Hyper-supply of Manila condos? 2025 prospects

Manila: Luxury pads here have become the talk of the town.

The reason: Concerns are mounting over the potential "overheating" of the condominium market, which has been on a rollercoaster ride. 

Back in December 2023, Knight Frank’s Prime Global Cities Index reported a whopping 21.2 per cent year-on-year surge in prime residential prices in Metro Manila (comprising 16 cities and 1 town). 

Outpacing Dubai, Shanghai

This impressive growth outpaced global hotspots like Dubai and Shanghai.

During 2023, the average price of a luxury 3-bedroom unit in Metro Manila’s central business districts (CBDs) rose by a modest 3.98 per cent to Php203,550/sqm ($3,571/sqm), as per Colliers International, though prices of luxury properties in the CBDs were more or less steady in 2023 (when adjusted for inflation). 

Fast forward to 2024: The narrative has taken an intriguing twist.

Manila clinched the title of the world’s fastest-growing luxury real estate market early in the year, boasting a 26.3 per cent annual price increase.

The country’s housing market is on the up-and-up, thanks to a booming economy and the central bank’s (BSP) fine-tuned monetary magic.

But hold on — there's a buzz that prices might be spiraling out of control, with supply and demand dancing out of sync.

Recent data suggests a dicey situation: $2.6-billion worth of condo units stood unsold in Manila, leading to whispers of "fire sale" discounts.

Condo glut

As of October 2024, the capital faced an oversupply of approximately 67,600 condominium units across 510 actively selling buildings, equating to a 29-month inventory, Leechiu Property Consultants (LPC) reported.

A balanced market typically maintains a 12-month supply.

By November 2024, Manila’s condo market started swimming in options — so much so that by December, it’s drowning in a 34-month "hyper-supply".

At the current sales pace, LPC reckones it would take nearly three years to clear out the existing stock.

That’s like having a condo clearance sale that runs until 2027.

What happened? 

An industry official point to the unsustainable price spike in certain segments.

“Manila’s real estate prices have risen substantially,” said Bryan Sanchez, a licensed appraiser and banker, told Gulf News.

“Although they remain cheaper than properties in cities like Singapore or Bangkok, they ‘feel’ disproportionately high for many locals due to the mismatch between income levels and property costs. This discrepancy gives the impression of an overheated market,” Sanchez added.

He also pointed to key factors -- high interest rates (which dampen demand, by making mortgages less affordable), and a shift in buyer preferences. "There's been a noticeable shift toward single-detached homes as well as properties in nearby provinces, moving away from high-density urban living." 

Jovi Tupaz, a licensed real estate broker, appraiser and consultant, said the LPC data (unsold condos, worth $2.6 billion), pointed to a “hypersupply” phase – but only in specific segments.

“All real estate undergoes a market cycle. By ‘overheating’, I would place particular areas such as QC (Quezon City), Ortigas, Manila and the Bay Area as being in the ‘hypersupply’ cycle – for the midrange-priced residential condominium market (Php 3 million to about Php18 million range).” 

“In Makati and BGC, the ‘oversupply’ data is relatively low – simply because the market there is within the higher spectrum of the Php8 million to Php500-million range. They are not affected as much because people (in these areas) have more disposable income and are willing to invest for the long term.”

“For units below the Php12-million ($206,500) range, and among those who engaged in speculative investing and not for end-use in areas that boomed particularly during the POGO years (from 2016 to 2019), it has reached the ‘hypersupply’ phase," Tupaz added. 

The best course of action? Wait for the “storm” to clear – until the market  reaches the “recovery” phase.

Price correction

The spike in condominium prices has encouraged developers. Over the past five years, an average annual increase of 6-8 per cent has been logged.

In some cases, off-plan units have gone up by 100 per cent in the mid-range segment over the last 10 years.

This raises the likelihood of a price correction.

Discounts galore

Tupas points to a key trend: “Developers and banks are giving out huge discounts and terms disguised as promos”.

For developers, projects in key locations with good access to infrastructure and transport links will likely succeed; those in oversaturated or less accessible areas may struggle to attract buyers.

"For those who are planning to invest, this may be the best time to do it. The key is to plan your finances properly and have the patience to wait it out for at least five years."

FACT FILE: Property market 'overheating'

Property market "overheating" occurs when real estate prices rise significantly and rapidly beyond what fundamentals like income levels, economic growth, and housing supply can justify.

This often indicates a property "bubble", which can pose risks to the economy if the bubble bursts, leading to price corrections and financial instability.

2025 outlook

Does the “build-and-they-will-come” mantra apply to Manila?

“This mindset no longer holds the same weight as before. Many developers are focused on premium projects, but the strongest demand lies in affordable housing,” said Sanchez. 

Shoring up demand

To help shore up demand, and given the manageable inflation level, the Bangko Sentral ng Pilipinas (BSP) cut interest rates twice in 2024 (Octobebr 17 and December 19) by a total of 50 basis points.

The drop in interest rates could help rejuvenate buyer interest. 

However, until these adjustments take effect, property prices and rental rates in Metro Manila are expected to remain under pressure.

For developers, it’s time to rethink strategies.

For buyers, it’s a buffet of choices with plenty of room to negotiate. This cooling period presents a golden opportunity.