In its latest residential market update covering the first three months of this year, real estate firm KMC MAG Group-Savills shared its latest updates on the residential market in the country’s major central business (CBD).
As of the 1st quarter of 2016, there were 15 towers under construction in Makati’s CBD, with nearly 6,000 units in total. By 2020 the total stock is expected to reach more than 23,500 units given that there isn’t any delay for projects under construction.
At present most of the stock falls in the mid-end market segment, accounting to around 39.7 percent of current stock, whilst the luxury and high-end projects held shares of 13.4 percent and 5.1 percent, respectively.
Makati Pipeline
The majority of the upcoming stock belongs to the mid-end market segment – having a 44.3 percent share – well ahead of the luxury (25.9 percent) and upscale projects (21.8 percent).
Ayala Land, through its Ayala Land Premier and Alveo Land brands, currently holds the highest market share (22.2 percent) for completed residential condominium units in the business district, slightly ahead of Megaworld (20.8 percent).
Ayala Land is seen to retain its current market share, as eight towers comprised of more than 3,000 units are expected to enter the business district’s stock from 2016 to 2020. Some of Ayala Land’s projects currently under construction include Park Terraces (three towers) and Garden Towers (two towers), both in Ayala Center, and the sole tower of Kroma in Legazpi Village.
Unit Mix
Currently one-bedroom units holds a greater share of the total market stock compared with studio units. For luxury and high-end projects, however, a significant amount of the stock and upcoming supply are two-bedrooms and three-bedrooms.
Demand Overview
The Philippines’ increasing wealthy population remained as the main driver of demand for condominium units in Makati CBD during the survey period. Most professionals, businessmen, and both local and expatriate executives have chosen Makati CBD as their address.
The majority of demand in the investment market comes from local buyers. On the tenant side however, the majority are expatriates and young Filipino professionals who relocate to cut costs associated with transportation and unproductive time spent due to high traffic congestion.
Take-up
On average the take-up has been around 755 units per annum between 2004 and 2014, but the market saw strong demand between 2010 and 2013 with take-up reaching more than 1,000 units each year.
In terms of demand, there was a sharp slowdown in 2014, but this was mainly explained by the supply figures as only 453 units were introduced in the marketplace.
OFW sales
OFWs also played a part in the demand for space, as total overseas sales from main landlords within the market is around 28 percent. Most of them purchase properties in the mid to low-end segments rather than in the luxury market.
Forecast
Despite its record high upcoming supply during the next three years, Makati’s residential market is expected to sustain a consistently positive performance. Makati’s gross yield is currently at 7 percent and is seen to remain in this level in the next few years.
Meanwhile, the possible tightening of the monetary policy might keep value appreciation at between 3 percent and 4 percent per annum. Currently, the yield spread exceeds 10-year government bonds by 3.4 percent, compared to the historical average of 1.3 percent which indicates room for yields to go down.
Although there might be a small correction in prices, Makati is far from experiencing a drastic slowdown. Using history as a benchmark and given the consistently high demand and take-up of space in the country’s major central business district, Makati will continue to strengthen its position as a prime location and will continue to be favored by investors.
This column was first published by KMC MAG – Savills and is reproduced with kind permission.
