The Golden Era of Real Estate in the Philippines Has Ended
By: Timons Cabansi
In my view and observations of the year, the Philippine real estate market experienced tremendous expansion from 2010 to 2019, which is sometimes referred to as the “Golden Era of Philippine Real Estate.”
The boom was driven by significant advancements, massive developments, a thriving bull economy, and important sectors like business process outsourcing (BPO) are surging.
However, the market has since slowed down, raising concerns for developers, investors, and real estate professionals. (the cha-ching sound is slow)
What then went wrong? What has caused the market to slow down?
Now, in this article, let’s break down the key factors contributing to this slowdown.
1. BPO Sector Contraction: Declining Demand for Office Spaces
The BPO industry once drove massive demand for commercial real estate.
But the landscape has changed.
- Automation and AI have reduced the need for large workforces.
- As AI increasingly automates customer support tasks, many BPO workers—including those who provide voice-based services and create marketing and social media content—may lose their jobs in the long run as AI is rapidly advancing.
- Layoffs and workforce reductions have become common.
This decline in employment reduced the demand for office spaces, leading to increased vacancies and declining rental yields.
Widespread BPO layoffs can contribute to a broader economic slowdown, which can further impact consumer confidence and spending power, negatively affecting the real estate market.
However, it’s important to note that the impact may vary depending on several factors:
- Geographic Location: The impact will be more pronounced in areas with high BPO concentration.
- Severity of Layoffs: The extent of the impact will depend on the number of jobs lost and the overall economic climate.
- Government Policies: Government interventions, such as job retraining programs and support for affected industries, can mitigate the negative impact on the real estate market.
2. POGO Ban: A Major Blow to Commercial Real Estate
The Philippine government’s ban on Philippine Offshore Gaming Operators (POGOs) had a massive impact on the real estate sector.
POGOs were major tenants in commercial properties, especially in Metro Manila.
After the ban:
- Office vacancies surged.
- Rental income dropped significantly.
- Properties dependent on POGO leasing faced financial strain.
3. Oversupply of Condominiums: Too Much Inventory, Too Few Buyers
During the property boom, developers rapidly constructed high-rise condos across Metro Manila.
But demand couldn’t keep up with the supply.
What happened next?
- Excess Inventory: Too many units available, with fewer buyers.
- Price Declines (Haha, I wish) more like a long-term payment scheme: Increased competition forced developers to lower prices (in theory), but as of this post, most developers are not lowering their price yet, but they are being generous on the payment scheme more like a rent-to-own payment term.
- Slow Sales: Units remained unsold for extended periods.
4. Rising Inflation and Interest Rates: Less Attractive for Investors
Economic challenges have also hit the market hard.
Higher interest rates and inflation have made property investments less appealing. If investors are not buying, the confidence of people is also waning, and the FOMO (Fear Of Missing Out) is gone, and people will just wait and observe.
- Increased Mortgage Rates: Home loans became more expensive, reducing affordability.
- Cautious Investors: Rising costs made buyers hesitant.
This financial strain has significantly slowed property purchases.
5. Work-from-Home Trends: Declining Office Space Demand
The COVID-19 pandemic introduced a massive shift in working habits.
Remote work has become the norm, leading to:
- Reduced Office Space Demand: Companies need smaller office footprints.
- Vacant Commercial Properties: Prime office spaces saw fewer leases renewed.
6. No Proper Government Regulation: Developers can over-develop
A significant factor contributing to the Philippine real estate slowdown is the lack of proper government regulation regarding overdevelopment.
When cities or specific areas become saturated with construction projects without effective oversight, it leads to market imbalance, oversupply, and declining property values.
- Condo Units Oversupply: Thousands of unsold units.
- Decreasing Rental Yields: Renters have multiple options, driving prices down.
- Weaker Investor Confidence: Overcrowding discourages long-term property investors.
This has slowed new projects and discouraged some investors.
7. Decline in OFW Remittances: Less Investment in Real Estate
Overseas Filipino Workers (OFWs) have traditionally been major contributors to the property market.
However, the pandemic and global economic challenges have reduced remittances.
- Fewer Remittances: Less disposable income for property investments.
- Delayed Purchases: OFWs postponing property investments.
8. Rising Construction Costs: Delays and Higher Prices
Construction material costs have skyrocketed due to global inflation.
- Higher Raw Material Prices: Cement, steel, and other essentials became more expensive.
- Increased Labor Costs: Skilled labor shortages have driven up wages. Since they are all traveling overseas, this is another topic to talk about at some point.
This has led to project delays and price increases for new developments.
9. Global Market Uncertainty and Geopolitical Tensions
The global economy has faced several disruptions:
- Pandemic Impact
- Geopolitical Conflicts
- Trade Restrictions
These factors have made foreign investors more cautious, leading to reduced capital inflow into Philippine real estate.
10. Climate Change and Disaster Risks Affecting Property Values
Rising concerns over climate change have also influenced the market.
- Flooding and Typhoon Risks: Properties in disaster-prone areas have lost value.
- Sustainable Building Pressure: Developers face increasing costs for eco-friendly construction.
Impact on Different Segments of Real Estate
Not all segments have been equally affected by this slowdown.
Low-Cost Housing: Stable and Resilient
- Consistent demand from the middle class.
- Government programs like Pag-IBIG continue to support affordable housing.
Mid-Range and Premium Properties: Struggling
- Rising costs and oversupply have slowed sales.
- Developers offering more flexible payment terms to attract buyers.
Ultra-Luxury Real Estate: Still Thriving
- High demand from ultra-wealthy buyers.
- Limited supply and premium locations maintain property value.
Developers and Real Estate Professionals: Feeling the Pinch
Real estate practitioners have felt the slowdown firsthand:
- Slower Sales Cycles: Properties remain unsold for longer.
- Increased Marketing Costs: More incentives and long-term payment options to attract buyers.
- Delayed Project Launches: Developers scaling back on new projects.
Is This a Slowdown or a Market Correction?
The current slowdown is more of a market correction than a permanent decline.
The previous decade saw rapid growth and overexpansion, leading to market imbalances.
The current phase is helping the market stabilize, allowing demand and supply to realign.
Takeaway: What’s Next for Philippine Real Estate?
The “Golden Era” may have ended, but the Philippine real estate market is evolving.
- Developers need to adapt.
- Sustainable growth is key.
- Opportunities still exist, especially in low-cost and ultra-luxury segments.
By focusing on strategic growth and market research, the industry can find a new balance.
Frequently Asked Questions (FAQs)
1. Why did the Philippine real estate market slow down?
The slowdown is due to factors like BPO layoffs, the POGO ban, rising inflation, and oversupply of properties.
2. What’s the impact of the POGO ban on real estate?
It caused increased office vacancies, especially in Metro Manila, leading to reduced rental yields.
3. Is the slowdown affecting all property segments?
No. Low-cost housing remains stable, while mid-range developments face slower sales due to oversupply.
4. Will the market recover soon?
The market is undergoing a correction, balancing supply and demand. Growth is expected to stabilize over time.
5. How can developers adapt to the slowdown?
Developers should focus on more flexible payment terms, better market research, and sustainable development practices.
Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or investment advice. Always consult with a professional before making any decisions.
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