Housing bubbles in Metro Manila

July 30, 2012 / By  

Speculators have been wary of a housing bubble developing in Metro Manila for the past 10 years, particularly in the condominium market. These expectations should have caused the future supply to contract. However, instead of declining, annual project completions have continually increased. From 2012-2016, approximately 154,000 condominium units are expected to complete. This is some 1.7 times the housing stock completion from 2007 to 2011 (87,000 units) and almost 9 times that between 2002 and 2006 (17,500 units). Even prices have continually increased. Capital values for mid-end condominiums grew by an average of 13% annually between 2004 and 2001 while rents grew an average of 8% annually over the same period. The global economic downturn in 2008/2009 only led to a marginal decline in the rate of price increase.

Even though the supply growth accelerated, take-up levels have remained competitive. Developers are seeing healthy sales rates for their developments, which encourage them to build more projects.

Where is demand coming from? For years we have attributed the high take-up to remittances from Overseas Filipinos (OFs). While this is partly the cause, the offshoring and outsourcing industry (O&O) has also played an important role in this activity. The growing number of O&O firms has significantly expanded the mid-end market. As O&O firms established offices outside the traditionally preferred business districts such as Filinvest Corporate City, Madrigal Business Park, Araneta Cyberpark, and McKinley Hill, developers followed suit. Today there are 18 emerging urban districts in Metro Manila, in addition to the three traditional business districts, Makati Central Business District (CBD), Ortigas CBD and Bonifacio Global City. These districts offer a community comprising retail, office and residential projects, which are attractive to both occupiers and developers.

Extended family is the traditional household form in the Philippines, either because of closely-knit familial ties or for financial practicality. In the past, although there was a desire to purchase separate homes, these Filipino families did not have the financial capability to do so. However, with the continuous growth of the O&O industry, household income levels have risen and consequentially homeownership too. As most condominium buyers are mostly end-users, market prices have continued to grow moderately unlike some Asian cities where prices have been driven up more by speculative investors.

Currently, this ‘bubble’ is being ‘filled’ by genuine demand from end-users, and the market seems able to absorb the incoming supply over the short- to medium-term. Nevertheless, there is a large supply over the next five years, making market positioning and aggressive marketing campaigns crucial for developers if they wish to maintain healthy take-up rates.

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