The Residential Property Market

The residential real estate market was stable and prices continued to rise through 2019.
According to Colliers, the average price for 3-bedroom luxury condos rose more than
15% to $ 4,371 per square meter in 2018.

Since 2013, the market has performed better than all previous years. Having said that, it
was already seen the problem of oversupply of units and high vacancy rates in certain
areas.

Jones Lang LaSalle said that the increase in demand for residential units mainly comes
from local young professionals, upgraded families and overseas high-net-worth
individuals (HNWI).

Remittances from overseas Filipino workers (OFW) are also increasing.

The real estate market has been hit hard by the COVID-19 crisis, resulting in reduced
tourist arrivals, restricted travel, reduced inflows of OFW remittances, unemployment
and increased consumer confidence in businesses.

The Philippines experienced a house price boom from 2010 to 2018, but in
2020 the COVID-19 pandemic aggravated the situation, sending the housing
market to its knees. The Philippines has been ranked as the worst performing
housing market in the Global Property Guide’s 2020 Global House Price
Survey, with house prices in the Makati CBD falling by 13.2% last year.

Nationwide, the house prices have been declining less severely in recent
months. The residential real estate price index decreased by 4.2% during the
year to Q1 2021. The index fell 2.9% in the first quarter of 2021. A measure of
residential real estate prices is published every three months, and is based on
bank reports on residential real estate loans.
By property type:

 For condominium units, prices fell by 1o.7% (-14.5% inflation-

adjusted) in Q1 2021 from a year earlier

 Duplex houses saw the biggest y-o-y price fall of 20.7% (-24.2%

inflation-adjusted) in Q1 2021

 For single detached/attached houses, prices rose by a minuscule

0.2% (but fell by 4.1% inflation-adjusted) during the year to Q1 2021

 Townhouse prices rose by 8.3% (3.7% inflation-adjusted) over the

same period

Due to the continued global uncertainty brought about by the COVID-19 crisis
and the heightened political instability associated with the 2022 national
elections, the housing market is short-term for potential homebuyers.

“Pandemic-induced disruptions have altered the Philippine economy and the

property sector,” said Colliers International.

“The pandemic continues to hamper residential demand in both the pre-sale

and secondary markets,” Colliers added. “We expect this to result in further
price and rental correction.”

According to the Philippine Statistics Agency (PSA), the Philippine economy

continued to struggle in the first quarter of 2021, with real GDP shrinking by
4.2%, and the fifth consecutive quarter of a year-on-year economic downturn.
The re-implementation of quarantine restrictions in the face of a surge in
infections hindered commercial and consumer activities.

Even so, the government remains confident that it will hit its economic growth
target of 6.5% to 7.5% this year, after a huge drop of 9.5% in 2020 - the biggest
drop since PSA began collecting data in the year In 1946 his forecast for
economic growth in the Philippines of 4.7% in 2021, based on his initial
forecast of 5.5% growth.

Pandemic has dragged real house prices further

below pre-Asian Crisis levels!

Surprisingly, despite the decade of soaring prices, the Philippine housing

market has not yet recovered from the 1997 Asian financial crisis crash.
Between 1997 and 2004, the price of luxury condominiums fell 28% (inflation-
adjusted 52%) in the largest real estate crash in all countries affected by the
Asian financial crisis.

v
Both rental prices and real estate values are already well above the 1997 level
in current prices. Nevertheless, before the outbreak of the coronavirus, real
estate prices in 2019 were around 10% below the level before the Asian
financial crisis, adjusted for inflation.

Worse still, the pandemic quickly wiped out most of the profits of the past few
years, causing real prices to drop to almost 30% below pre-Asian levels in the
first quarter of 2021.

Condominium supply to rise strongly this year

According to Colliers International, CBD's total condominium inventory in

Metro Manila increased 2.6% year-on-year to 133,460 units in 2020, up 9.4%
in 2019 and 11% in 2018. Due to the pandemic, only about 3,370 units were
completed in 2020. This is down from 11,200 completions in 2019 to an
average of 7,900 completions over the last decade.

As restrictions eased, developers resumed construction of condominium

projects that were previously halted and supply is expected to rise again this
year. In Q1 2021, completions almost quadrupled to 4,145 units from just
1,080 units in the previous quarter according to Colliers.

Overall, the number of Metro Manila condominiums is expected to reach

159,900 by the end of 2023, up almost 20% from last year.

Residential construction up

After plummeting last year, residential construction across the country is now
showing signs of improvement.

In Q1 2021:
  According to figures from the Philippine Statistics Authority (PSA), the
number of housing permits increased by 6.2% year-on-year to 23,364
after a whopping 30% decrease in 2020.

 The area of residential construction permits increased by 4.2% y-o-y to

3.81 million sq. m., following a 40% decline during 2020.

 The total value of housing permits rose strongly by 19.3% y-o-y to

PHP46.22 billion (US$950.31 billion).

In Q1 2021, approximately 89.4% of residential constructions in the country

were single-type houses. The average construction cost for a residential unit
was PHP 12,128 (US$249) per sq. m. in Q1 2021. Condos had the highest
average cost of PHP 20,258 (US$416) per sq. m. while single-type residential
unit had the lowest at PHP 10,172 (US$209) per sq. m.

Rents falling; vacancy rates rising

Residential rents across Metro Manila fell by 19.8% y-o-y to an average of PHP
38,700 (US$796) per month in Q1 2021, according to JLL. On a quarterly
basis, residential rents fell 1.2% during the latest quarter.
“Rental decline can be attributed to the slowdown in general lease activity
used to be driven by halfway home seekers and expatriate housing,” said JLL.

Among the major Metro Manila CBD areas, Muntinlupa registered the

biggest decline in residential rents during the year to Q1 2021, at 9.7%, closely
followed by Taguig City (-9.3%), and Makati City (-9.2%). Rents also
declined in Pasay (-7.7%), Manila (-7.5%),Mandaluyong (-7.5%), Quezon
City (-5.2%), and Pasig (-1.9%).

Only Parañaque City recorded a y-o-y rent increase of 4.4% in Q1 2021.

The rental market is expected to remain subdued during the remainder of the
year.

“We expect further correction in 2021, albeit at a slower rate, after the
significant drop recorded in 2020, when rents decreased 7.8%, exceeding the
3.7% drop during the Global Financial Crisis,” said Colliers. “We expect rents
to rise gradually starting in 2022.”

RESIDENTIAL RENTS, Q1 2021

Location Monthly Rents Y-O-Y Q-O-Q

 PHP USD    

Taguig City 10,500-350,000 216-7,202 -9.3 -1.0

Makati City 15,000-240,000 309-4,939 -9.2 -1.5

Pasay City 19,000-120,000 391-2,469 -7.7 -1.1

Quezon City 10,000-70,000 206-1,440 -5.2 -1.6

Parañaque City 10,000-89,500 206-1,842 4.4 -0.2

Muntinlupa City 14,500-150,000 298-3,087 -9.7 -1.9

Pasig City 15,000-110,000 309-2,264 -1.9 -1.1

Manila City 10,000-80,000 206-1,646 -7.5 -1.8

Mandaluyong City 12,000-55,000 247-1,132 -7.5 -1.6

Source: JLL

In Metro Manila, the overall residential vacancy rate rose to 7.3% in Q1 2021,
from 7% in the previous quarter and 3.5% a year earlier, due to a decline in
lease demand especially in the luxury segment, according to JLL.

Muntinlupa has the highest vacancy rate of 12.2% in Q1 2o21, followed by

Manila (12%), Makati (9.2%), Taguig (8.7%), Pasay (8.4%), and Pasig (8.3%).

“Affordable” housing shortage

Nevertheless, the Philippines has a huge housing need at the low end.
Nationwide, the country has a housing shortage of about 4 million units,
according to the Subdivision and Housing Developers Association (SHDA).
Most of this would need to be socialized housing - units with a selling price of
under PHP450,000 (US$9,250). In Metro Manila, as many as 300,000
households reside in informal and semi-uninhabitable housing units,
composing 8.7% of Metro Manila’s total population. These people live in
appalling conditions. Many others live in very poor conditions.

To meet the needs of these families, the government embarked on the

National Shelter Program to provide housing for informal settlers and other
families who do not have enough income to rent nor buy houses in the
prevailing markets rates.

Socialized housing units, or those which cost less than PHP450,000

(US$9,250) can be purchased with a monthly amortization of PHP2,302
(US$47). The Pag-Ibig Fund, (which is the Filipino word for love), the
country’s state-owned and subsidized housing loan provider, provides a fixed
rate of 3% for 30 years for socialized housing units.

The problem is that these low-end housing units are usually far from work.

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