Recovery in residential; residents rethinking choices

Residential real estate welcomed the current year with several improvements. The segment is projected to see a rebound in demand, vacancies, rents, and prices, though a slower pace was expected for new supply.

In the first quarter of 2023, demand in pre-selling and secondary condominium markets is becoming better, according to property consultancy firm Colliers.

Metro Manila’s pre-selling market saw a 5,900 take-up of condo units in the said period, which was a 70% rise year-on-year (YoY). The lower mid-income segment has the most take-up, with 37% of the total units sold. “In our view, take-up for these units will partly be sustained by remittance-receiving households,” Colliers said in its report.

Cash remittances from overseas Filipino workers (OFWs) increased by 3% last March, according to the Bangko Sentral ng Pilipinas (BSP). It anticipated remittances to grow by 3% for 2023 and 2024, trimming its initial target of 4%.

Take-up in the pre-selling market this year was also expected to likely be boosted by the rising interest in upscale to luxury projects. These segments made up almost 40% of the new launches during the first quarter.

Meanwhile, vacancy in Metro Manila’s secondary market dipped to 17.4% in the first quarter of the year from 17.6% in the quarter prior. This year, vacancy in the secondary market is expected to lessen to 16.8%, “due partly to continued recovery in office leasing, slower delivery of new units, and sustained improvement in business sentiment which should support take-up from both investors and end-users,” Colliers noted.

As vacancies improved, an increase of 0.5% was seen in rents quarter-on-quarter (QoQ), as well as 1.4% in prices. For the present year, Colliers projected prices to rise more quickly than rents, with 3.9% growth in prices in the secondary market. Rents, meanwhile, are forecasted to increase by 2%.

Residential Real Estate Prices Index (RREPI) went up faster in the fourth quarter of last year, according to BSP. Prices registered an increase of 7.7% YoY, yet slower at QoQ with 2.2%.

The central bank recorded positive contributions to the country’s RREPI growth from the prices of duplex housing units, which index rose by 42.9%; condo units with 12.9% increase, and single-detached/attached houses with 10%. Meanwhile, townhouses’ index shrank by 6.8%, contributing negatively to the RREPI for the second consecutive quarter.

Colliers expected further improvement in the take-up of condo units with the comeback of more expatriates and local professionals, said Joey Roi Bondoc, research director of Colliers Philippines.

“In our view, the appetite for residential units will likely be buoyed by improving business and consumer sentiment,” he added in the firm’s report.

Improved demand for the residential market was also seen as likely by real estate services firm Cushman & Wakefield, though it expects the growth to be subdued.

“Whilst residential demand will still likely improve amidst better consumer income and improved overall economic sentiment, the growth is likely tamer due to ongoing financial market uncertainties,” the firm said in its report.

Cushman & Wakefield also noted on the gloomy outlook towards interest rates, thus expecting the growth of demand for consumer loans to be affected in the medium term while economic conditions were still in recovery.

BSP’s data showed that availments of residential real estate loans (RRELs) for new housing units declined by 10.3% YoY in the fourth quarter of 2022. The central bank recorded that 81.1% of RRELs in the said period were for procurement of new housing units.

Most of the RRELs granted were for the purchase of single-detached/attached houses, accounting for 47.2%; condo units followed with 33%; 18.9% for townhouses; and 0.8% for duplex. In Metro Manila, most of the loans were used to buy condo units; while loans granted in areas outside of the capital region were for single-detached/attached houses.

Meanwhile, in terms of supply, Colliers recorded slower completions in the first quarter of 2023. With 1,200 units, completions were 70% less than the quarter before. This 2023, the firm foresaw 3,540 units to be completed, which is lower by 61% from 2022’s 8,970 completed units.

“While pre-selling take-up in Q1 2023 appears decent, launches are still likely to be curtailed by rising prices of construction materials as well as elevated interest and mortgage rates. We still see developers taking a more cautious stance in launching new condominium projects for the remainder of the year,” Mr. Bondoc said.

Home preferences in APAC

What people look for a home was said to have changed after a period of lockdown due to the pandemic. The residential sector can thus expect shifts in people’s criteria in choosing their housing.

People are gaining more confidence to plan their future amid the waning of the pandemic, according to CBRE. A 2022 survey conducted by the real estate services and investment firm found that respondents from the Asia-Pacific (APAC) region showed stronger intentions to relocate in the next couple of years as 32% said they are planning to move; whereas, 23% said they have relocated in the previous two years.

The survey’s coverage in APAC included Australia, China, Hong Kong, India, Japan, Korea, and Singapore.

Among those looking to move their home in the next two years, over half of them (59%) are thinking to relocate near the city center.

Furthermore, the survey showed that almost half of Gen Z and late millennial respondents, or those aged 33 or younger, intend to move their homes in the following couple of years.

The top reasons why respondents from APAC would want to move in the next two years are for better quality property and surroundings, a bigger home, and housing affordability.

Meanwhile, in terms of people’s home selection criteria, CBRE found that health and safety, transportation infrastructure, dedicated space for working from home, and sustainability feature become more important.

The pricing of property is the second most important home selection criterion (next to health and safety) for respondents in APAC. However, CBRE expected buying confidence to be afflicted in the short term by the uncertainty because of the weakening economic outlook. — Chelsey Keith P. Ignacio