Metro Manila's Condo Crisis: Oversupply and Buying Opportunity!

 

Oversupply in Metro Manila's Property Market: Opportunities Amid Challenges

Current State of the Property Market

Metro Manila is bustling with buildings, yet many remain underoccupied or even empty. According to a report from Leechiu Property Consultants, there is currently an oversupply of condominium units in Metro Manila, with a surplus equivalent to 29 months. Quezon City leads with 18,500 available units, followed by Ortigas and the Bay Area in Pasay.

Causes of Oversupply

The question arises: have real estate companies overbuilt, or has demand dwindled? The answer is both. The oversupply primarily affects the mid-segment market, which includes properties priced between 3 million to 20 million pesos. This market segment has been significantly impacted by inflation, rising interest rates, and economic strain on small and medium enterprises (SMEs).

Market Opportunities

Despite the oversupply, Leechiu Property Consultants indicate that now is a good time to buy. Developers are offering attractive payment terms, and with interest rates decreasing, these terms are likely to improve further. This situation presents a favorable opportunity for those looking to purchase their first home, a second property, or even an investment property. Banks are also keen to continue lending, particularly in the mid-market, to mitigate concentration risks associated with lending to a limited customer base.

Historical Context

From 2017 to 2019, the Philippines experienced a construction boom, driven by rising incomes and population growth in urban areas. The demand for residential and commercial spaces was at an all-time high. Office rentals surged as the Philippines remained a top destination for business process outsourcing (BPO).

Impact of the COVID-19 Pandemic

However, the COVID-19 pandemic in 2020 disrupted this growth. The pandemic introduced numerous challenges for the real estate sector, leading to a slow and painful recovery. Many companies adopted hybrid work arrangements, reducing the demand for office spaces. Currently, Metro Manila has 2.6 million square meters of vacant office space, which is projected to take about five years to fully absorb.

Future Projections

Leechiu Property Consultants project that the vacancy rate in Metro Manila's office sector will reach 20.5% by the end of this year, the highest ever. The government’s ban on Philippine offshore gaming operators (POGOs) due to associated illegal activities further exacerbated the situation. POGOs once occupied 10% of Metro Manila’s office space, totaling about 1.3 million square meters before the pandemic. Many companies are now surrendering their office spaces as their leases, initially signed in 2019, come to an end.

Broader Implications

The exit of POGOs has had a ripple effect beyond office spaces, affecting residential and commercial sectors that benefited from POGO operations. Landlords are concerned about the potential loss of tenants, while office space providers are reassessing their cash flows due to existing debts.

Economic Recovery and Policy Changes

The property sector has also been impacted by economic recovery challenges and slowing growth. The Banco Central ng Pilipinas increased borrowing rates to 6.5% to combat recession, which dampened demand for residential and commercial properties. Although central banks globally have started cutting interest rates, the positive effects on the real estate sector may take years to materialize.

Looking Ahead

Industry experts foresee a correction in the supply and demand for real estate products over the next two to three years. Bonifacio Global City (BGC) is expected to lead this correction, as it remains the most expensive and in-demand office market in the Philippines. Additionally, a shift to other cities outside Metro Manila is anticipated, with more investors and companies looking to avoid the crowded metropolis.

Exciting Prospects for 2025

The tourism sector presents exciting opportunities, with Bohol and El Nido continuing to be top choices. In the office segment, cities like Iloilo, Bacolod, and Bohol are emerging as significant markets outside Manila and Cebu, with demand outstripping supply. The 2024 accommodation pipeline report.