Mad for condos

The appetite for condominiums continues to be insatiable.

According to the latest report of property research firm Colliers International, condominium take-up has hit a record high at 52,600 for the whole of last year compared to the previous year’s 42,000 units, and recording the highest annual take-up since 2012.

Colliers senior research manager Dinbo Macaranas said condominium demand should remain strong since Metro Manila still has more attractive rental yields than most Asian cities. Even when adjusted for inflation, returns remained positive for key Metro Manila locations. And if capital appreciation remains, the returns would become even more attractive.

The company recommends strategic positioning of products from developers to enable them to ride on the surge in demand driven by starting families and the growing Chinese and Korean communities. It noted that location will be key to ensure viable returns for buyers and owners in a market where heavy supply exists, and said that projects in primary commercial business districts (CBDs) and those in easily accessible surrounding fringe areas will be the best investments.

Given the record take-up, it was not surprising to see prices rise to record levels as well, Colliers added.

Meanwhile, the report noted that the secondary market similarly showed resilience as vacancy was virtually flat during the fourth quarter of 2017 at 12.6 percent despite the completions. Rents have been declining or flat at best, due to the combined effect of a double-digit vacancy and the influx of new supply, thus, residential yields are declining.

Total condominium stock in Metro Manila’s CBDs reached 101,500 units, with the completions during the quarter concentrated in Fort Bonifacio and Makati CBD, allowing them to increase their lead as the two biggest shareholders with 27 percent and 25 percent of total stock respectively. They were followed by Ortigas Center with 17 percent and Manila Bay Area with 11 percent, the report revealed.

There were a few delays in building completions in the fourth quarter of 2017, which put the full year total to 10,400 units or 35 percent lower than earlier estimates. The delays in completion from 2017 have shifted a sizeable number of units to delivery in 2018. About 27,200 units are expected to be completed this year, a record high for Metro Manila, Collier said. Average over the last 10 years was 7,500 units only.

Metro Manila vacancy was largely flat at 12.6 percent from last quarter’s 12.7 percent, primarily due to the delays in construction noted in the fourth quarter and the rental market demand from young professionals as well as a growing community of Chinese and Korean nationals in CBDs more recently.

Manila Bay Area vacancy improved from 18.3 percent to 18.1 percent due to the absence of new supply in the location and the growing demand from employees of offshore gambling companies which typically look for a residential component to complement their office space requirements. Meanwhile, Fort Bonifacio saw a slight increase in vacancy from 15.3 percent to 15.7 percent given the new supply in the area, offset by demand from young professionals, Colliers said.

Colliers expects supply in 2018 to reach 27,200 units with the completion of multiple projects which will be a record high for Metro Manila. But this should put upward pressure on condominium vacancy to reach mid-teen levels by yearend.

And with fewer completions expected in the years that follow, it projects that vacancy will tumble back to the pre-teens range by 2019 and 2020.

Similar to vacancies, rents were largely flat quarter on quarter. Prime condominium units in Rockwell Center still command the highest rental rate averaging P873 per sqm per month, followed by Fort Bonifacio at P810 per sqm per month, and Makati CBD at P803 per sqm per month.

The report also revealed that take-up of pre-selling condominium units throughout Metro Manila, including fringe locations, reached 52,600 units in 2017, 24 percent higher than the prior year and the highest historically for the country’s capital.

This, it said, was partly driven by a late surge in launches which reached 34,000 units, approximating the 2016 total. Additionally, household formation averaged three percent annually over the last five years driven by starting families and young professionals.

The big question now is will this demand for condominium units remain?

Colliers said that despite declining yields and increasing prices, sales demand remained robust in 2017, coming from a mix of end-users and investors.

It said that the level of return may dictate buyers’ appetite for investment or purchase, which will determine the continuity of demand.

The report noted that a closer look at the historical yields in Metro Manila CBDs since 2001 would reveal that although yields are declining, condominiums remain as a viable investment option because of Metro Manila’s attractive rental yields considering average capital appreciation and bank mortgage rates, and because returns remain positive even when adjusted for inflation.

It said that comparing rental yields in Manila with other Asian cities, the country’s capital ranks third with an average yield of 5.3 percent for luxury apartments, just behind Ho Chi Minh’s six percent and Jakarta’s eight percent. Manila’s rental yields are better than Bangkok’s four percent, Singapore’s 2.9 percent, Hongkong and Shanghai’s two percent, and Guangzhou’s 1.6 percent.

Colliers added that yields are more likely to remain attractive in major CBDs, unless an extraordinary event occurs, even as it suggested that potential buyers seriously consider projects in primary CBDs and those in easily accessible surrounding fringe areas because such projects would offer the best returns for investment.

In summary, the group expects demand to grow by three percent this year, supply to reach 27,200 units in 2018 which should taper off to 8,000 by 2019 and slow down further thereafter, vacancy rate which stands at 12.6 percent to reach mid-teens due to heavy supply in 2018 before correcting back to 12 percent in 2019 and 2020, rents which have been declining to increase one to three percent in the short to medium-term, and prices in CBDs to continue rising 2018 onwards.

From 27,200 units in 2018, total residential supply is expected to decline to 8,200 next year, 3,100 units in 2020, and 2,300 units in 2021, a trend which naturally would result in increased selling prices, attractive rental yields, and an incentive for developers to build more.

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