There is a clear divide between the world that was before the COVID-19 pandemic and the world after it. In a way, the world has become simultaneously bigger and smaller. Bigger because of the massive digital transformation that expanded cyberspace to a scale that was unprecedented; smaller because it allowed for many people to live, work, and play all without leaving their homes.
Naturally, this would lead to more people putting more attention to their living spaces. Nowhere is this clearer than in the market for luxury residences.
According to a report published by property experts Colliers Philippines this year, the luxury condominium market accounted for 34% of overall take-up in 2022. And despite rising interest and mortgage rates, the firm predicts that it likely still will be in demand beyond 2023.
Colliers data recorded the appetite for luxury condominiums jumping from a meager 5% to 34% in 2022. Projects in significant central business districts like Ortigas Central Business District, Bay Area, and Fort Bonifacio were primarily the focus of this demand.
Luxury condominium units are defined in this case as those units worth P8 million and above or US$145,500 and above.
“Previous crises have affected demand for residential projects in Metro Manila, resulting in a price correction. However, historical data would show that the luxury segment is resilient, exhibiting stability amid an economic crunch and showing signs of immediate recovery after global financial meltdowns,” Joey Roi Bondoc, director of research at Colliers Philippines, said in a statement.
The popularity of luxury residences has been growing since the pandemic. In 2020, during the height of COVID-19, the Bangko Sentral ng Pilipinas (BSP) recorded a 27% increase in year-on-year growth on nationwide property prices over the previous year, which is the largest increase since 2016. According to the BSP, a major factor in the rising average prices of premium properties is the increased demand for high-end projects.
This trend was also observed globally. According to Bloomberg, the demand for luxury residences in the US is “soaring” despite the pandemic-related economic downturn. Bloomberg found it to be the biggest growth since 2013 — a 42% increase — during the third quarter of 2020.
In contrast, the demand for homes in the middle price range has only grown by 3%, while the desire for houses in the inexpensive price range has decreased by 4%.
“Residential real estate is a need, and amid the pandemic, people will still purchase,” Gerfer Mindoro, senior manager for research at property firm KMC, said.
“Now that the need of having a safe home is amplified, more people have realized the importance of investing in a high-quality home for their families.”
“Now that people have spent more time inside their homes, they realize how important comfort and functionality are, especially in their living space,” Aron Pritchard, KMC’s senior business development consultant for residential services, said.
“As people adjust and live differently, they might need a bigger place with a home office for themselves, for their children to do online schooling, or just to give more space for the whole family who might be spending all day at home,” he added.
KMC found that many consumers have also expressed the need for larger space to set up a proper work-from-home area to adjust to new remote working situations. Moreover, the extended community quarantines have steered many away from using communal and socialization facilities. Instead, they opted to invest in personal amenities inside their houses for working out or watching in-house movies.
The desire for “holiday homes” outside of Metro Manila has surged, according to KMC Managing Director Michael McCullough, who also stated in an interview that higher-end areas of the residential real estate market are highly active.
Mr. McCullough said that working people are more likely to invest in a “house-and-lot lifestyle” instead of condo living after being “locked” inside their houses for extended periods of time.
“People who never left their condos for the past six to seven months while in quarantine are reevaluating their residential property options. We’ve seen an uptake in demand for second properties, vacation homes, beach properties, houses and lots in Laguna and Batangas,” he added.
Sustaining the growth of luxury living
Colliers predicts that the premium and ultra-luxury segments will likely stay robust, even in a global environment of rising interest and mortgage rates. Metro Manila’s condominium complexes are all expected to see price increases, especially for the premium and ultra-luxury units, as long as the region’s infrastructure sees continued improvements.
Additionally, increased land costs and the cost of building supplies will likely also push developers to build more expensive homes. Colliers anticipates an aggressive introduction of high-end properties in Metro Manila’s business areas and surrounding areas in the near future.
In a separate follow-up report, Colliers also found that while the demand for luxury homes is growing in Metro Manila thanks to an affluent and discerning consumer base, there is a similar trend in important residential hubs outside of the National Capital Region.
Some of the country’s priciest projects have been found in master-planned communities in Pampanga, Bulacan, Cebu, Davao, Bacolod, and Iloilo — and the average condominium prices in these areas are only expected to rise moving forward.
Condominium prices in these locations now range from P185,000 to P262,000 (US$3,400 to US$4,800) per square meter, Colliers data found.
As the Philippine economy rebounds after a severe contraction in 2020, Colliers expects the economic growth to spill over to economic centers outside of Metro Manila, which in turn should guide property firms’ development plans.
More developers will likely be compelled to start luxury condominium projects beyond Metro Manila due to the increasing acceptance of condominium living, the appeal of condo units as a hedge against inflation, and the expanding purchasing power of investors.
Colliers further sees average condominium prices in these areas to only increase moving forward due to the growing acceptance for condominium living outside Metro Manila and rising purchasing power of investors and end-users in these locations.
“[We project] the attractiveness of luxury and ultra-luxury residential projects sustaining pace and we see this trend even outside of Metro Manila. Offering luxury condominium units in key areas outside of the capital region will be more pronounced beyond 2023 and we see an aggressive differentiation among property firms’ projects moving forward,” Mr. Bondoc said.
Furthermore, Colliers anticipates the growth of more cohesive communities as both domestic and foreign developers search for local entrepreneurs with significant landbanks in rural areas with whom they might cooperate. The nation’s infrastructural backbone should continue to improve in order to accommodate this development path. — Bjorn Biel M. Beltran