Metro Manila’s residential market faces headwinds

Earlier, we wrote about the “overblown” market reaction when Philippine Offshore Gaming Operators (POGOs) were banned recently. We also talked about a “glimmer of optimism” in the property sector overall.

However, several headwinds linger. This time we focus on the residential market in Metro Manila. As Colliers, a leading real estate professional services and investment management company, said in a report, Metro Manila is showing signs of strain as key indicators point to a lukewarm segment in the first half of 2024.

Despite promising prospects underpinned by an anticipated rate cut cycle, significant challenges still warrant a cautious outlook for investors and developers alike. Demand for pre-selling condominium units has sharply declined, with only 6,200 units sold in 1st half of 2024, marking a 58% year-on-year decrease. This downturn is largely attributed to elevated interest and mortgage rates, which have dampened both investor and end-user appetites.

More conservative

On the supply side, developers have adopted a more conservative approach. Pre-selling condominium launches dropped by 65% compared to the same period last year, totaling just 5,200 units.

This cautious stance responds to the substantial inventory of ready-for-occupancy (RFO) units currently available. The hesitancy to introduce new projects is reflected in the extended remaining inventory life, which has increased to 4.9 years from 3.1 years in 2023.

Vacancy rates in the secondary market have also shown an upward trend, rising to 17.2% in the 2nd quarter of 2024 from 17% in the previous quarter. The Bay Area in Manila and Pasay has been particularly affected, experiencing a notable increase in vacancies due to its previous reliance on POGO demand.
With President Ferdinand “Bongbong” Marcos Jr.’s recent order to ban POGOs, the area is likely to face further increases in vacancy rates and potential corrections in both rental prices and property values.

Capitalize on opportunities

Looking ahead, we anticipate three rate cuts totaling 75 basis points in the second half of 2024, which could help stimulate demand in the residential sector. The government’s ongoing infrastructure projects are also expected to enhance connectivity and potentially create new property hotspots in the long term.

Vigilance and adaptability are important. By closely monitoring market trends, aligning strategies with economic shifts, and considering diversification into emerging growth areas, investors can position themselves to capitalize on opportunities in this evolving real estate landscape.

GERMAN DE LA PAZ III, CFA serves as an Equity Research Lead in the Investment Services Division of Metrobank Trust Banking Group. His coverage includes gaming, telcos, conglomerates, and utilities, as well as select offshore markets. Prior to joining the bank, he spent 9 years at Abacus Securities, starting as a Junior Investment Analyst and working his way up to Senior Investment Analyst. German holds a Bachelor’s degree in Humanities and a master’s degree in Industrial Economics from the University of Asia and the Pacific. Recently, he obtained his CFA charter and is currently pursuing additional industry certifications. In his free time, German enjoys playing sports, particularly basketball, and has a penchant for reading fiction books, watching suspenseful movies, and listening to music.

ARIZ MARCELINO is an Equity Research Analyst in the Investment Services Division of Metrobank Trust Banking Group. His local market coverage includes banks, consumer, and properties. Additionally, he monitors various sectors and investment themes in the offshore space. Previously, he was with the Markets Research Department, focusing on macroeconomic research and sector analysis. Ariz graduated from New Era University with a degree in Banking and Finance and has cleared the CFA Level 1 exam. He is a certified Financial Modelling and Valuation Analyst and a UITF Sales Person. Outside of work, he unwinds by watching popular sitcoms and anime series while enjoying a cup of hot matcha latte.

GINNY PECAÑA is the Head of Investment Services Division at Metrobank’s Trust Banking Group, overseeing markets and equities research, investment analysis, fund selection, portfolio analytics, and trade execution. Ginny has garnered multiple awards for fund management with her decades of banking experience. She holds a Bachelor’s degree in Business Management from the Ateneo de Manila University as well as various finance certifications. On weekends, Ginny plays Mom to two teenage boys and a 10-month-old corgi named Hobie.