The Philippines’ housing market is showing signs of improvement, amidst strong economic growth. During 2022, the average price of a luxury 3-bedroom condominium unit in Metro Manila’s central business districts (CBDs) rose by a modest 3.93% to PHP 195,750 (US$3,588) per square meter (sq. m), based on figures from Colliers International. However, when adjusted for inflation, prices for luxury properties in CBDs actually fell by 3.82% last year.
Philippines’s house price annual change
On a quarterly basis, house prices rose by 1.59% in Q4 2022 but declined slightly by 0.62% in real terms.
Demand is also improving. During 2022, pre-selling activity in the CBDs rebounded with 20,000 units sold, up by 54% from just 13,000 units sold in 2021, according to Colliers. 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. In fact, the Philippines has been ranked as the worst-performing housing market in the Global Property Guide’s 2020 Global House Price Survey, with CBD house prices plunging by 13.2% (-16.1% inflation-adjusted). Housing market woes continued in 2021, with prices falling by 6.5% (-9.8% inflation-adjusted) – making it still the second weakest housing market in the Global Property Guide’s 2021 Global House Price Survey.
The housing market is projected to continue its recovery this year.
“We are optimistic of better recovery prospects this year. Colliers are projecting improvement in vacancies across Metro Manila’s secondary market and this should result in a rebound in rents and prices,” said Mr. Joey Roi Bondoc, the Research Director of Colliers International Philippines.
“We see continued queries from expatriates while demand from local employees has been raising rents in major business districts such as Makati, Fort Bonifacio, and Ortigas. We expect developers to continue lining up new condominium projects in 2023. Over the near to medium term, developers and investors should keep an eye on persistently high inflation and its potential impact on interest and mortgage rates.”
The Philippine economy grew by 7.6% for the full year of 2022, following a 5.7% expansion in 2021 and a 9.5% decline in 2020, mainly buoyed by strong growth in wholesale and retail trade, manufacturing, repair of motor vehicles, and construction, according to the Philippine Statistics Authority (PSA). It was its best showing since 2010. Prior to 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% and 7% this year.
National house prices rising strongly
Nationwide, the housing market situation seems better. During 2022, the nationwide residential real estate price index rose by 7.7% (-0.3% inflation-adjusted), according to the Bangko Sentral ng Pilipinas (BSP), the country’s central bank.
Quarter-on-quarter, the index increased 2.2% in Q4 2022 (unchanged when adjusted for inflation). The residential real estate price index, published every quarter, is based on bank reports on residential real estate loans.
By property type:
- For condominium units, prices rose strongly by 12.9% (4.4% inflation-adjusted) in 2022 from a year earlier. Yet quarter-on-quarter, condominium prices dropped 4.9% (-6.9% inflation-adjusted) in Q4.
- Duplex houses saw the biggest y-o-y price surge of 42.9% (32.3% inflation-adjusted) last year. On a quarterly basis, duplex house prices skyrocketed by 37.6% (34.6% inflation-adjusted) in Q4 2022.
- For single detached/attached houses, prices rose by 10% y-o-y (1.8% inflation-adjusted) in 2022. During the latest quarter, prices increased by 3.2% (0.9% inflation-adjusted) q-o-q.
- Townhouse prices, in contrast, fell by 6.8% (-13.8% inflation-adjusted) in 2022 from a year earlier. Though during the latest quarter, prices were actually up by 8.9% (6.6%) q-o-q.
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 2022 to fall back to about 34% below pre-Asian Crisis values.
Condominium supply rising
The total condominium stock in Metro Manila’s CBDs rose by 6.3% to reach 151,200 units in 2022 from a year earlier, following annual increases of 6.5% in 2021 and 2.6% in 2020, based on figures published by Colliers International.
“We attribute the increase to the delivery of 9,000 condominium units in Makati CBD, Fort Bonifacio, Ortigas Center, Rockwell Center, and Alabang,” said Colliers. “The Bay Area accounted for about two-thirds of the new supply in 2022.”
There were about 8,970 residential completions in the CBDs last year, up by a modest 2.7% from a year earlier, following a 159% increase in 2021 and a 70% decline in 2020. Completions averaged around 8,000 units in the past 14 years.
From 2023 to 2025, Colliers International projects an annual average completion of 6,700 condominium units in the CBDs, which is just about half of the annual average completion of 13,100 units in 2017-19 – a period partly driven by demand from offshore gaming employees.
The Bay Area will account for almost half of the expected completions in the next three years, followed by Fort Bonifacio (16.9% share), Ortigas Center (15.2%), Alabang (9.9%), Makati CBD (7.6%), and Araneta City (2.9%). Rockwell Center will see no construction activity in the next three years.
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.
Overall, Metro Manila’s condominium stock is projected to reach around 171,760 units by end-2025, an increase of 13.6% from 2022.
METRO MANILA RESIDENTIAL STOCK
|Location||2022||2025 forecast||% change|
|Source: Colliers International|
Residential construction activity mixed
Nationwide residential construction activity showed mixed results in Q1 2022, the latest figures from the Philippine Statistics Authority:
- The number of residential building permits rose by 4% y-o-y to 26,546 in Q1 2022, following a huge 32.9% increase in the full year of 2021 and a decline of 29.9% in 2020.
- The floor area of residential building permits fell slightly by 2.1% y-o-y to 4.13 million sq. m. in Q1 2022, following a growth of 51.2% in 2021 and a fall of 39.7% in 2020.
- The total value of residential building permits fell by 10.3% y-o-y to PHP45 billion (US$824 million), after increasing strongly by nearly 63% in 2021 and falling by 44.4% in 2020.
In Q1 2022, about 85.9% of residential constructions in the country were single-type houses, according to the PSA.
The average construction cost for a residential unit was PHP 10,893 (US$199) per sq. m in Q1 2022. Condominiums recorded the highest average cost of PHP 18,347 (US$336) per sq. m while duplex/quadruplex units had the lowest at PHP 8,798 (US$161) per sq. m.
Rents rising modestly; vacancy rates are more or less steady
Residential rents across Metro Manila rose by a modest 3.9% in 2022 from a year earlier, following a cumulative 12% decline in the past two years, according to Colliers International. However, on a quarterly basis, monthly rents were flat at about PHP 815 (US$14.7) per square meter, according to JLL Philippines.
In 2023, Colliers forecasts rents to increase by 2.3%, amidst the projected improvement in rental vacancy.
RESIDENTIAL RENTS, Q4 2022
|Makati City||12,000 - 700,000||217 - 12,649|
|Taguig City||15,000 - 420,000||271 - 7,589|
|Muntinlupa City||10,000 - 183,000||181 - 3,307|
|Parañaque City||8,000 - 150,000||145 - 2,710|
|Mandaluyong City||10,000 - 150,000||181 - 2,710|
|Pasay City||14,000 - 125,000||253 - 2,259|
|Pasig City||10,000 - 120,000||181 - 2,168|
|Quezon City||9,000 - 85,000||163 - 1,536|
|Manila City||9,000 - 60,000||163 - 1,084|
In Metro Manila, the overall residential vacancy rate stood at 5.6% in 2022, up from 5.1% in 2021 but still down from 7% in 2020, based on figures from JLL.
Pasig City has the lowest vacancy rate of just 1.6% in Q4 2022, followed by Manila (2.3%), Muntinlupa (3.2%), Parañaque (3.9%), Quezon City (4.4%), Mandaluyong (6.4%), and Pasay (6.8%).
In contrast, Taguig and Makati have the highest vacancy rates at 10% and 9.9%, respectively.
Gross rental yields remain moderate to good, but beware of taxes
Rental yield returns in Metro Manila are good, ranging between 3.55% to 7.40%, with an average of 5.40%, according to research conducted by the Global Property Guide in November 2022. 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 raised further, amid persistent high inflation
In March 2023, the BSP raised its policy rate by another 25 basis points to 6.25%, pushing borrowing costs to their highest level since 2007. It was its ninth consecutive rate hike since May 2022 amidst stubbornly high inflation. In February 2023, nationwide inflation stood at 8.6% - close to a 14-year high of 9.7% recorded in the previous month. It was well above the central bank’s target range of 2% to 4%.
“The Monetary Board’s decision was based on the sum of new information and its assessment of the effects of past policy actions, which warranted a continuation of monetary tightening to anchor inflation expectations,” said the central bank. “With core inflation rising in February despite a modest decline in headline inflation, further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints.”
The overnight lending and repurchase facility (RF) and deposit facility were likewise raised to 6.75% and 5.75%, respectively.
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, inter-bank 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 4.4% of GDP in 2022, 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.
In 2022, the total outstanding residential real estate loans rose by 5.4% to PHP 943.7 billion (US$17.1 billion) from a year earlier, according to figures from the BSP. It was a deceleration from a growth of 7.5% in 2021 and an annual average growth of 16.1% from 2010 to 2020.
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 2022, total cash remittances amounted to US$32.54 billion (which is about 8.1% of GDP), up by 3.6% from a year earlier, based on figures from the BSP. 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.
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 just 5% in 2009-2022. 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.
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 monthly amortization of around PHP10,500 (US$190), presently requires a dispensable income greater than PHP34,962 (US$632), to obtain a housing loan of PHP2 million (US$36,141). 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). Most of this would need to be socialized housing - units with a selling price of under PHP450,000 (US$8,132). 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.
Since the project was launched last year, at least 15 local government units throughout the country have broken ground for their respective housing projects, while some 73 others have signed a memorandum of understanding (MOUs).
Aside from its main goal of providing the Filipino people with decent and affordable housing, the project will also 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$8,132) can be purchased with a monthly amortization of PHP2,302 (US$41.60). The Pag-Ibig Fund, (which is the Filipino word for love), the country’s state-owned and subsidized housing loan provider, provides a fixed rate of 3% for 30 years for socialized housing units. The problem is that these low-end housing units are usually far from work.
Philippine peso to remain weak this year
After appreciating by 5.6% in 2020, the Philippine peso depreciated for the second straight year in 2022, reaching an all-time low of PHP 58.681 = US$ 1 in October 2022, amidst aggressive rate hikes delivered by the U.S. Federal Reserve to rein in inflation last year.
The local currency has regained some value since, with a monthly average exchange rate of PHP 54.717 = US$1 in March 2023. 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.
Though market analysts expect the peso boost to be temporary. The First Metro Investment Corporation – University of Asia & the Pacific Capital Markets Research projects the peso to weaken to the PHP57 to PHP59 range against the U.S. dollar this year while Fitch Solutions expects the exchange rate to reach PHP 56.5 to US$1.
Likewise, Standard Chartered Bank also forecast the peso to depreciate further for the third consecutive year, hitting the PHP57 to US$ 1 level anew by the end-2023 – about 2.2% weaker than the end-2022 level of PHP55.755 to US$1.
“I think that the sort of main underlying factor which we think will lead to higher dollar-peso this year is really the external balance story. Philippines’ current account deficit in 2023 is still projected to be wide, both by our forecasts and by the central bank’s forecasts,” said Divya Devesh of Standard Chartered Bank.
In 2022, the country posted a trade deficit of US$58.3 billion, sharply up by 38% from US$42.2 billion in 2021 and more than double the shortfall of US$24.6 billion in 2020.
Exports rose by 5.6% y-o-y to US$78.8 billion in 2022 while imports surged by 17.3% y-o-y to US$137.2 billion. As a result, the country’s balance of payments (BOP) deficit swelled to US$7.26 billion last year, a sharp turnaround from the US$1.35 billion surplus seen in 2021.
“This was due to the widening trade in goods deficit as goods imports continued to surpass goods exports,” the BSP said. “This is on the back of the increase in international commodity prices and resumption in domestic economic activities.”
Global commodity prices, particularly oil, surged in 2022 following the Ukraine-Russia war. The adverse impact has rapidly reached other commodities such as food as the tension between the two countries restricted trade across many economies.
In March 2023, the headline inflation in the country stood at 7.6%, down from 8.6% in the previous month but still up from 4% in the same month last year, according to the PSA. This is also far above 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.
The BSP forecasts inflation to remain elevated in the coming months to average at 6.1% in 2023 before easing to 3.1% in 2024.
Strong economic growth, recovering tourism
The Philippine economy grew by 7.6% for the full year of 2022, following a 5.7% expansion in 2021 and a 9.5% decline in 2020, mainly buoyed by strong growth in wholesale and retail trade, manufacturing, repair of motor vehicles, and construction, according to the PSA. It was its best showing since 2010.
Prior to 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% and 7% this year.
Tourism continues to recover. During 2022, the total number of international arrivals reached 2.65 million – sharply up from just 163,879 visitors in 2021 and 1.48 million in 2020 and exceeded the government’s 1.7 million targets. However, it remains far below the 8.26 million arrivals recorded in 2019 before the pandemic.
As a result, tourism revenues soared by a whopping 2,466% y-o-y to US$3.68 billion in 2022.
“In the past, we have overcome a global pandemic and survived various calamities. The Philippine tourism industry has managed to exceed expectations and our tourism partners and frontliners continue to offer the best of Filipino grace and hospitality to the world,” said Department of Tourism Secretary Christina Frasco.
In 2022, the country posted a budget deficit of PHP1.6 trillion (US$28.91 billion), down by 3.35% from a shortfall of PHP1.7 trillion (US$30.72 billion) in 2021. As a percent of GDP, the deficit was equivalent to 7.33% in 2022, down from 8.6% in 2021. Though, it remains far above the 3.4% shortfall recorded during the pre-pandemic year of 2019.
The labor market remains robust. In February 2023, the unemployment rate was 4.8%, unchanged from the previous month but down from 6.4% a year earlier, based on preliminary estimates released by the PSA. The underemployment rate also declined to 12.9%, from 14.1% a month ago and 14% in the previous year.
- Residential Real Estate Price Index (Bangko Sentral ng Pilipinas): https://www.bsp.gov.ph/SitePages/Statistics/Prices.aspx?TabId=7
- Construction Statistics from Approved Building Permits, First Quarter 2022 (Philippine Statistics Authority): https://psa.gov.ph/construction/pcs-id/168193
- Colliers Quarterly | Property Market Report – Residential | Q4 2022 | Philippines (Colliers International): https://www.colliers.com/en-ph/research/colliers-quarterly-property-market-report-residential-q4-2022-philippines
- Colliers Quarterly | Property Market Report – Residential | Q4 2021 | Philippines (Colliers International): https://www.colliers.com/en-ph/research/colliers-quarterly-property-market-report-residential-q4-2021-philippines
- Metro Manila and Metro Cebu Property Market Overview 4Q22 (JLL Philippines): https://www.jll.com.ph/content/dam/jll-com/documents/pdf/research/apac/philippines/jll-4q22-property-market-overview.pdf
- Metro Manila Property Market Overview 3Q22 (JLL Philippines): https://www.jll.com.ph/content/dam/jll-com/documents/pdf/research/apac/philippines/jll-3q22-metro-manila-property-market-overview.pdf
- PSA Releases Annual Revisions of the National Accounts of the Philippines (Philippine Statistics Authority): https://psa.gov.ph/national-accounts
- Philippines: rental yields in Manila range from moderate to good (Global Property Guide): https://www.globalpropertyguide.com/Asia/Philippines/Rental-Yields
- BSP Rates (Bangko Sentral ng Pilipinas): https://www.bsp.gov.ph/statistics/Financial%20System%20Accounts/BSPrates_rrp_data.aspx
- Monetary Board Raises Policy Rate by 25 Basis Points (Bangko Sentral ng Pilipinas): https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=6657
- Philippine Migration At a Glance (Commission on Filipinos Overseas): https://cfo.gov.ph/statistics-2/
- Narrowing housing gap under ‘Pambansang Pabahay para sa Pilipino Program’ (Philippine Information Agency): https://pia.gov.ph/news/2023/02/01/narrowing-housing-gap-under-pambansang-pabahay-para-sa-pilipino-program
- PBBM´s ´Pambansang Pabahay’ empowers LGUs to address housing gaps (Philippine News Agency): https://www.pna.gov.ph/articles/1194735
- Housing poverty in the Philippines (Habitat for Humanity): https://www.habitatforhumanity.org.uk/country/philippines/
- DHSUD forges pact with Davao, Northern Luzon (Daily Tribune): https://tribune.net.ph/2023/02/20/dhsud-forges-pact-with-davao-northern-luzon/
- Peso seen weakening for 3rd straight year (Philstar): https://www.philstar.com/business/2023/02/02/2241842/peso-seen-weakening-3rd-straight-year-
- Summary Inflation Report Consumer Price Index (2018=100): March 2023 (Philippine Statistics Authority): https://psa.gov.ph/statistics/survey/price/summary-inflation-report-consumer-price-index-2018100-march-2023
- Monetary Policy Report - February 2023 (Bangko Sentral ng Pilipinas): https://www.bsp.gov.ph/SitePages/PriceStability/VisualMPR/MonetaryPolicyReport_February2023.aspx
- Peso boost only ‘temporary,’ seen at ₧57-₧59 to $ in 2023 (Business Mirror): https://businessmirror.com.ph/2023/01/11/peso-boost-only-temporaryseen-at-%E2%82%A757-%E2%82%A759-to-in-2023/
- The PH trade deficit widened by 38% in 2022 to $58.3B (Philippine Inquirer): https://business.inquirer.net/383983/ph-trade-deficit-widened-by-38-in-2022-to-58-3b
- BOP deficit swells to $7.3 billion in 2022 (Philstar): https://www.philstar.com/business/2023/01/20/2238803/bop-deficit-swells-73-billion-2022
- GDP Expands by 7.2 Percent in the Fourth Quarter of 2022, and by 7.6 Percent in Full-year 2022 (Philippine Statistics Authority): https://psa.gov.ph/content/gdp-expands-72-percent-fourth-quarter-2022-and-76-percent-full-year-2022
- PH exceeds target with 2.6-M international arrivals in 2022 (Philippine News Agency): https://www.pna.gov.ph/articles/1191853
- Pangandaman Elated Over Decline in Nat´l Government´s Budget Deficit (Department of Budget and Management): https://www.dbm.gov.ph/index.php/secretary-s-corner/press-releases/list-of-press-releases/2627-pangandaman-elated-over-decline-in-nat-l-government-s-budget-deficit
- Employment Rate in February 2023 is Estimated at 95.2 Percent (Philippine Statistics Authority): https://psa.gov.ph/content/employment-rate-february-2023-estimated-952-percent