On the road to recovery (Part 2): Condominium market shows signs of rebound

By Joey Roi Bondoc

Editor’s note: This is the second of a two-part column on Metro Manila’s condominium market. First part can be viewed here: https://t.ly/JR9DO

CAPITAL APPRECIATION POTENTIALColliers 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.

PROJECTS OUTSIDE M. MANILAColliers has observed steady demand for house-and-lot and lot-only projects in key areas outside of Metro Manila, including Pampanga, Cavite, Laguna, and Batangas.

For Pampanga and Bulacan, we recorded about 7,200 house-and-lot and lot-only units sold in 2022, up 3% year on year. Meanwhile, we saw the average take-up for horizontal projects in the Cavite-Laguna-Batangas corridor reaching 18,700 units by end-2022, up 2% year on year.

Colliers believes that developers will continue to venture into horizontal residential projects outside of Metro Manila where demand primarily comes from end-user buyers and take-up is partly fueled by households receiving remittances from Filipinos working abroad.

Among the developers that are set to launch massive horizontal projects outside the capital region include Rockwell with its 85-hectare beach property in Lian, Batangas and a 100-hectare horizontal residential project in San Jose del Monte, Bulacan. Century Properties also disclosed that it is planning to launch two new projects under the Phirst Park Homes brand in Lipa, Batangas and Laguna in the third quarter of 2023. Meanwhile, Cebu Landmasters has also announced its plan of launching horizontal projects in Southern Luzon particularly in Naga, Batangas and Cavite. The firm is also reportedly looking at Central Luzon for future expansion.

COMPLETION TO RECOVEROnly one condominium project was completed in the second quarter of 2023: Alveo Land’s Park Triangle Residences in Fort Bonifacio added 616 units to Metro Manila’s condominium stock.

We expect completion to slightly pick up in the second half with the delivery of 3,100 units, bringing total completion to 4,920 units for 2023. By end-2023, we see Metro Manila’s condominium stock reaching more than 156,000 units, with the Bay Area, Makati central business district, and Fort Bonifacio accounting for about two-thirds of total completed units in the capital region.

Investors are also looking closely at Fort Bonifacio as it will dominate other business districts in terms of supply in 2024.

PRE-SELLING DEMAND IMPROVESColliers recorded the take-up of 15,200 condominium units in the Metro Manila pre-selling market in the first half, up 52% year on year. The lower and upper mid-income segments (P3.2 million to P12 million) accounted for 70% of condominiums sold during the period. Pasig City, Bay Area, and the Alabang-Las Piñas and Camanava (Caloocan-Malabon-Navotas-Valenzuela) covered 50% of units taken up from the lower and upper mid-income price segments.

Among the notable vertical projects launched in the second quarter include Ayala Land’s Park East Place in Fort Bonifacio, as well as Laya by Shang Properties and Olin at Jade Drive by Ortigas Land, both of which are located in Pasig City.

In our view, pre-selling residential demand will likely be supported by improving business and consumer sentiments, as well as stabilizing interest rates. The Bangko Sentral ng Pilipinas’ (BSP) latest Consumer Expectations Survey showed that the share of households planning to purchase real estate marginally rose to 4.7% in Q2 2023 from 4.6% a quarter ago. Meanwhile, its second quarter 2023 Business Expectations poll results show that the business outlook improved to 41.9% from 36.0% in the first quarter of 2023.

RENTS AND PRICES UPIn the second quarter, Colliers recorded a marginal decline in residential vacancy  rate to 17.2% from 17.4% in the prior quarter. Vacancy rates improved across all sublocations including the Bay Area, where vacancy reached as high as 26.0% in 2021.

We forecast vacancy rates to decline by end-2023 due to slower condominium completion and continued improvement in residential leasing particularly from returning expatriates in the country. 

Colliers has observed expat residential leasing picking up in Makati central business district, Ortigas Center, and Fort Bonifacio with demand led by those working for BPOs, shared service centers, multilateral aid agencies, as well as logistics and manufacturing industries. This is reflective of the marginal rental recovery in the second quarter of 2023 where we recorded a 1.0% growth in rents, slightly faster than the 0.5% increase in prices.

Colliers believes that vacancy in the secondary market will likely remain elevated in 2024 given the substantial completion of new units. We see this putting a downward pressure on rents especially in the Bay Area, which will likely account for 27% of completed units by end-2024.

NOWHERE TO GO BUT UPColliers Philippines is more upbeat this year. We are seeing recovery in key property sectors such as office, retail, industrial, and hotel. We believe that the residential segment will not be left behind. 

The country’s macroeconomic fundamentals remain sound and this should pave the way for a more dynamic property sector over the near to medium term. Investors are on the lookout for more properties to acquire and developers will definitely cash in on this demand. We’ve heard of revenge dining and spending.

Now is the time for revenge investing.

Joey Roi Bondoc is the research director at Colliers Philippines.