1 month ago
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What bubble?
MANILA, Philippines — The Metro Manila property scene has been buzzing with reports of a significant amount of unsold residential units as well as high vacancy rates in the office market.
One can’t help but wonder: is a real estate bubble happening or forming? Property experts beg to differ.
“Around 70,000 unsold residential inventory, mostly condominium units, in Metro Manila can really scare people and can fan the flames of a possible residential real estate bubble. Computationally, this will take around six years to sell,” Lobien Realty Group Inc. CEO Sheila Lobien told The Star.
“However, the country’s residential real estate fundamentals are strong enough to ward off any talk of a residential real estate bubble in Metro Manila. Lobien Realty Group sees there is no or very nil possibility of a residential real estate bubble in Metro Manila,” she added.
What is a housing bubble?
A housing bubble refers to a temporary period where housing prices are overvalued and where there is rampant speculation.
Santos Knight Frank Director of Consultancy Lovelle Taleon explained that a housing bubble typically forms when there is an abundant supply of pre-selling units, leading to market oversaturation where supply significantly exceeds demand.
“This scenario is often exacerbated when investors begin exiting the Philippine market, divesting their assets and liquidating properties. High interest rates also contribute to this issue, as they make loans and funding more difficult to secure, further dampening demand,” Taleon told The Star.
She added that declining rental yields—where property prices outpace income growth—and a rise in non-performing loans, which indicates borrowers struggling to meet repayments, are clear warning signs of a bubble in the making.
“When a bubble is about to burst, the most significant indicator is a rapid increase in property values followed by a sudden sharp decline,” Taleon said.
No en masse sale of properties
Lobien explained that one reason that a residential real estate bubble in Metro Manila is not on the table is that there are no observable speculative actions on the National Capital Region (NCR) condominium market as shown by very stable prices.
“Pre-pandemic (2016 to 2019), total Philippine condominium prices averaged a growth of nine percent, while for 2020 to 2023, this has gone down to six percent. For the National Capital Region (NCR) condominium market, pre-pandemic price growth was at 10 percent while for 2020 to 2023, price growth averaged six percent,” Lobien said.
Leechiu Property Consultants (LPC) chief executive officer shared the same view, saying that there is no housing bubble in the market.
“There is no en masse sale of properties at a discount to quickly liquidate real estate investments, nor is there an unreasonable steep inflation of prices across the market coupled with heavy speculative purchases,” Leechiu told The Star.
“We recognize that there were speculative acquisitions during the POGO occupancy, but that comprises only a small percentage of the market, particularly those in Bay Area, Alabang and Ortigas,” Leechiu said.
Market to correct itself
Leechiu said they are projecting that the market would be able to correct itself in 34 months, as the supply overhang is gradually absorbed.
“The absorption can be aided by rent-to-own schemes, and flexible or extended payment schemes, and not by reducing the actual price of available units for sale,” Leechiu said.
He added that since there is less demand, prices will remain relatively flat until the market is able to catch up.
For his part, Colliers Philippines director for research Joey Roi Bondoc said some correction in the secondary market is being seen with some unit owners offering pasalo (sacrifice) sale.
“To reignite demand, developers are offering attractive move-in promos, including paying only 2.5 percent of TCP (total contract price) to allow buyers to transfer to RFO (ready for occupancy) units,” Bondoc said.
He added that some developers are going the extra mile, even offering no down payment to buyers as long as these investors secure approval from banks for financing.
Developers turning off the supply tap
With the sizable unsold condominium inventory in Metro Manila, Bondoc highlighted that they do not see a real estate bubble happening or forming, emphasizing that developers are turning off the supply tap in Metro Manila and launching projects outside of the capital region.
“While there is sizable unsold condominium inventory in Metro Manila, developers continue to launch outside of the capital region, with lot-only and house and lot projects in key regions recording annual price increases of between five percent and 15 percent every year from 2016 to 2023. We see stable launches and take up in key growth areas including Pampanga, Bulacan, CALABA corridor, Cebu, Bacolod, Iloilo, Davao and Cagayan de Oro,” Bondoc said.
“Also, developers are turning off the supply tap, with launches in Metro Manila now tempered compared to what we saw in 2017 to 2019. Completion from 2025 to 2027 will likely be at about 7,000 condominium units every year from about 13,000 units per annum from 2017 to 2019,” Bondoc added.
Similarly, Lobien said the tempered supply coming in will provide a breather in the vacancy rates as developers try to push the excess inventory, possibly at lower costs and more attractive sales terms.
She also pointed out that the growth of residential loans has been averaging lower at seven percent from 2020 to 2023 compared to the 16 percent growth from 2013 to 2019.
“This tempered take-up shows that the market has been cautious in terms of residential loans take-up which precludes fast and unsustainable increase in prices,” Lobien said.
Mismatch in demand vs supply
Cushman & Wakefield director for research, consultancy and advisory services Claro Cordero, Jr. noted that one reason for excess condominium inventory in Metro Manila is a mismatch in what the market is selling and what buyers are looking for.
“The disparity between high-end segments and mid-end segments has become more pronounced now more than ever. And the last time we’ve seen this was during the Asian Financial Crisis,” Cordero said.
He explained that currently, a lot of the stock still belongs to the mid-end market, while the high-end segment is fairly insulated.
“We’re looking at increased demand for luxury-type developments. It’s really an offshoot of what happened during the pandemic. But they are really looking for bigger units, more quality amenities, the type of amenities which only high-end developments can offer. And if you look at the characteristics of the developments, I think one of the main reasons for the depressed market conditions is really a supply-demand mismatch,” Cordero said.
He emphasized that prior to the 2000s, the studio-type units were sized at about 50 to 60 square meters (sqm), more than double the size of studio units today which are typically less than 25 sqm.
“But the market has shifted and they wanted bigger configurations and what we have in the market now are all these less than 25 sqm for studio type. So the ones who are buying, cannot see these types of units in the market,” Cordero said, adding that this is why the excess inventory is still relatively untouched or not moving.
The Cushman & Wakefield director stressed that another factor for the oversupply is that the market has unrealistic or highly inflated selling prices for these developments.
“Those that are buying are looking for bigger units, but since bigger units will entail higher prices, so definitely, there’s a mismatch between what they demand in terms of quality and price,” Cordero said.
“Until we see, a balance, a good balance of those that are willing to buy at that price, and the developers willing also to bring down, if not significantly, but maybe at least bring it down to a level that’s palatable or more appetizing for these buyers, then that’s the only time we’ll see a significant movement of these excess inventory,” Cordero added.
Commercial real estate bubble in the office market?
Just like the residential market, the office market has also been facing supply challenges as it has been experiencing high vacancy rates.
Colliers estimates about 2.6 million sqm of vacant office space in Metro Manila as of end-2024 which will take the market about five years to fully absorb.
It added that Metro Manila office vacancy is expected to have reached 20.5 percent as of end-2024, the highest ever recorded in the capital region.
“This increase in vacancy is understandable given the exodus of POGOs as well as non-renewal of companies that started their five-year leases in 2019,” Bondoc said.
Despite the large amount of vacant office spaces, property experts stress that there is also no possibility of a commercial real estate bubble in the office market.
“The possibility of a commercial real estate bubble forming in the office market is unlikely,” Taleon said.
“While the POGO exodus has contributed to increased vacancy rates, as highlighted in our 2025 outlook report, the impact is partial and does not indicate the formation of a bubble,” she added.
Landlords implementing measures
Taleon emphasized that landlords are proactively adapting to these challenges by reimagining vacant office spaces that foster collaboration and a sense of community.
Similar to the residential market, Bondo noted that developers are trying to ward off concerns by limiting new office launches, especially in Metro Manila.
He added that landlords are offering fit-out allowances, lowering lease rates, and limiting new project launches to address existing concerns about oversupply.
Demand coming in from other sectors
Bondoc emphasized that outside of POGOs, developers are banking on other sources of growth, including new foreign firms setting up shop in the Philippines, Filipino MSMEs, as well as government agencies taking advantage of high-quality office spaces being offered at much lower rates.
He added that some business process outsourcing (BPO) firms also continue to expand and occupy office space amid the implementation of flexible workspace arrangements.
“Some BPOs are still on a wait-and-see, especially after Trump’s election, but we expect these firms to finalize their plans over the next six to 12 months. Office landlords should be on the lookout for their office space requirements,” Bondoc said.
The Colliers official added that take up for flexible office space has also been improving given the implementation of hybrid work arrangements. He emphasized that is one office sub-segment that has seen sustained growth post-COVID-19.
For his part, Leechiu emphasized that demand from traditional sectors and the information technology business process management (IT-BPM) sector
remains strong.
“We project that these sectors will continue to drive the office market, and by 2027, office vacancy rates in Metro Manila will return to a healthy, single-digit level,” he said.
While vacancy remains elevated, Leechiu noted that this is not as alarming as during the pandemic period.
“Both the residential and office markets are experiencing a very controlled supply, which helps stabilize the sector,” Leechiu said.
Reading reports about the oversupply of condominium units and the high level of vacant office spaces may initially paint a gloomy picture of the real estate market.
However, it’s not all doom because as experts said, the market is nowhere near a real estate bubble.
