An editorial by Ray S. Eñano from the Manila Standard in the Philippines:
Real estate developers... will not easily admit.
No real estate developer will admit that a real estate bubble is about to burst in the Philippines soon.
However, various ominous signs indicate that a bubble is imminent in the local real estate market. No one can predict the extent to which the bubble will burst.
Renowned real estate market analysts in the Philippines are studying and digesting data reported by developers. All data point in one direction: sales are slowing down, and inventory is not decreasing.
According to this article, many real estate developers are quietly cutting the prices of unsold inventory, an act that can be described as a "silent fire sale." Buyers are becoming cautious, struggling with rising loan rates and inflation, while developers must deal with the problem of oversupply in residential and commercial real estate.
Lovelle Taleon, a director at leading real estate consulting firm Santos Knight Frank, said that developers are engaging in a "silent sell-off" to reduce unsold residential units.
"Regarding the strategy of selling properties in Metro Manila, I believe there is indeed a silent fire sale happening. It's a strategy that all developers are implementing. Their goal is to sell off the properties. They don't want to hold onto them anymore," Taleon said.
However, real estate developers are a proud group. They will not easily admit to a clearance sale. They prefer to keep it confidential, avoiding large-scale advertising to prevent further market instability.
Leechiu Property Consultants (LPC) confirmed the situation of oversupply. The company estimates that there is an oversupply of apartment units in Metro Manila, equivalent to 29 months of supply. The closure of Philippine Offshore Gaming Operators (POGO) is a major reason for the weak demand.
Due to the high volume of unsold inventory, real estate developers are also expected to significantly reduce the volume of residential launches in the next two years.
Alfredo Austria, president of DMCI Homes, believes that given the large number of unsold units in existing development projects, the company will not launch any new projects in the first half of 2025. DMCI is also unsure whether it will launch new projects in the second half of next year.
The rise in loan rates for most of the year, along with the rising costs of goods and services, has suppressed the demand for residential apartments in the Metro Manila area.
Leechiu Property reported that as of November 2024, residential sales in Metro Manila saw a double-digit decline. The company noted that sales absorption decreased by 63% compared to the full year of 2023, and the number of new projects launched was about half of last year's.
Leechiu Property stated that as developers adjust their marketing strategies and enhance inventory products with added value features, the sluggish market provides opportunities for buyers.
Meanwhile, residential apartment sales in Metro Manila for the first 11 months of 2024 only accounted for 63% of the full-year level of 2023.
The number of new apartments launched in the fourth quarter of 2024 increased quarter-over-quarter, but the total number launched in the 11 months was only half of the full-year projects of 2023, clearly indicating that developers are cautious in a slowing sales environment.
To digest high inventory, developers are now offering more flexible terms, such as reducing down payments and extending payment periods. These adjustments make it easier for homebuyers to manage their finances and alleviate the direct burden of high upfront costs.
According to real estate consulting firm Colliers Philippines, as of the third quarter of 2024, the remaining inventory in Metro Manila was 75,300 units, with an expected absorption period of 5.8 years, much longer than the one to two years before the pandemic.
The inventory includes 27,200 ready-to-move-in units, valued at 154.4 billion pesos ($2.8 billion). Most units are priced between 3.6 million pesos and 12 million pesos, suitable for the middle-income market.
The feared real estate bubble in the Philippines may never happen. But if developers continue to overprice assets, and high inflation and high interest rates persist, their concerns may become a reality.
