January 15,2025
Understanding the Market Surge and Overheating Signals
The Manila condominium market experienced a significant surge as reported by Knight Frank’s Prime Global Cities Index in December 2023, noting a 21.2% year-on-year increase in prime residential prices, which outstripped global cities like Dubai and Shanghai. This growth continued robustly into 2024, positioning Manila as the world's fastest-growing luxury real estate market with a 26.3% annual price increase.
However, this rapid growth has sparked concerns about the market's stability. By October 2024, Manila was reported by Leechiu Property Consultants (LPC) to have an oversupply of around 67,600 units across 510 buildings, indicating a market burdened by a 29-month inventory in a typically balanced market that maintains about 12 months.
Rental Market Dynamics Amidst Hyper-Supply
This burgeoning supply suggests a shift in rental market dynamics for 2025. With a "hyper-supply" reaching a 34-month inventory by the end of 2024, landlords and investors face a market flooded with options, potentially leading to competitive rental pricing and innovative leasing strategies to attract tenants.
Bryan Sanchez, a licensed appraiser, points out the pricing mismatch in Manila, which, while cheaper than regional counterparts like Singapore, remains steep for many locals. This could pressure landlords to adjust rental rates to better match local income levels, thus impacting overall rental yields.
Jovi Tupaz, a real estate consultant, highlights that areas like Quezon City, Ortigas, and the Manila Bay Area are particularly affected in the mid-range condo market. For investors, this segment may offer substantial rental opportunities as prices adjust to reflect the oversupply.
Strategic Investment and Rental Opportunities
Given the current market conditions, investors should consider the long-term potential of their holdings. The Bangko Sentral ng Pilipinas (BSP) has made strategic rate cuts to stimulate economic activity, which could enhance borrowing conditions and increase rental market demand. This financial environment may encourage potential tenants to opt for rentals over purchases due to more favorable leasing terms.
Developers are anticipated to slow down new launches and possibly shift focus towards suburban developments, suggesting a potential increase in demand for rentals in urban centers as supply tightens in future cycles. This makes strategic locations within Metro Manila—especially those near employment hubs, lifestyle centers, and transport links—prime spots for rental investments.
Looking Ahead: The Rental Market in 2025
As we look into 2025, the rental market in Manila might find equilibrium as the current oversupply is absorbed. The vacancy rate, expected to peak at 25%, will likely encourage competitive rental pricing and innovative tenant services to differentiate offerings in a saturated market.
For those considering investments, now may be an opportune time, particularly in segments where supply has outpaced demand significantly. The key lies in selecting properties with potential for high tenant demand and planning for a holding period that allows for market recovery and growth.
Investors and landlords must remain adaptable, responding to shifts in tenant preferences and broader economic indicators to capitalize on the eventual recovery of the rental market in Manila.
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