflation and interest rate changes and these indicators’ eventual impact on mortgage rates.

Interest rates remain at 6.25 percent as of June 2023 while average mortgage rates increased to 8.1 percent in the second quarter of 2023 from 7.3 percent a year ago and from 7.4 percent in 2020.

Colliers encourages investors to proactively monitor interest and mortgage rates, particularly as these strongly influence the viability of condominium developments as residential investments.

Interest rates should guide developers with their promos and payment schemes and if it is already necessary for developers to revisit their rates, promos and payment schemes to reignite interest from investors and end-users.

Highlight condominium units’ capital appreciation potential

Colliers Philippines believes that the investor market in Metro Manila continues to rely on condominium units’ capital appreciation potential. In our view, developers should be aggressive in highlighting the residential segment’s viability as a potential hedge against inflation. Vertical units that are located in integrated communities and near public infrastructure projects also have great capital appreciation potential and these features should be among investors’ key considerations when acquiring a condominium unit.

(To be continued)