Changing preferences and new economic realities shape the future of residential real estate
(First of a series)
Metro Manila has long been one of Southeast Asia’s real estate hotspots, with towering condominiums rising as symbols of its bustling urban life.
In recent years, industry analysts have noticed a significant slowdown in the take-up of residential condominium units across Metro Manila. Unlike previous episodes of major real estate downturns in the Philippines, this is instead being attributed not just to cyclical economic factors but also to fundamental shifts in consumer demand, driven by changing lifestyles and macroeconomic conditions.
Localized and nuanced
Rather than a comprehensive, market-wide decline, the recent slowdown in the residential condominium market is more localized and nuanced. Several contributing factors have emerged, many of which predate the pandemic but have since been exacerbated by its ripple effects.
For years, Metro Manila’s condominium market enjoyed robust demand from upwardly mobile young professionals and steady stream of expatriate executives, fueled by the relentless expansion of the business process outsourcing (BPO) sector and a long rally in the office market.
This led to a surge in condominium developments for close to 20 years, accumulating a moderate oversupply of unsold inventory, particularly, the smaller “pocket units” that are quite a challenge to market.
Even before 2020, several market stakeholders have already anticipated a market correction. However, the pandemic introduced new challenges that significantly altered the dynamics of real estate demand.
One major shift has been the move away from smaller, compact condominium units toward larger developments with premium amenities. Health-conscious and active lifestyles now guide buyer preferences, with many seeking residences that offer exclusive facilities, large open spaces, and enhanced living environments.
Economic headwinds
Beyond evolving preferences, the broader economic environment has also impacted the condominium market.
Elevated inflation and rising interest rates have placed additional financial strain on middle-market buyers, slowing down sales in this particular segment. Although condominium prices have not significantly increased in real terms, any price growth observed has been driven by buyers’ aspirational demand for improved unit designs and enhanced amenities.
The luxury segment, however, tells a different story.
Despite economic challenges, demand for high-end and well-located properties remains robust. These developments continue to hold their value over time, thanks to their emphasis on quality, prime locations, and resilient infrastructure. Investors looking for safe havens increasingly turn to such properties, reinforcing their worth and providing stability in uncertain times.
From 2009 to 2024 the compound annual growth rate (CAGR) of inflation-adjusted selling prices of pre-selling luxury residential condominium developments is estimated at around 15 percent. The CAGR of capital values of existing high mid/luxury residential condominium developments is estimated at around 12 percent within Metro Manila.
Role of masterplanned communities
To combat the cyclical downturn, property developers have doubled down on their efforts to create masterplanned communities. These developments provide integrated environments where residents can live, work, and play without needing to travel outside the compound.
This “live-work-play” model caters to modern lifestyles and ensures sustained demand, even during market fluctuations.
Furthermore, the rise of masterplanned communities represents a commitment by developers to meet the evolving needs of buyers. By crafting self-sustaining neighborhoods, developers are not only future proofing their projects but also potentially reducing the frequency and impact of cyclical real estate corrections.
BSP’s policy interventions
The Bangko Sentral ng Pilipinas (BSP) also played a critical role in ensuring stability in the real estate sector amid these structural changes.
Measures such as capping loan-to-value ratios, setting ceilings on real estate loans, and closely monitoring the banking sector’s exposure to the property market have helped prevent the conditions for a property bubble.
Additionally, the BSP’s strategy of mandating property brokers and developers to report high-value transactions has added another layer of security, curbing potential money laundering activities. Such interventions not only stabilize the market but also instill confidence among investors and stakeholders.
Renewed interest in affordable housing
The rising cost of living and inflation have made luxury condominiums less attainable for the average Filipino buyer.
Affordable housing is emerging as a more viable option for middle-income households that still dream of home ownership. Major and quality developers are increasingly stepping into this space, providing alternative solutions to ease the affordability gap, and infusing the needed credibility in this residential segment.
Market expansion beyond metro manila
The expansion toward emerging markets outside Metro Manila is not only an inevitability but also a vital strategy for the sector’s sustainable growth.
The rapid saturation of Metro Manila’s condominium market has resulted in skyrocketing property prices and intense competition among developers.
Pent-up demand among local investors and buyers is a significant factor driving interest in property markets outside Metro Manila. Moving toward regional markets provides a chance for developers to meet this renewed demand head-on, reigniting interest among individuals who previously found Metro Manila markets too competitive or costly.
Provincial hubs such as Cebu, Davao, Iloilo, Pampanga, and Cagayan de Oro are demonstrating promising growth, with improving infrastructure, urbanization initiatives, and increasing local investor activity.
The bottom line
The current Metro Manila condominium market’s slowdown is not merely a reflection of oversupply but an indicator of structural demand changes.
Buyers and investors are increasingly drawn to quality developments in prime locations that cater to lifestyle needs and long-term resilience. With the steady growth of masterplanned communities, robust oversight from regulatory bodies, and adaptive strategies from developers, the market is poised to mature and thrive through these shifting dynamics.
The market’s evolution underscores one clear takeaway for all stakeholders—from individual buyers to major developers: adaptability is no longer optional; it is essential for sustained success amid a rapidly changing real estate.
