Is there a looming housing bubble? And will it burst anytime soon?
Despite concerns raised by some stakeholders in the real estate industry, Colliers International Philippines firmly believes that the recent market trends are enough reason to assuage fears of a housing bubble burst.
In its first quarter report on the residential property market, Colliers explained that there are at least two unique trends in the Metro Manila market that can allay such fears stemming from a strong demand, significantly increasing prices and record high supply.
“Firstly, the downward adjustment in 2018 supply from 27,000 units to 12,700 units effectively softens fears of an oversupply,” Colliers said in the report. “Secondly, vacancy improvement in the secondary market within the key submarkets of Makati central business district and Manila Bay Area proves the existence of real demand rather than pure speculation.”
According to Colliers Philippines, the downward revision in the 2018 supply forecast may even be further adjusted downwards based on construction progress and the developers’ supply strategies, while the vacancy decline is similarly seen as a positive development and only further hints that Metro Manila remains a competitive market where buyers and tenants are closely considering location and overall living experience.
As of end March this year, total residential condominium stock in Metro Manila CBDs reached 107,300 units. Only two projects were completed during the quarter namely Shangrila Properties’ Shangri-La at the Fort and Filinvest Land’s Botanika Nature Residences Tower 1.
Condo stock is still largely skewed in favor of Fort Bonifacio, accounting for 26 percent of the total stock in CBDs, followed by Makati, with 23 percent.
Metro Manila vacancy was down slightly to 12.4 percent in the first quarter from the 12.6 percent recorded in the fourth quarter of 2017. The Manila Bay Area showed the biggest decline to 15 percent from a high of 19.1 percent, which can be attributed to the strong demand from the growing Chinese community which concentrated in Manila Bay Area and portions of Makati CBD.
How a bubble starts
Colliers explained that housing bubbles are typically characterized by a series of events starting with the dramatic rise in prices, driven by strong demand, speculation and exuberance. As it is, capital values reportedly continue to increase with primary market prices hitting record levels. For instance, the most expensive condominium in Metro Manila is now priced close to P400,000 per sqm, a level that is expected to be breached with upcoming high profile projects.
Next, Colliers added, is that the strong demand will then exceed the pace of supply completion, and developers will attempt to chase the demand and start to build more units. Speculators will then enter the market further driving demand for more houses—or in this case, condominium units.
At a certain point however, demand slows down while supply continues to increase. This then results in a drastic drop in prices, leading to a bubble burst, it further explained.
Competitive market
“Overall, while it appears that a housing bubble burst has not yet occurred at this point, it must be stressed that it is still a very competitive condominium market. The key for developers is to ensure that their projects are meeting the expectations of buyers and tenants, especially amidst still sizeable new upcoming supply,” Colliers said.
“We believe Manila Bay Area and Makati CBD have the advantage in terms of location with increased demand from companies acquiring residential units for their employees in these submarkets, augmented by the presence of Chinese nationals. Other locations, meanwhile, must highlight the overall living experience in their project premises to remain as viable options. Retail options nearby, accessibility and availability of amenities are some of the major considerations of buyers and tenants today,” it added.