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Is it the end of the party for the Philippine residential property market?

June 9, 2014 / By

The talk of a property bubble in the Philippines, particularly in the residential market, has been going around since the beginning of the 2008 Global Financial Crisis. To some, the exuberant residential market with its large number of new launches in recent years has been supported by the speculative buying as a result of the inflow of hot money into the system.

In reality, however, demand for accommodation in Metro Manila has been steadily rising, with an estimated housing backlog amounting to some 58,000 units annually, on average. The general improvement in income, driven by steadily growing remittances from overseas Filipinos and the growth of the offshoring & outsourcing sector, has further supported this growth in demand for high quality accommodation.

For many years, the growth of the residential market has been curtailed by excessive interest rates, as developers dominate the financing market and passed on the additional risks associated with property development to the buyers. The demand for accommodation has been steadily rising with more flexible financing options and lower cost of borrowing being offered by commercial banks.

However in recent months, there was an observed decline in new launches among residential condominium developers. While doomsayers are quick to claim that this spells the start of the crash, the move of the developers to hold back launches is actually an indication of how the market self-regulates, and this trend is reminiscent of the same scenarios in various periods since 2008.

While the general mood remains upbeat, the negative sentiment is likely a result of the slowdown of GDP growth in 1Q14. While the growth forecast for the remainder of the year remains weaker than in the preceding years, positive growth is likely to be sustained by the continuous government spending on rehabilitation efforts in typhoon Haiyan-devastated areas, as well as big-ticket infrastructure projects. Barring any major externalities, growth is likely to come back in the succeeding quarters. Similarly, perhaps, the talk of a looming property bubble will once again take the backseat.

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