For the last 15 years or so, the Philippines has been in the midst of a property-development boom. This business cycle has been orderly and beneficial to consumers, the developers and their suppliers, the banks and the economy in general.
The entire country has seen an increase in the standard of housing available to nearly all the economic classes. The success has been a continuing joint effort of both the private sector and the government, particularly through the strong monitoring of loan practices by the Bangko Sentral ng Pilipinas.
All the while, those that actually wish to see the Philippines posting only limited success have been ranting about a property building and price “bubble.” We do not have much respect for these people. While they grab the headlines particularly in the international press and media, those that care about this country have been quietly in the background doing whatever was necessary to keep the property boom going while avoiding a damage of a bubble.
Now we may be coming to a necessary pause in the “boom” without having to suffer from a bubble, and this is a good development.
According to property consulting firm Colliers International, Philippine property developers are going to back on new residential condominium developments in Metro Manila this year. Colliers reports that new residential projects in Metro Manila launched through preselling declined by 11 percent, while the take-up of new inventory through
pre-selling activities contracted by 18 percent in 2015.
This is confirmed by the number of licenses to sell the Housing and Land Use Regulatory Board (HLURB) issued, which dropped by 12 percent for mid- and high-end condominium units. Middle-income housing licenses also fell by 10 percent. However—and this is great news—there was an 82.4-percent growth in licenses issued by HLURB to sell socialized housing, which shows the huge backlog in this segment.
The Housing Index that measures the costs of building hit an all-time high in the third quarter of 2014 and has risen by 37 percent since 2010. That increase in cost to build has not stopped the construction, but now it is time to pull back on building more expensive units.
Since that topping out of costs in 2014, prices are now down about 20 percent. Since the profit margins on lower-cost housing are less than for the high-end, this will allow and encourage the property developers to move in to this vast, but mostly untapped, lower-income market, and still keep their balance sheets and income statements healthy
for the future.
But contrary to what the Philippine bashers may say, the property market in Metro Manila is strong, even if prices are not rising as fast as before. About 32,700 residential condominium units were launched in the metropolis last year, and the market took up 32,400 units.
We need this slowdown in the mid- to high-end market so the focus can turn to building for the lower-income buyers. This is not a “housing crisis”; it is another property-development opportunity.