(from the November 2024 issue of our monthly newsletter, Properties Connoisseur)
Many analysts and research companies have released their 3rd quarter reports and predictions for the rest of the year, and though they may take varying tones, the results, if reviewed empirically and without bias, will show the same conclusion – yes, there is growth and reason for celebration, but not for all.
POGO: Undermined effects on the economy
First, let me state clearly that I have no involvement in the POGO industry and am in no position to be a resource person about it. However, it cannot be ignored, despite press releases otherwise, that the said sector has adverse effects that may take time to recover from. This scenario stems from the fact that real estate development takes time, and can only make business sense at a certain scale. When Chinese investors and tourists flocked the Philippines beginning 2016, businessmen were taken by surprise at the amount of cash that they brought to the country, thus driving a wave of investments in their preferred areas, particularly in the Pasay-Paranaque area now referred to as Bay Area. In about 3 years, properties in this district increased by 3-4 times in value, and as such, encouraged developers to build more and as fast as possible, hoping to catch as much of the wave of investments away from both local and foreign competitors.
However, with the combined effects of the pandemic, Chinese economic downturn, and change in government diplomatic stance, what used to be the catalyst for growth became the source of economic vacuum, with its direct and indirect effects now manifesting. For one, the Bay Area is now the district with the largest number and percentage of vacancy in both the residential and office market. Developers caught in the midst of change were already in the process of construction, meaning that recovery would only be possible if they completed the project, even if there is question on absorption capacity. Likewise, many private individuals who bought properties hoping to get their returns by reselling or renting were already in the middle of the installment stage, and as such, must continue to pay or else risk forfeiting all their previous payments. Aside from this, micro- and small enterprises that used to thrive in the area are now left with very limited alternatives: restaurants, shuttle services, entertainment establishments, travel agencies, and even the employees of the POGOs themselves are now left without a customer base that can absorb their offerings and services.
METRO MANILA: More than enough condominiums
This is a great irony – yes, there is a housing backlog of approximately 6 million homes, but apparently, there is a surplus of condominiums in Metro Manila, with excess supply amounting to nearly 6 years of annual take-up. Again, considering the time it takes to design, build and finish a vertical project, and the high inflation rate in recent years, investors seem to have turned lukewarm on the prospects of buying more condominium units, as the price difference between ready units and pre-selling condos have widened significantly. Also, with increased digitalization, proliferation of online-based work, and expansion of multinational companies to regional areas, it seems there is an easing on the pressure to relocate close to business districts, as alternatives to renting have become viable, especially with government encouraging remote-work setup to decongest city centers.
HIGH END: An elusive market not for all
Though the high-end and luxury markets have thrived through and despite the pandemic, a lot of developers realized that raising prices does not entitle them access to this very discriminate segment. After all, certain brands have already established foothold with their clientele, and challenging conventional favorites takes both time and resources, without guarantee of success. Unfortunately, it has been observed that there is softening in demand for low-cost, affordable and lower mid-income properties, with developers in this market opting to concentrate on moving their unsold ready-for-occupancy units instead of launching new projects that could possibly increase non-performing assets.
No, I do not want to play The Grinch nor would like to steal Christmas. However, it is important to present a balanced perspective on events and developments and provide an encompassing perspective for our investors. After all, growth is achieved by a continuous and steady streak of rational decisions, with the constant objective of maximizing potential returns while at the same time minimizing risk of failure. Though it is not celebrated in the Philippines, many will be celebrating Thanksgiving soon, and it is our hope that our words bring light to hazy horizons and gloomy nights.
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