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By: Mary Ann LL Reyes (Philippine Star May 23, 2018 issue)

Is the so-called housing bubble about to burst? This, of course, is a real concern especially after the US subprime housing bubble in 2008 that caused panic and financial turmoil around the world. A record number of people were getting loans to buy real estate. Even people with bad credit qualified as subprime borrowers as banks offered easy access to home loans. Home prices started falling and borrowers stopped making mortgage payments.

The Philippines experienced a similar crash in the aftermath of the 1997 Asian financial crisis which cut property values in half.

But it looks like the bubble is not going to burst anytime soon, according to real estate services provider Colliers International in its first quarter 2018 report.

The study notes that typically, housing bubbles are characterized by a dramatic rise in prices, driven by strong demand, speculation, and exuberance; strong demand exceeding the pace of supply completion; developers attempting to chase the demand and starting to build more units; speculators entering the market further driving demand for more houses, in this case, condominium units; and then demand slowing down at a certain points while supply continues to increase, resulting in a drastic drop in prices, leading to a bubble burst.

It said that while various stakeholders may debate on whether buyers purchase for end use, investment, or even outright arbitrage through resale, at least two unique trends in the Metro Manila market would assuage fears of a bubble burst.

First is the downward adjustment in 2018 supply from 27,000 units to 12,700 units, effectively softening fears of an oversupply. Colliers said that even at 12,700 units, it expects more delays toward the latter part of the year. Second is the fact that vacancy improvement in the secondary market within the key submarkets of Makati CBD and Manila Bay Area proves the existence of real demand rather than pure speculation.

The report also noted that sales to Chinese nationals have risen in 2017 and continued through this year. This, it said, is due to the influx of Philippine Online Gaming Operators (POGO) which sustained the office market and consequently impacted residential sales as POGOs often supply housing for their staff. Many of the major developers have reported increased international sales and cases where buyers are buying multiple floors or in bulk, it added.

Colliers said that overall, while a housing bubble burst has not yet occurred, it must be stressed that it is still a very competitive condominium market and the key for developers is to ensure that their projects meet the expectations of buyers and tenants, especially given the still sizeable new upcoming supply. It emphasized that the Manila Bay Area and Makati central business districts (CBDs) have the advantage in terms of location, with increased demand from companies acquiring residential units for their employees in these submarkets augmented by the presence of Chinese nationals. For other locations, Colliers said that developers must highlight the overall living experience in their project premises to remain as viable options, and that retail options nearby, accessibility, and availability of amenities are some of the major considerations of buyers and tenants today. Colliers senior research manager Dinbo Macaranas, in the study, pointed out that first quarter 2018 numbers seem to indicate another strong year for the residential market as total pre-sales take-up was over 11,00 units, slightly higher than the same period year, while strong demand continued to push prices upward, despite the large volume of supply.

Given a downward adjustment in supply projection from an earlier 27,200 units, to only 12,750 units which can still go down depending on construction progress and developers supply strategies, and the fact that vacancy is seen to be declining, hinting that demand is real and not purely speculative, Colliers recommended that developers continue to launch projects while bearing in mind that Metro Manila is still a competitive market where buyers and tenants are closely considering location and overall living experience. For the residential sector, the report revealed that pre-sales residential demand remained strong with net takeup of 11,000 units in the first quarter of 2018. This is expected to reach at least 40,000 in 2018 driven by investors and end-users. Through 2020, Colliers expects demand to reach around 40,000 units per year. Meanwhile, for 2019 to 2021, Colliers expects 27,100 units to be completed. For the January to March period, the report said total residential condominium stock in Metro Manila CBDs reached 107,300 units, with Fort Bonifacio accounting for 26 percent of total stock in CBDs or 27,500 units, followed by Makati with 25,000 units (23 percent), Ortigas 17,500 units (16 percent), Manila Bay Area 15 percent or 16,600 units. As far as vacancy rate is concerned, the report revealed that it currently stands at 12.4 percent, slightly down quarter on quarter, and it expects vacancy staying within the low double digit range in the next three years despite the upcoming supply as demand from Chinese nationals increases. For 2018, Colliers expects vacancy to be between 12-15 percent given the strong demand, offset by the still over 12,000 units to be completed for the remainder of the year. It projects overall vacancy in the next two to three years to hover between 12-16 percent given the still 27,100 units to be completed through to 2021. The upward pressure in vacancy will be tempered by increased demand from young professionals, expatriates, and Chinese nationals-workers, it added. In terms of rents in the residential group, the report noted that it has been declining, but this should recover as more units in CBDs are delivered and demand from foreign and local employees grow. Colliers expects a 1- 3 percent annual increase in rents from 2019 to 2020.

As for prices in CBDs, it expects these to rise between two to 4.5 percent quarter on quarter, with this trend continuing throughout the year with infrastructure developments and high pre-sales levels. Colliers said that through 2020, it expects capital values to rise eight to 10 percent per year, congruent with the level of supply coming online.