The residential market’s upside potential

The Metro Manila pre-selling condominium market continues to see tepid launches and takeup. We attribute this to elevated mortgage rates and lengthened remaining inventory life. Colliers sees sizable delivery of new condominium units this year and this is likely to raise vacancy in the secondary market.

Given the lukewarm pre-selling market in Metro Manila, major developers have taken an aggressive stance in expanding outside Metro Manila. Property firms are actively landbanking and developing expansive masterplanned communities in prime development hubs outside of the capital region.

Colliers believes that while property firms are launching integrated projects outside Metro Manila, developers should constantly monitor interest rate changes and assess the most attractive price segment for each Metro Manila sub-location; reassess promos for ready-for-occupancy (RFO) units; and further integrate differentiating features for condominium projects to seize recovering demand.

Monitor interest rate changes and reassess promos and payment schemes. The central bank noted that it is unlikely to cut interest rates until Q4 2024 as inflation is starting to inch up again. Colliers believes that developers and investors need to constantly monitor inflation and interest rate changes and their eventual impact on mortgage rates. Interest rates remain at 6.5 percent as of April 2024 while average mortgage rates increased to 8.2 percent in Q1 2024 from 7.4 percent in 2020.

Colliers encourages investors to actively monitor interest and mortgage rates, particularly as these strongly influence the viability of a residential investment. Interest rates should guide developers in their promos and payment schemes and whether it is already necessary for developers to revisit their rates and payment schemes to reignite interest in acquiring condominium units.

Integrate ‘differentiating’ features. Colliers Philippines believes that the importance of open/green spaces, smart home technologies, and proximity to places of work and malls are highly valued more than ever. The pandemic has changed the way people live, work, and shop, resulting in developers integrating new features into their projects to satisfy residents’ evolving preferences.

In our view, residential projects in Metro Manila that provide upscale amenities and top-tier concierge services continue to remain popular among experienced and affluent clients. We believe that developers should continue innovating with their condominium projects by offering new features and services and by aggressively differentiating.

Over the past year, several developers have integrated more healthy and sustainable amenities into their newly-launched projects. Some have also incorporated unique features such as glamping nooks, garden gazebos, and sky promenades as hyper-amenitized condominium developments become the norm.

Launch of horizontal projects outside Metro Manila. Colliers has observed steady demand for house-and-lot (H&L) and lot-only projects in key areas outside of Metro Manila including Pampanga, Bulacan, Cavite, Laguna, and Batangas. From 2022 to 2023, we recorded the annual average takeup for horizontal projects in these areas reaching 29,000 units, up from the 28,700 average units sold from 2020 to 2021.

Colliers believes that developers will continue to venture into horizontal residential projects outside of Metro Manila where demand comes from end-users. Among the developers that will launch massive horizontal projects outside the capital region are Rockwell Land with its 85-hectare beach property in Lian, Batangas and a 300-ha horizontal project in San Jose, Bulacan; and Century Properties, which has also announced the launch of five new projects under the PHirst brand this year with a combined land area of 85 ha.

Meanwhile, Cebu Landmasters plans to expand outside of Visayas and Mindanao and establish its presence in Luzon. The firm disclosed that it is receiving offers from landed families in Camarines Sur, Calabarzon, and Pampanga.

More JVs for upscale to luxury projects. The share of upscale to luxury residential projects to total pre-selling takeup in Metro Manila increased to 18 percent in 2023 from 10 percent in 2022. We attribute this to the rising share of higher-priced condominium units to total launches in the pre-selling market in 2023.

While the supply and demand for mid-income projects has held firm, the share of pre-selling condos priced at least P12 million per unit has steadily increased particularly after 2020 and 2021, which we consider to be a disruptive period for the Metro Manila condominium market.

In our view, developers planning to launch projects within the upscale to luxury price band should consider joint venture (JV) deals either with local players or foreign developers. We have seen developers implementing this strategy as they attempt to push their pre-selling residential prices higher. These partnerships should be beneficial to property firms with limited landbank as well as to those that intend to offer upscale to luxury and even ultra-luxury residential projects.

As of end-2023, Colliers data showed that joint venture luxury projects in Metro Manila have takeup rates of between 64 percent and 100 percent.

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 price appreciation potential and this should be among investors’ key considerations when acquiring a condominium unit.

Optimizing property potential. We can’t deny the fact that the property market continues to see some challenges. But property firms have always been agile and are recalibrating their strategies, now setting their sights on growth areas outside of Metro Manila.

Colliers believes that further decentralization is likely to dominate property firms’ strategies even beyond 2024. This gameplan should be enhanced by the national government’s commitment to hasten and intensify infrastructure implementation across the Philippines. Despite challenges, we see opportunities in the property market and investors and developers should be quick to capture them.