Philippines

Philippines housing market continues to recover

Lalaine C. Delmendo

The Philippines’ housing market continues to show signs of improvement, supported by strong economic growth. During 2023, the average price of a luxury 3-bedroom condominium unit in Metro Manila’s central business districts (CBDs) rose by a modest 3.98% to PHP 203,550 (US$3,571) per square meter (sq. m), based on figures from Colliers International. However, when adjusted for inflation, prices of luxury properties in the CBDs were more or less steady last year.

On a quarterly basis, house prices rose by 1.33% in Q4 2023 (1.17% inflation-adjusted).

Philippines’s house price annual change

Demand continues to improve. During 2023, the pre-selling activity of condominium units in the CBDs increased to about 23,400 units, up from 20,000 units sold in 2022 and just 13,000 units sold in 2021. Though, it remains far below the pre-pandemic sales of about 40,000 to 50,000 units.

The Philippines experienced a house price boom from 2010 to 2018, with house prices in CBDs rising by 125% (77% inflation-adjusted). But with a slowing domestic economy, coupled with the US-China trade war, the housing market slowed sharply in 2019, with house prices rising by a meager 0.9% and falling by 1% when adjusted for inflation. In 2020, the Covid-19 pandemic aggravated the situation, sending the housing market to its knees. The Philippines housing market fell by -14.55% (inflation-adjusted) in the third quarter of 2020 and by the end of the year was ranked among the worst-performing housing markets in our Global Residential Real Estate market report of 2020. Makati CBD house prices plunged by -20.16% (inflation-adjusted). The housing market started to recover in 2022, with prices increasing by 3.93% but still declined by 3.82% in real terms due to high inflation.

The housing market is projected to remain stable this year, but house price growth will decelerate further, amidst slowing property demand.

The overall economy remains strong. The Philippine economy grew by 5.6% during 2023, following expansions of 7.6% in 2022 and 5.7% in 2021, and a contraction of 9.5% in 2020, buoyed by strong domestic demand, which was evident in higher household consumption and investments, particularly public infrastructure, according to the Department of Finance. Before the pandemic, the Philippine economy had been growing by an average of 6.4% annually from 2010 to 2019.

The Philippine government expects the economy to grow between 6.5% and 7.5% this year.

National house prices are rising faster than Metro Manila CBDs

Nationwide, the housing market situation seems better. During 2023, the nationwide residential real estate price index rose by 6.5% (2.4% inflation-adjusted) from the previous year, following y-o-y increases of 7.7% in 2022, 4.9% in 2021, and 0.8% in 2020, according to figures released by the Bangko Sentral ng Pilipinas (BSP), the country’s central bank.

However, on a quarterly basis, the index fell by 3.6% in Q4 2023 (-3.7% inflation-adjusted).

The residential real estate price index, published every quarter, is based on bank reports on residential real estate loans.

By property type:

  • For single detached/attached houses, prices rose strongly by 9.5% y-o-y (5.4% inflation-adjusted) in 2023. During the latest quarter, however, prices fell by 3.3% (-3.4% inflation-adjusted) q-o-q.
  • Townhouse prices also increased by 4.9% (0.9% inflation-adjusted) in 2023 from a year earlier. In Q4 2023, prices were up by 4.5% (4.4%) q-o-q.
  • For condominium units, prices rose by a modest 4.1% (0.1% inflation-adjusted) in 2023 from a year earlier. Yet quarter-on-quarter, condominium prices dropped 8.6% (-8.7% inflation-adjusted) in Q4 2023.
  • Duplex house prices, in contrast, saw a huge y-o-y price decline of 33.5% (-36% inflation-adjusted) last year. Quarter-on-quarter, duplex house prices plummeted by 42% (-42.1% inflation-adjusted) in Q4 2023.

Philippines Nationwide Residential Real Estate Index graph

The pandemic has dragged real house prices further below pre-Asian Crisis levels!

Surprisingly, despite so much price appreciation for a decade, the Philippine housing market has still not recovered from the crash after the 1997 Asian Financial Crisis. Between 1997 and 2004, luxury condominium prices dropped 28% (52% inflation-adjusted), in the biggest property crash of all countries affected by the Asian Financial Crisis.

In current price terms, both rental rates and property values are already far above 1997 levels. Yet in 2019 before the coronavirus outbreak, residential property prices were still about 10% below pre-Asian Financial Crisis levels in real, inflation-adjusted terms.

Worse, the pandemic quickly offset most of the gains in recent years, causing real prices in 2023 to fall back to about 34% below pre-Asian Crisis values.

Philippines Luxury 3-Bedroom Condo Price graph

Condominium supply continues to increase, albeit at a slower pace

The total condominium stock in Metro Manila’s CBDs rose by 2.3% to reach 154,700 units in 2023 from a year earlier, a slowdown from annual increases of 6.3% in 2022, 6.5% in 2021 and 2.6% in 2020, based on figures published by Colliers International.

During 2023, completions in the CBDs totaled 3,540 units, a sharp decline from 8,970 units in the previous year, mainly due to the delay of some projects particularly in the Bay Area including Copeton Baysuites and Grand Westside Hotel South Tower.

Philippines Condominium Stock in Metro Manila graph

The major projects completed in Q4 2023 included Alveo Land’s Ametrine at Portino in Ortigas CBD, Federal Land’s Grand Hyatt Residences South Tower in Fort Bonifacio and Palm Beach Villas’ Baler and Coron towers in the Bay Area.

Condominium supply is projected to grow strongly again this year. “Colliers forecasts condominium completion to recover in 2024 with the delivery of 11,290 units, the largest since 2018. The Bay Area will likely account for more than 60% of new supply during the period.”

The Bay Area is the new top condominium submarket due to demand from the offshore gaming industry demand, though Fort Bonifacio remains a preferred residential location because of its high-end malls, restaurants, office buildings, and international schools.

Completions averaged around 8,000 units in the past 15 years.

From 2024 to 2026, Colliers International projects an annual average completion of 8,000 condominium units in the CBDs, higher than the annual average completion of 6,200 units in 2020-2023, but still far lower than the 13,100 completions in 2017-19 – a period partly driven by demand from offshore gaming employees.

The Bay Area will account for more than 40% of the expected completions in the next three years, followed by Ortigas Center (22.7%), Fort Bonifacio (14.8%), Alabang (11.5%), and Makati CBD (10.7%). Rockwell Center and Araneta will see no residential construction activity in the next three years.

Overall, Metro Manila’s condominium stock is projected to reach around 178,880 units by end-2026, an increase of 15.6% from 2023.

METRO MANILA RESIDENTIAL STOCK
Location 2022 2023 2026 Forecast % Change
Bay Area 36,070 36,860 46,590 26.4
Alabang 5,390 5,660 8,440 49.2
Fort Bonifacio 41,740 42,550 46,130 8.4
Rockwell Center 5,830 5,830 5,830 0.0
Ortigas Center 19,200 19,830 25,330 27.7
Makati CBD 28,760 29,210 31,790 8.8
Araneta City 4,550 5,140 5,140 0.0
Others 9,630 9,630 9,630 0.0
Total 151,160 154,700 178,880 15.6
Source: Colliers International

Residential construction activity declining

Nationwide residential construction activity is now slowing, according to the latest figures from the Philippine Statistics Authority.

  • The number of residential building permits fell by 13.8% y-o-y to 101,720 in 2023, following annual growth of 9.2% in 2022 and 32.9% in 2021.
  • The floor area of residential building permits declined by 11.3% y-o-y to 16.73 million sq. m. in 2023, following increases of 9.3% in 2022 and 51.2% in 2021.
  • The total value of residential building permits also fell by 7.8% y-o-y to PHP189.22 billion (US$3.32 billion) in 2023, after increasing by 6.4% in the prior year and 62.8% two years ago.

In Q4 2023, more than 83% of residential constructions in the country were single-type houses.

The average construction cost for a residential unit was PHP11,313 (US$198) per sq. m in 2023. Duplex/quadruplex units registered the highest average cost at PHP 13,578 (US$238) per sq. m. It was followed by single houses, with an average cost of PHP11,718 (US$206) per sq. m, and apartments, with PHP10,773 (US$189) per sq. m.

Philippines Approved Residential Building Permits graph

Rents rising modestly

Residential rents across Metro Manila rose by a modest 3.5% y-o-y in 2023, following an increase of 3.9% in 2022 and a cumulative 12% decline in the past two years, according to Colliers International.

“In our view, recovery in rents will likely be supported by sustained leasing of local employees and the return of more expatriates,” said Colliers.

However, on a quarterly basis, monthly rents fell slightly by 0.3% in Q1 2023 (latest available figure from JLL Philippines) to an average of PHP812 (US$14.2) per square meter.

In 2024, Colliers forecasts residential rents to continue increasing, albeit at a slower pace, amidst the elevated vacancy and the expected increase in the number of new units to enter the market.

RESIDENTIAL RENTS, Q1 2023
Location Monthly Rents
PHP USD
Makati City 12,000 – 700,000 211 – 12,279
Taguig City 15,000 – 420,000 263 – 7,368
Muntinlupa City 9,800 – 183,000 172 – 3,210
Pasay City 14,000 – 155,000 246 – 2,719
Parañaque City 8,000 – 150,000 140 – 2,631
Mandaluyong City 10,000 – 150,000 175 - 2,631
Pasig City 10,000 – 120,000 175 – 2,105
Quezon City 9,000 – 85,000 158 – 1,491
Manila City 9,000 – 60,000 158 – 1,053
Source: JLL Philippines

Vacancy rates more or less steady

In Metro Manila, the overall residential vacancy rate stood at 5.6% in Q1 2023, unchanged from 2022 but up from 5.1% in 2021, based on figures from JLL.

Pasig City has the lowest vacancy rate of just 1.2% in Q1 2023, down from 1.6% in 2022 and 2% in 2021. It was followed by Manila with a vacancy rate of 2.3%, Muntinlupa (3.4%), Parañaque (3.9%), Quezon City (4.5%), Mandaluyong (6.2%), and Pasay (6.8%).

In contrast, Taguig and Makati had the highest vacancy rates at 10.1% and 9.6%, respectively.

Philippines Nationwide Residential Vacancy Rates graph

Gross rental yields remain moderate to good, but beware of taxes

Rental yield returns in the Philippines are moderately good, at an average of 5.19% in Q1 2024, slightly up from 5.12% in Q3 2023, according to research conducted by the Global Property Guide in February 2024. Usually, smaller properties tend to have higher rental yields, but this is not the case in Manila. Return rates are mostly similar for all apartment sizes.

These yields are before taxes and other expenses. They are for the high-end areas: Taguig City, Pasay City, Pasig City, Makati CBD, Ortigas CBD, Rockwell, The Fort, and Eastwood City.

This does not mean that foreign investors should necessarily rush to invest in Manila, because transaction taxes (known as ‘capital gains taxes’, but not actually such), and (if observed) official income tax rates applicable to non-resident investors, are high.

Key interest rates kept unchanged, amidst easing inflation

In March 2024, the BSP Monetary Board decided to keep its policy rate – the Target Reverse Repurchase (RRP) Rate – unchanged at 6.5%. As such, it remains at its highest level since July 2007. Before this, the policy rate was raised thirteen consecutive times since May 2022, amidst stubbornly high inflation.

In March 2024, the headline inflation stood at 3.7%, slightly up from 3.4% in the previous month but still far lower than the 7.6% seen a year earlier, according to the PSA. It was within the central bank’s target band of 2% to 4%.

“The latest inflation path has shifted slightly higher but remains within target,” said the central bank.

“The risks to the inflation outlook continue to lean toward the upside. Possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. Potential minimum wage adjustments could also give rise to second-round effects. The Monetary Board noted that while upside risks to inflation have raised inflation expectations, these expectations have remained broadly anchored,” the central bank added.

The interest rates on the overnight deposit and lending facilities were likewise held unchanged at 6% and 7%, respectively.

Philippines BSP´s Key Interest Rate graph

The mortgage market remains small

Few major banks in the Philippines offer housing loans. And although loan-to-value ratios of 90% are now in theory being offered and loan tenors can be as long as 30 years, in fact, most loans are short-term. Banks are wary because land titling and registration problems are prevalent, as are lengthy delays in the foreclosure process due to the country’s very weak court system.

Therefore approval of loan applications takes a long time. In addition, interbank collusion prevails: different banks’ loans have strangely similar terms and conditions.

Property buyers also face high transaction costs, corruption and red tape, fake land titles, and substandard building practices. Plus, the large informal housing sector and its incentives make it less attractive for low to middle-income families to buy or rent properties.

Because of these factors, the ratio of residential mortgage loans to GDP remains small, at around 4% of GDP in 2023, a slight increase from 2.4% of GDP in 2012. Most houses in the Philippines are sold for cash or pre-sold, with the developers offering financing.

As of Q1 2023, the total outstanding residential real estate loans amounted to PHP 950.05 billion (US$16.7 billion), according to figures from the BSP.

From an annual average growth of about 17% from 2010 to 2019, the growth in residential real estate loans decelerated sharply to less than 7% from 2020 to 2023.

Philippines Residential Real Estate Loans graph

OFWs buoy the low- to mid-range market

A visit to any ‘Barrio Fiesta’ in any city where Philippine OFWs work abroad is dominated by condominium offerings from developers like Megaworld, DMCI, Ayala Land, etc. The Philippines is one of the world’s largest remittance recipients, with 10.2 million Philippine Overseas Foreign Workers (OFWs) living and working in 210 countries and territories worldwide, 47% of them permanent migrants, 41% temporary, and the rest “irregular migrants”. Among the permanent overseas Filipinos, 65.2% live in the US, followed by Canada (13.1%), Europe (7.1%), Australia (6.8%), and Japan (3.4%), according to the Commission on Filipinos Overseas (CFO).

In 2023, total cash remittances amounted to US$33.49 billion, up by 2.9% from a year earlier, based on figures from the BSP. It was equivalent to about 8% of GDP last year. Remittances have been rising continuously since 2002, with an exception in 2020 when remittances declined slightly by 0.8% y-o-y, mainly due to the adverse impact of the Covid-19 pandemic.

In the first two months of 2024, cash remittances totaled US$5.48 billion, up by 2.8% from the same period last year.

Yet, the rate of growth has noticeably decelerated. From an average annual growth rate of more than 25% in 1990-98, remittance growth slowed to 9% annually in 1999-2008, and further to less than 5% in 2009-2023. The World Bank believes the slowdown in remittances is due to:

  • Stricter implementation of the migrant workers’ bill of rights;
  • Political uncertainties in host countries; and
  • The slowdown in the advanced economies.

It is estimated that 60% of these remittances go directly or indirectly to the real estate sector, according to the World Bank. These OFW remittances power the low-end to mid-range residential property market, housing projects, and mid-scale subdivisions in regions near Metro Manila, such as Cavite, Batangas, and Laguna Provinces.

Philippines Overseas Filipino Remittances graph

There are three identifiable segments in Manila’s housing market:

  • The high end. Local high-earners and expatriates occupy this segment.
  • The middle tier. The mid-end condominium sector, with a monthly amortization of around PHP10,500 (US$184), presently requires a dispensable income greater than PHP34,962 (US$614), to obtain a housing loan of PHP2 million (US$35,100). This segment has been targeted by many developers and is attractive to overseas foreign workers (OFWs).
  • The low end. This is where the mass of the population lives.

We believe that the middle tier is over-supplied. Many of these lower-middle-class condominium developments have low take-up rates.

Affordable housing shortage and the recently launched 4PH housing program

Nevertheless, the Philippines has a huge housing need at the low end. Nationwide, the country has a housing shortage of about 4 million units, according to the Subdivision and Housing Developers Association (SHDA). But other estimates put the housing backlog at a huge 6.5 million units.

Most of this would need to be socialized housing - units with a selling price of under PHP450,000 (US$7,900). In Metro Manila, as many as 300,000 households reside in informal and semi-uninhabitable housing units, composing 8.7% of Metro Manila’s total population. These people live in appalling conditions. Many others live in very poor conditions.

To meet the needs of these families, Philippine President Ferdinand Marcos, Jr. launched in September 2022 the current administration’s flagship housing program “Pambansang Pabahay Para sa Pilipino Program” or 4PH, which aims to build a total of 6 million housing units or about 1 million housing units every year until the end of his term in 2028.

Construction is now ongoing for 4PH projects in San Fernando City, Pampanga, Davao City, Tagoloan, Misamis Oriental, Tondo, and San Miguel districts in Manila, and Puerto Princesa, Palawan. Additionally, there are over 100 projects in the pipeline, which is projected to build around 415,000 units.

Aside from its main goal of providing the Filipino people with decent and affordable housing, the project also aims to generate around 1.7 million jobs every year from 2023 to 2028.

Before the introduction of 4PH, the government embarked on the National Shelter Program to provide housing for informal settlers and other families who do not have enough income to rent or buy houses at the prevailing market rates.

Socialized housing units or those which cost less than PHP450,000 (US$7,900) can be purchased with a monthly amortization of PHP2,302 (US$40.40). The Pag-Ibig Fund, (which is the Filipino word for love), the country’s state-owned and subsidized housing loan provider, provides a fixed rate of 3% for 30 years for socialized housing units. The problem is that these low-end housing units are usually far from work.

Philippines Construction graph

Philippine peso remains weak, inflation easing

After appreciating by 5.6% in 2020, the Philippine peso depreciated for the second straight year in 2022, reaching an all-time low of PHP 58.681 = US$ 1 in October 2022, amidst aggressive rate hikes delivered by the U.S. Federal Reserve to rein in inflation during the said year.

The local currency has regained some value since, with a monthly average exchange rate of PHP 55.842 = US$1 in March 2024. This is mainly attributed to the BSP’s successive rate hikes, matching the U.S. Fed’s tightening measures to maintain a healthy interest rate differential.

Philippines Monthly Average Exchange Rates graph

Exports declined by 7.6% to US$73.52 billion in 2023, while imports likewise fell by 8.2% to US$125.95 billion. This resulted to a trade deficit of US$52.43 billion last year, down from the prior year’s US$57.64 billion shortfall.

“Higher global interest rates to better manage inflation and inflation expectations led to slower global economy, with a risk of U.S. recession, thereby slowing global demand, global trade, global investments, as unintended consequences, thereby leading the year-on-year decline in both Philippine imports and exports,” said Rizal Commercial Banking Corporation chief economist Michael Ricafort.

The country recorded a balance of payments (BOP) surplus amounting to US$3.7 billion in 2023, a sharp turnaround from the US$7.3 billion deficit in 2022.

“Based on preliminary data, this development reflected mainly the improvement in the balance of trade alongside the higher net inflows from personal remittances, trade in services, and foreign borrowings by the NG,” the BSP noted. “Further, net inflows from foreign direct investments contributed to the surplus, albeit lower during the period.”

In March 2024, the headline inflation in the country stood at 3.7%, slightly up from 3.4% in the previous month but still far lower than the 7.6% seen a year earlier, according to the PSA. This is still within the central bank’s target band of 2% to 4%. Monthly inflation averaged just 2.8% from 2012 to 2021, before accelerating to 5.8% in 2022 and 6% in 2023.

In Metro Manila, the headline inflation was lower than the national average, at 3.3% in March 2024.

The BSP forecasts inflation to remain within target at an average of 4% this year and 3.5% in 2025.

Philippines Inflation Percentage graph

Strong economic growth, thriving tourism

The Philippine economy grew by 5.6% during 2023, following expansions of 7.6% in 2022 and 5.7% in 2021, and a contraction of 9.5% in 2020, buoyed by strong domestic demand, which was evident in higher household consumption and investments, particularly public infrastructure, according to the Department of Finance.

Before the pandemic, the Philippine economy had been growing by an average of 6.4% annually from 2010 to 2019.

The Philippine government expects the economy to grow between 6.5% and 7.5% this year.

Tourism continues to grow strongly. During 2023, the total number of international arrivals reached 5.45 million – well above the Department of Tourism’s target of 4.8 million arrivals. It was also more than double the prior year’s 2.65 million arrivals.

Despite this, it remains far below the 8.26 million arrivals recorded in 2019 before the pandemic.

As a result, international tourism revenues soared by more than 100% y-o-y to PHP482.54 billion (US$8.47 billion) in 2023.

“These numbers speak very well of the performance of the tourism industry under the Marcos Administration,” said Tourism Secretary Christina Frasco. “Looking ahead to 2024, our commitment to the transformation of Philippine tourism is unwavering. Guided by our National Tourism Development Plan 2023-2028, we are poised for a thriving tourism landscape, evident in surpassing our targets in international and domestic arrivals and receipts, fostering economic prosperity and further job creation for our people,” Frasco added.

South Korea retains its spot as the Philippines’ main source of international visitors, with more than a quarter of 1,439,336 arrivals in 2023. It was followed by the United States with 903,299 tourists (16.57% share; ); Japan with 305,580 arrivals (5.61% share); Australia with 266,551 arrivals (4.89%); and China with 263,836 arrivals (4.84%).

In 2023, the county posted a budget deficit of PHP1.51 trillion (US$26.5 billion), down by 6.3% from a shortfall of PHP1.61 trillion (US$28.25 billion) in 2022 and by 11.2% from a shortfall of PHP1.7 trillion (US$29.83 billion) in 2021.

As a percent of GDP, the deficit fell to about 6.2% in 2023, down from 7.3% in 2022 and 8.6% in 2021. However, it remains far above the 3.4% shortfall recorded during the pre-pandemic year of 2019.

“The narrower fiscal gap for the year was attributed to the 7.86% increase in revenue collection, surpassing the 3.42% growth in government spending,” said the Bureau of the Treasury.

The labor market continues to strengthen. In February 2024, the unemployment rate was 3.5%, down from 4.5% in the previous month and 4.8% in the same period last year, based on preliminary figures released by the PSA. The underemployment rate also declined to 12.4%, from 13.9% a month ago and 12.9% in the previous year.

Philippines GDP Growth and Unemployment graph

Sources:

Philippines - More data and information