‘Multifamily’ development eyed as new revenue model by builders
MULTI-FAMILY, or high-density rental housing, is increasingly being considered as an alternative to the conventional ‘build to sell’ model among Philippine real estate developers, as a young workforce is less inclined to purchase real estate and stiff competition put increasing pressure on revenue streams.
Multi-family housing is defined as a residential building of multiple units purpose-built for rental rather than sale as condominiums. The developer retains ownership of the building, and either acts as the property manager, or engages a third-party management company.
Multi-family development is common in cities throughout the US and Europe, and in neighboring cities such as Hong Kong and Singapore, but has yet to appear in any significant way in Metro Manila or other urban areas of the Philippines.
The Manila Times spoke to a number of real estate developers, analysts, and would-be residential property buyers, and found that while builders are still reluctant to embrace the multi-family concept, the growing demand for alternatives to buying condominiums or houses from the Philippines’ millennial workforce is slowly shifting the residential real estate market.
Unlike markets such as the US, where according to a report this week in the World Property Journal multi-family construction starts have significantly declined this year, the demand in the Philippines for rental rather than property for sale is not driven by unfavorable financial conditions, but a surprisingly conservative outlook among up-and-coming young Filipino workers.
As a report by online property listing site MyProperty.ph pointed out last year, the slow recovery from the global economic crisis that began in late 2007 – which was driven largely by the overheated property market in the US – and other financial obstacles such as student loan debt has left many millennials with no choice but to rent, or remain with their families.
Filipino millennials who fill the majority of the jobs in the rapidly-growing business process outsourcing (BPO) and services sectors, however, are not handicapped like their Western counterparts, and according to data from the Bangko Sentral ng Pilipinas (BSP) and Nielsen surveys over the past two years, are saving money at an increasingly faster rate, and save more of their income than their peers in most other countries.
A focus group of five young Filipino professionals – Joven and his wife Marie, who are both employed by a major BPO firm in Metro Manila, Anna and her roommate Maricor, who work in banking and retail, respectively, and Jhayrick, a software developer – gave some insights into the millennial outlook towards real estate.
“For me, it’s not wanting to get tied down to a place and a financial obligation for a long time,” Jhayrick said. “I could actually buy a place for less per month than I pay in rent, but what if something changes, like I find a better job in a different city or even overseas? With renting, I feel like I have some freedom.”|
“I do want to settle down, have my own family and a house,” Anna said. “But right now, it’s more important to focus on my own career, kind of ‘be my own person.’ I don’t want to be like my parents, struggling for years to make ends meet when I finally do get married.”
Maricor, who said she had recently become engaged to her boyfriend, had a similar view. “Once we get married, it will be harder to save money,” she said. “So now, we’re just keeping our expenses low, so we have some savings when we get married.”
Joven and Marie, on the other hand, found themselves disappointed by what the real estate sector had to offer. “We were looking for a house, but for what we could afford right now, everything was so disappointing. Too small, not built very well, most of them way out in places where there’s nothing around…far from the stores, work, things to do. And the real estate people, they pressure you so much to buy. We don’t want to get stuck with something we don’t like, so we just gave up for now,” Joven said.
For developers, the multi-family housing segment, despite the indications of growing demand, is still considered an unattractive business model, although attitudes may be slowly changing.
“I think it’s for lack of a viable business model,” 8990 Holdings founder and CEO Januario Jesus Atencio told The Manila Times. Despite 8990’s focus on lower-cost mass housing, Atencio sees the multi-family sector as a problematic prospect.
“A high density rental operation would entail a significant property management and back room support that may make the business model cumbersome and not viable as a sustaining business in the long term,” he explained.
Claro dG. Cordero, the head of Research, Consulting, and Valuation for property services firm Jones Lang
LaSalle Philippines, pointed out that the purpose-built rental sector is not wholly absent in the Philippines, but that the market segment that has driven it in other cities like Hong Kong and Singapore is comparatively small.
“There are already existing developments that are exclusively for rentals. In the Makati CBD, the Four Seasons and Tiffany Place developments (both developed by the same family who controls The Landmark Store) are two developments that are exclusively for the rental market,” Cordero explained in an email.
“The residential rental property development is an attractive model for highly-mature property markets such as Singapore and Hong Kong, because of the large catchment market, which is composed mainly of high-earning corporate (both local and, especially, expatriate) executives. This is probably the reason why we have such a low demand for this type of development, as the high-earning corporate executives, especially the expatriate market, who could avail of this accommodation is also quite limited in the last 20 years,” he continued.
Julius Guevara, the head of Consultancy, Valuation, and Advisory services for Colliers International Philippines, had a similar view.
“You do not find this in the Philippines because it is more profitable for developers to sell the housing units immediately, than rent them out and wait for a longer payback period,” Guevara said. “Furthermore, the apartment business was seen as a mom-and-pop business in the past.”
Both property experts, however, suggested that developers would be increasingly interested in considering the multi-family model.
“Today, the development for sale model is not as profitable as it once was since take-up is now slower given the more competitive environment, and developers, especially listed ones, are hard pressed to maintain their growth targets,” Guevara observed.
“They are now looking into recurring income models, which traditionally was comprised of office, retail and hotel, but now they are entertaining other models such as healthcare, warehousing and logistics, and education. Apartment rentals is also one of those new models that they are exploring,” he added.
Jones Lang LaSalle’s Cordero agreed. “As the Philippine economy now shows consistent growth, we can expect that more of this property type will be developed,” he concluded.