REAL estate matchmakers are seeing a persistent mismatch in the property sector’s supply and demand. While the country’s mass housing backlog is at a screaming rate of 5.5 million, more high-end condominium buildings have recently risen, but with not many takers.
Global property advisor Colliers International said a total of three condominium buildings with 1,581 units became available in Metro Manila’s central business districts in the fourth quarter of 2015, bringing the total number of completed units in 2015 to 6,209.
Colliers said vacancy levels had significantly increased: Makati CBD registered a 67-basis-point rise to 8.9 percent; Fort Bonifacio, 8.57 percent; and Ortigas Center, 10.4 percent.
Julius Guevara, Colliers International’s director for research and advisory, said condo vacancy levels might continue rise until 2019, amid the huge amount of supply entering the market.
“On average, about 7,800 units will be completed each year until 2019,” Guevara pointed out. “It could be more challenging for condo investors to lease out their units. It’s going to be more competitive and vacancies are expected to increase as well.”
Also, the influx of new condominiums would push rental rates down by five percent in Makati, Rockwell and Fort Bonifacio, Guevara added.
Guevara said the “mismatch” is caused by the developers’ inclination towards high-end developments, which caters more to property investors, while the bigger demand in the market is for low-end developments, especially with the housing backlog.
“A typical sophisticated investor wanted to put they’re money on performing assets,” Guevara said. “That’s why there is a huge upsurge in high-end developments. They wanted to put their money in something that will grow both in capital appreciation and in rental income.”
Guevara said the main problem is that the actual demand is in the socialized and economic housing segment, and not in the high-end market segment.
He noted that developers are now trying to reach out to the lower market, though.
“I think now, the developers have recognized this, given that there is a slowdown in Metro Manila for condo development,” Guevara said. “They’re going out there. They’re looking for areas where in they could sustain their revenue growth.”
Cushman and Wakefield Philippines manager of research and consultancy Janlo de los Reyes echoes Guevara’s sentiment, pointing out that developers are now trying to move into the lower market segment.
De los Reyes said developers are putting up more luxury condo developments for the investment side.
“I mean we’re talking about business here—it makes more sense to put up these luxury condominiums. But of course there is a backlog especially for the low-end segment,” he said, citing property giant Ayala Land and mass housing developer 8990 holdings as examples.
De Los Reyes said developers would eventually set their sights on the untapped low-end housing market.
But then, Guevara pointed out that although the demand for housing is present, owning a house remains too expensive for those who need it.
“The demand is there,” he said. “However, I think the product is still not there. A big portion of the housing backlog is in those who could not afford housing.”
Guevara said the difficulty is for the developers to adjust the prices without sacrificing quality.
“Also, I think the government should also step in, like to have some additional subsidies, similar to what other countries are doing,” Guevara said.
The real estate analyst stressed, though, that the rising condo vacancies do not necessarily mean a looming glut.
“I think the mismatch is really locational,” he said, saying the developments are just more concentrated in Metro Manila, while the actual housing backlog is outside the capital region.