Why Metro Manila’s current condo inventory is a blessing in disguise
(First of two parts)
When the issue of Metro Manila’s condominium oversupply went viral, it painted a picture that sent shivers down the spines of developers and sellers.
The prospect of having too much inventory in an ultra-competitive market isn’t exactly the stuff of dreams. But we need to understand that real estate, much like the capital markets and the economy at large, operates in cycles.
And right now, we might be in the midst of one of the most exciting transitions yet–a market ripe with opportunity.
Let’s dive in and (politely) challenge the oversupply narrative with facts, figures, and a splash of nationalistic optimism.
The silver lining of oversupply: A buyer’s market
Oversupply does not mean the end of the world. It is but a natural phase in any cycle. Be it a business cycle, an economic cycle, or the property market cycle.
Imagine a bustling neighborhood with only two coffee shops. Business is booming for both cafes because the demand for coffee outpaces their supply.
Encouraged by their success, five new coffee shops open in the area within a year. Suddenly, there is an oversupply of coffee shops, and customers now have more options to choose from. Sales per shop dip, leading to fears that the coffee market in the neighborhood is already saturated.
But oversupply in this scenario does not mean the coffee culture was over–it was just a phase.
Over time, the better-managed shops will adapt perhaps by improving the overall coffee experience, enhancing product offerings, launching loyalty programs, offering deliveries and creating cozy, aesthetic spaces for customers. Demand will eventually catch up as the neighborhood grows, as tourists visit, and as people start talking about the coffee community.
Finding its balance
Similarly, in the real estate cycle, an oversupply of condos doesn’t spell disaster.
It’s simply a phase where developers adjust strategies, buyers get better deals, and ultimately, the market finds its balance by matching the available units against the requirements of the homebuyers.
Over time, population growth, urban migration, and economic improvements help absorb the excess, leading to a healthier and more sustainable market.
In fact, it’s the perfect setup for a buyer’s market, and there’s a lot to celebrate about that. With developers offering competitive pricing, flexible payment schemes, and attractive perks, buyers are spoiled for choice.
For those on the sidelines waiting for the right moment, this is your cue to deploy and enter the market.
Knight Frank’s Global Buyer Survey 2023 revealed that 62 percent of buyers globally consider market conditions (read: favorable loan rates, discounts and incentives) as a top motivator for purchasing property. In Metro Manila, where oversupply has put developers in a more negotiable stance, this trend holds true.
Economic shifts: Good news for developers, sellers
The recent deceleration of inflation in the Philippines, as reported by the Bangko Sentral ng Pilipinas (BSP), has significant implications for consumer behavior and the real estate market.
December 2024 marked a pivotal moment, with inflation easing to 3.6 percent, the lowest level in 22 months. This shift provides a conducive environment for consumers and investors, particularly in the real estate sector where affordability is key.
When inflation slows, the cost of goods and services increases at a more moderate pace. For consumers, this translates to higher real income and improved purchasing power.
The latest figures from BSP indicate a positive shift in the overall cost environment, providing relief for households whose expenses had been squeezed by persistent inflationary pressures in previous years. As a result, more consumers can allocate their resources toward significant investments like property.
Preserving the value of investments
When inflation is high, the purchasing power of money diminishes, but property values often rise, preserving the value of investments.
However, when inflation begins to cool, the dynamic shifts: the property market becomes more accessible, and potential buyers who were previously sidelined due to high prices are now able to enter the market. That is why real estate has been considered a reliable hedge against inflation.
According to property consultancy firm Colliers International, as inflation stabilizes, we expect to see a resurgence in demand for both residential and commercial properties. They project a 5 to 10 percent growth in property transactions for the first quarter of 2025 as affordability improves.
Additionally, the BSP reports that lower inflation, coupled with stable interest rates, is creating a more attractive environment for housing loans, further enabling Filipinos to enter the property market
Interest rates have a direct impact on mortgage payments, and as inflation cools, banks are less inclined to raise lending rates, making home financing more accessible to the public.
Moreover, as the Philippines continues to benefit from remittances from overseas Filipino workers (OFWs), combined with a growing middle class, the demand for affordable and quality homes is set to rise. The Philippine Statistics Authority (PSA) reported a consistent growth in OFW remittances, which contributes significantly to the purchasing power of families looking to invest in property.
Reducing policy rates
In 2022 and 2023, BSP implemented aggressive interest rate hikes to combat inflation and stabilize the economy.
Recognizing the need to stimulate economic activity, the BSP began reducing policy rates in late 2024. This strategic shift aimed to lower borrowing costs, benefiting homebuyers and developers.
BSP’s decision to cut the Target Reverse Repurchase (RRP) rate by 25 basis points to 6.25 percent in August 2024 marked a significant shift towards a less restrictive monetary policy stance.
Lower interest rates directly influence mortgage affordability. As rates decrease, monthly mortgage payments become more manageable, enhancing housing affordability.
A study by the Federal Reserve Bank of Richmond highlights that reduced interest rates lower monthly payments, thereby increasing the Housing Affordability Index (HAI) and making homeownership more accessible.
Spurring new housing projects
For developers, reduced borrowing costs can lead to increased construction activity. Lower interest rates make financing more affordable, potentially spurring new housing projects and contributing to economic growth.
BSP’s rate cuts in 2024 were anticipated to act as a catalyst for the Philippine real estate market, unlocking affordability and stimulating demand.
A study by the Bank for International Settlements (BIS) indicates that monetary policy significantly affects real house prices and economic output. Lower interest rates can lead to higher real house prices and increased economic activity.
BSP’s decision to start reducing policy rates last year aimed to stimulate economic activity by lowering borrowing costs.
This move is expected to benefit homebuyers through improved affordability and assist developers by making financing more accessible, thereby fostering growth in the housing sector.
(To be continued)
