Summary
Residential property developers in the Philippines are feeling that the worst may be over for the local industry. The fact that most developers are already making plans and are already pursuing projects means they are gearing towards recovery. Large-scale construction of residential condominiums and high-rises should take about 2 years at the least. This means Megaworld, one of the biggest developers in the country, are trying to be prepared if ever market demand intensifies in the near term. However, this may also be risky as there are still a lot of residential condominium projects under construction in Metro Manila alone. With a still slow current demand (volume) for residential property, coupled with a huge supply pipeline, there is possibility that takeup of these new projects should slow.
Analysis
The country’s residential sector is showing some signs of recovery after a sluggish first quarter. Big developers such as Megaworld and Ayala Land are fast to hint a better performance for the Apr-Jun period, even in the high-end market which took a big hit since the residential market slowed down since late last year. They are starting to build again, despite still many options available for buyers. We may see other big companies like Robinsons to follow suit.
Historically, sales volumes are meant to pick up during mid-year; and because of lower base in the last 3 quarters, 2Q sales volumes are expected to indicate a notable increase. This is normal, but a full fledged recovery may not be around the corner just yet. This is because of the current incredible buildup of residential condominium supply in Metro Manila, in which there are more than 60,000 condominium units and more than 100 projects in either pre-selling or under construction (pre-completion) mode. If all goes as planned, in the next 3-4 years, the supply of residential condominiums in MM will almost double its size (as of end-2008, there are around 60-80K units in MM).
It is highly unlikely that developers will offer significant discounts and changes in their selling prices to entice the market into buying more, and the current sales volumes are not enough to support the take-up needed for all the MM projects on the table. It is also important to take note of the amount of supply in the secondary market (rents and resale) from speculative investors or those who bought units to be rented out, because this will likely add more to the upcoming supply. When prices are “sticky downward” (nobody’s lowering prices despite anemic 1H09 demand and the sizeable supply available) which is happening now, the recovery in the residential sector should largely depend on buyers’ sentiment and overall demand strength. The positive market sentiment from buyers and investors, coupled with aggressive marketing and positioning of industry players should help many projects sell. But the bottom line is, yes the market will eventually take up all these 60,000+++ residential condominium units in the future, but not as soon as developers probably hoped for.
