Resiliency and adaptability in the Philippine property market

According to recent reports from Leechiu Property Consultants, the economy, which showcases a gross domestic product growth rate of 6.3%, is a significant factor driving property demand in the Philippines. The said figure positions the Philippines as the second fastest-growing economy in the region, just behind Vietnam, which recorded a growth rate of 6.9%.

The country’s economic performance provides a foundation for sustained interest in the real estate sector. As the Philippines gears up to achieve upper-middle-income status by 2025, anticipated investments in the property market are expected to rise, reflecting growing confidence in the country’s economic prospects.

Investors and homebuyers alike are increasingly looking beyond Metro Manila to tap into the opportunities presented by these dynamic regions. The improvements in transportation infrastructure, such as new expressways and public transit systems, have made these areas more accessible and investor-friendly.

Stabilized demand amid declining launches

According to Colliers Property Market Report published for the third quarter of 2023, the demand for residential properties in Metro Manila remained tempered due to elevated mortgage rates. While the Bangko Sentral ng Pilipinas has initiated rate cuts, their immediate impact on consumer lending is limited.

Only 9,300 pre-selling units were sold in the first nine months of 2024, a 53% year-on-year decline. Colliers projects an annual average increase of 4,980 units in pre-selling take-up from 2024 to 2028, with a full-year growth of 6,830 units expected by the end of 2024.

Interestingly, there has been a growing preference for upscale and luxury units, which are now accounting for a larger share of overall pre-selling take-up. This trend reflects a shift in buyer profiles, as investors and high-income earners continue to fuel demand despite the economic headwinds.

Meanwhile, the supply in the Metro Manila condominium market remains constrained, with completions in the third quarter of 2024 amounting to just 830 units, bringing the year-to-date total to 9,860 units lower than the previously forecasted 11,290 units due to project delays.

The vacancy rate in Metro Manila’s secondary residential market increased to 17.4% in the third quarter of 2024, up from 17.2% in the previous quarter. The exit of Chinese Philippine Offshore Gaming Operators (POGOs) workers significantly contributed to this trend, particularly in the Bay Area.

On the rental front, recovery remains sluggish. In fact, residential rents grew marginally by 0.2% quarter-on-quarter (QoQ) and are expected to rise by 1.0% year on year by the end of 2024. Annual growth is forecasted at 2.1% from 2024 to 2028, with rental rates returning to pre-pandemic levels by the second quarter of 2028.

Capital values for residential properties grew by 0.5% QoQ in the third quarter of 2024, with an annual growth projection of 2.1% for the year.

One of the key elements sustaining demand in the residential market is infrastructure development, particularly in areas outside Metro Manila. Provinces such as Cavite, Laguna, and Batangas have emerged as focal points for growth, benefiting from enhanced connectivity and ongoing urban development projects.

Decline in office market growth

The office market experienced its first negative net take-up since 2021, recording a net absorption of -33,000 square meters (sq.m.) in the third quarter of 2024. This contraction was driven by the vacated spaces of POGOs following the government’s ban, coupled with rightsizing among outsourcing firms.

Notably, the vacancy rate in Metro Manila rose to 18.5% in the third quarter of 2024 from 18.3% in the previous quarter. However, demand for office space in the provinces outperformed Metro Manila, with provincial transactions accounting for 23% of total office deals during the period. Cebu and Davao emerged as key hot spots, with substantial leasing activity from outsourcing firms.

New office supply remained limited, with only 9,500 sq.m. completed in the third quarter of 2024. For the first nine months, total completions amounted to 176,400 sq.m. — a 47% drop compared to the same period in 2023. Colliers attributes this decline to construction delays, muted pre-leasing activity, and high vacancy rates in certain submarkets.

While average rents in Metro Manila declined by 0.6% QoQ, primary central business districts (CBDs) like Makati, Fort Bonifacio, and Ortigas demonstrated resilience with marginal increases. In contrast, secondary markets are likely to experience further rental declines.

Despite challenges, traditional firms drove demand in Metro Manila, accounting for 53% of transactions during the first nine months of 2024. Banking institutions, government agencies, and flexible workspaces were among the key contributors to this segment.

Shift to leisure-oriented developments

According to Leechiu Property Consultants, the full recovery of hotel, tourism, and leisure segment to pre-pandemic levels is projected by 2026, as the government and private developers invest heavily in infrastructure and accommodations.

Nationwide, the private sector has committed to 158 new hotel projects, totaling 40,084 rooms, generating P250 billion in investments, and creating 57,000 jobs.

Luzon accounts for 50% of the total pipeline, with key projects in Clark and Metro Manila. Visayas comes next with significant developments in Boracay, Mactan Island, and Panglao; while Mindanao contributes 8% of the pipeline, with notable projects in Davao City, Cagayan de Oro, and Siargao.

In response to tepid demand in Metro Manila, developers are shifting focus to leisure-oriented projects outside the capital, according to Colliers. Golf communities are gaining traction as lifestyle-oriented investments. These projects, priced between P175,000 and P590,000 per square meter, report take-up rates ranging from 43% to 100%.

Surge in retail demand

Colliers highlighted that mall operators are strategically refreshing retail spaces to entice more visitors and extend their dwell time, particularly in the run-up to the festive fourth quarter. In the third quarter of 2024, 104,800 sq.m. of retail space was absorbed, with food and beverage (F&B) brands leading the charge.

Expansion by foreign retailers, including brands from the home furnishing and personal accessory sectors, further amplified demand.

The market also saw the delivery of 86,900 sq.m. of new retail space during the quarter, including prominent developments like Opus Mall in Quezon City and expansions of SM City Caloocan and SM Bicutan.

On the other hand, developers are increasingly focusing on redeveloping existing malls to align with consumer demands for more immersive and experiential spaces.

Retail rents exhibited modest growth due to the influx of new supply, with a QoQ increase of 0.2%. Premium rents were observed in business hubs and malls with low vacancy rates.

Vacancy rates improved slightly to 15.1% in the third quarter, driven by robust retailer take-up. By yearend, vacancy is projected to inch up to 15.3% as new supply comes.

Source: Business World

UK landlords sell in a hurry amid fears of capital gains tax increase

The proportion of former rental properties for sale is the highest on record, an increase that may be driven by landlords’ fears of an increase in capital gains tax in the budget, according to Rightmove. Eighteen per cent of properties for sale were previously on the rental market, compared with 8 per cent in2010.

The property website said that landlords’ fears that the budget on October30 would result in an increase in capital gains tax — a tax on the profit made when an asset is sold — could be behind the surge.

London has emerged as a hotspot, with 29 per cent of homes for sale having previously been rental properties. Scotland and the northeast follow, with a proportion of 19 per cent. The percentage has been slowly increasing for months. The previous five year average for homes switching from the rental market to the sales market is14 per cent, according to Rightmove. Tim Bannister, its property expert, noted that while the trend was increasing, it did not signal a “mass exodus of landlords”.

The number of new properties entering the sales market has risen by 14 percent compared with a year ago, a period when the market was subdued by high inflation and peak mortgage rates.

Compared with 2019, the last year before the pandemic, the number of homes for sale this year has increased by 3 per cent. Bannister said: “In recent years it has become more attractive for some landlords to leave the rental sector rather than to continue to invest in it, due to rising costs, taxes and legislation.

We’ve seen over the last few years how the supply and demand imbalance can contribute to rising rents, so there is a worry that without encouragement for landlords to stay in rather than leave the rental sector it is tenants who will pay the price.” Sir Keir Starmer has warned that the budget will be “painful” and that those with “the broadest shoulders should bear the heaviest burden”.

Rachel Reeves, the chancellor, has declined to rule out an increase in CGT. At present CGT is levied at rates of between 10 and 28 per cent. An increase could lead to a “significant rise” in the tax burden, Marc von Grundherr, director of the estate agent Benham &Reeves, said. “This would be yet another blow to those who provide vital housing stock that is sorely needed within the rental sector, following a string of legislative changes already introduced in recent years to dent profitability

Source: The Times

President Marcos’ 3rd SONA: What’s in it for PHL property

President Ferdinand R. Marcos, Jr.’s third State of the Nation Address (SONA) highlighted crucial issues that will have a direct or peripheral impact on Philippine property. From the improvement of the country’s infrastructure network to the upskilling of potential workforce,

Colliers believes that these pro-business reforms will play a pivotal role in resuscitating Philippine property post-pandemic. While challenges remain, including business registration bottlenecks, President Marcos’ last SONA infuses much-needed optimism, particularly in stoking the property segment, which is being positioned as one of the key job and livelihood-generating sectors of the Philippine economy.

Tourism was also highlighted, which has great potential to employ Filipinos living in the countryside. What’s encouraging is that the president also addressed the country’s costly electricity and measures that can be implemented to plug power shortages. This should play a key role in revivifying the Philippines’ manufacturing competitiveness, which should enable the country to attract much-needed foreign direct investments.

IMPROVEMENT OF PHYSICAL AND DIGITAL INFRASTRUCTURE

President Marcos committed to infrastructure development that is ‘sustained, strategic, and on schedule.’ We expect the president to continue allotting 5% to 6% of the country’s GDP to infrastructure. Previously, he ordered ‘full speed ahead’ to amplify his administration’s goal of ramping up and hastening infrastructure implementation across the country.

This is basically a continuation of the level of spending implemented under the previous administration. The strategy is definitely not just Metro Manila-centric. Based on the projects mentioned by the president, among the provinces likely to benefit from this infrastructure program are Bulacan, Cavite, Laguna, Batangas, Pampanga, Zamboanga, Lanao del Norte, and Misamis Occidental.

Colliers previously highlighted the importance of infrastructure projects in raising the attractiveness of office and residential projects, especially outside Metro Manila. This is likely to be supported by decentralization, which the president previously stressed.

We also highlighted the importance of infrastructure in raising land and property values as they improve people’s mobility. We believe that this infrastructure blueprint will play a crucial role in guiding developers’ landbanking and expansion plans. Hence, developers should be on the lookout for the progress of these projects.

UPSKILLING OF FILIPINO STUDENTS

The president emphasized the need to focus on technical-vocational education and training (TVET). This is important in ensuring that the Filipino workforce is globally competitive. The Department of Education, Commission on Higher Education, Department of Labor and Employment, and Technical Education and Skills Development Authority have incorporated TVET into the Senior High School curriculum to further boost the employability rate of students.

This should be complemented by the president’s earlier push to use English as our medium of instruction. In our view, these are important in retaining our edge in the outsourcing sector, especially for higher value services or Knowledge Process Outsourcing. This should also support the government’s goal of attracting more BPO investments and generating more employment opportunities.

More BPO investments could potentially raise the demand for office space in Metro Manila and other key urban areas such as Cebu, Iloilo, Bacolod, Davao, and Clark in Pampanga.

The new Education Secretary should ensure the implementation of a curriculum that will help bridge job mismatch and ensure that college graduates are equipped with skills that will make them employable after graduation.

MULTI-FACETED STRATEGY IN PROMOTING TOURISM

President Marcos highlighted the important role that tourism plays in generating jobs, especially in the countryside. He stressed the need to improve roads and international airports to enable the Philippines to accommodate more tourists. In 2023, the tourism sector contributed about 8.6% to the country’s GDP, lower than the pre-pandemic level of 12.8% in 2019 — the year when the Philippines attracted the most number of foreign tourists at about 8.2 million.

Colliers believes that the gradual recovery of tourism augurs well for the country’s economy, including property players that have established their own leisure-related businesses. In our view, the modernization of airports and development of access roads should guide developers that are planning to build hotels and Meetings, Incentives, Conferences, and Exhibitions  facilities outside the capital region.

The improvement of infrastructure should also boost the Philippines’ international travel and tourism competitiveness, and this should entice more foreign investors to invest in the country’s leisure sector.

CONTINUED SUPPORT FOR OFWS

President Marcos also highlighted his administration’s programs for Filipinos working abroad. During his SONA, he mentioned that partnerships with like-minded states have resulted in increased investments and strengthened national security, but also quality jobs for Filipinos seeking employment overseas. This should support the continued deployment of migrant workers and sustain the inflow of remittances.

Colliers sees the growth in remittances partly supporting the demand for horizontal units, particularly projects that are within the affordable to mid-income (P2.5 million to P7 million) price segments, and projects located within the Central Luzon and Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon) regions, which accounted for about 29% of deployed overseas Filipino workers (OFWs) in 2022. We have observed sustained take-up for house-and-lot and lot-only units in provinces including Pampanga, Bulacan, Cavite, Laguna, and Batangas.

EASE OF DOING BUSINESS AND ADDRESSING COSTLY AND INSUFFICIENT POWER

President Marcos highlighted that the government’s efforts to improve the ease of doing business through the digitalization, integration, and streamlining of government services have produced ‘multiplier effects’. The government has also set in place policies and programs to create a conducive business environment through reforms in the capital markets and the implementation of ‘green lanes’. These measures should enable the country to attract greater interest from foreign firms, including manufacturers that take up space and warehouses in industrial parks.

We recommend that developers highlight the advantages of locating within an industrial park to potential locators. Industrial parks are flexible or easily reconfigured and have zoning regulations tailored for industrial uses. They also have modern infrastructure design such as well-maintained road networks. Locating in an industrial park could also be more cost-efficient as utilities, including water and electricity, are managed systematically.

According to the Department of Energy, electricity rates in the Philippines continue to be some of the most expensive in Southeast Asia. In our view, this will likely be a challenge, especially in attracting locators from power-intensive industries such as data centers.

BANNING OF POGOS

President Marcos has ordered the banning of POGOs. This created a lot of noise, especially in the property market, given that some developers aggressively chased the additional demand from this sector from 2017 to 2019. As my colleagues from Colliers Philippines’ Office Services-Tenant Representation team highlighted through their latest release ‘PBBM bans all Philippine Offshore Gaming Operators’, the share of office space occupied by the POGO sector has been dwindling.

At the peak of POGO demand in 2019, these offshore gaming firms from China occupied about a tenth of the total leasable office space in Metro Manila. This is down to only about 3.5% as of this writing. The latest office deals from POGOs have been ‘sporadic’ at best. It appears that the POGO sector is no longer a major player in terms of office space take-up in Metro Manila, with the latest Colliers Philippines commentary stressing that future absorption will likely come from IT-BPM firms, MNCs, and traditional occupants including government agencies.

Source: Business World