CEBU’s real estate market is anticipated to maintain its vibrancy in 2024, as an increasing number of homebuyers and investors recognize real estate as a resilient investment option.
The rising middle-income class and the continued strong inflow of overseas remittances on top of a growing economy will further fuel the growth of the sector next year.
On the flip side, challenges such as elevated inflation, high-interest rates, delays in government infrastructure projects, and inconsistent government policies are likely to hinder the sector’s growth.
According to realty broker Anthony Gerard Leuterio, founder of Filipino Homes, real estate has been a surprisingly resilient investment, even as the Covid-19 health crisis, stubborn inflation and high-interest rates disrupted the market.
“When people encountered issues with other investment instruments, they observed the resilience of real estate investments. Even during economic downturns, real estate has proven to remain robust,” said Leuterio.
He said this realization will spur more buying activities next year, particularly among middle-income and overseas Filipinos, with condominium developments to sustain a strong market appetite.
According to the National Economic and Development Authority, the Philippines is on track to be an upper-middle-income country by 2025. Barring any major disasters or external factors, the timeline is doable given the current growth assumptions for 2023 and 2024.
Based on the World Bank’s data, the Philippines is currently classified as a lower middle-income country with a gross national income per capita of US$3,950 as of 2022.
The country is eyeing to achieve a growth target of six to seven percent this year. Gross domestic product (GDP) for the first three quarters of the year grew by 5.5 percent. GDP represents the total value of all goods and services produced within the borders of a country over a specific period, typically a year.
“The buyers (in real estate) will be coming from the middle-income market,” said Ronald Allan Uy, vice president and general manager for Visayas of Pueblo de Oro Development Corp. “This is because buyers in the economic and affordable segments are still hesitant to shell out money because of the high inflation.”
Inflation
November inflation fell to 4.1 percent from 4.9 percent in October, bringing the average inflation from January to November 2023 to 6.2 percent. The Bangko Sentral ng Pilipinas (BSP) projects December 2023 inflation to settle within the range of 3.6 to 4.4 percent.
Hikes in the key interest rate, on the other hand, were put on pause at 6.5 percent following a favorable slowdown starting in October.
The BSP’s pronouncements of milder inflation, a flat interest rate this year and a lowered rate in 2024 are giving developers renewed confidence to continue with their expansion plans, amid other factors like the ongoing wars in Russia and Ukraine, as well as Israel and Gaza.
“Looking at the Philippines, we are typically a domestic market. We are not much affected by external events... but what would significantly affect us would be the reduction of inflation and interest rates which we expect by the second half of next year,” Uy said.
Pueblo de Oro currently has a 27-hectare township in Lapu-Lapu City which already houses three house and lot projects, namely La Aldea del Mar Cebu (1,517 house and lot units), Park Place 1 (480 units) and Park Place 2 (244 units).
Property advisory firm Colliers Philippines believes that stabilizing interest rates as well as improving business and consumer sentiment should support residential demand for the remainder of 2023.
It recommended that developers and investors constantly monitor inflation and interest rates, particularly their potential impact on mortgage rates.
“In our view, changes in interest and mortgage rates strongly influence the appetite of investors and end-users in purchasing residential units,” the firm said.
Primary market
Meanwhile, overseas Filipino workers (OFWs) continue to be the primary market for real estate.
“They are increasingly looking at investment income opportunities and real estate is one of them,” said Leuterio.
The latest report from the Bangko Sentral ng Pilipinas showed that money sent home by OFWs reached US$30.57 billion in the first 10 months of 2023, up 2.9 percent from $29.72 billion. In 2022, the country received $36.1 billion in remittances.
Saudi Arabia is the leading destination of OFWs, followed by the United Arab Emirates, Kuwait, Hong Kong, Qatar and Singapore.
Leuterio said real estate stands as one of the primary purchases made by OFWs using their hard-earned money.
“Condominium remains the top choice, especially for Cebu City, whose prices of raw land now stand at P100,000 to P180,000 per square meter,” he said. “Condo and city living will be more pronounced next year unless buyers would want to endure the traffic congestion, then they can settle in nearby towns of Cebu and buy house and lot properties.”
Leuterio, whose company Filipino Homes is a prominent player in the property market selling, said developers have redirected their attention from office to residential developments after work-from-home and hybrid work schemes posed challenges to the office sector.
“2023 was a re-planning, re-organizing and re-focusing year for property developers. They are now keen on building products to cater to the strong local market,” he said.
However, according to Colliers, sustained demand for office space outside Metro Manila, including Cebu, will continue to persist in 2024.
Office space demand
Colliers said developers should complete delivery schedules of their projects as it observed increasing inquiries from outsourcing firms especially in Cebu, Iloilo, Bacolod, Bulacan and Laguna.
In the first nine months of 2023, Colliers recorded 149,500 square meters (1.6 million square feet) of provincial transactions, up from 145,000 square meters (1.6 million square feet) posted a year ago.
“Colliers believes that Cebu’s business districts will continue to remain attractive among business process outsourcing firms looking for expansion sites in the city and its environments. In our view, now is an opportune time to haggle for more attractive lease rates given the substantial supply in Metro Cebu,” it said.
In a separate interview, architect Daryl Balmoria-Garcia, owner of Dream Architects, said her firm’s workload has tripled since last year as developers rush to complete the projects they launched before the Covid-19 pandemic, prompting them to hire more employees.
However, in contrast to designing projects with open spaces and outdoor amenities in 2022, she observed that this year’s projects reflect a return to the pre-pandemic preferences, but designs have become versatile and flexible.
“Office designs now have an emphasis on collaboration and wellness, among others,” she said.
Condo designs, on the other hand, have improved.
Condo cuts now start at 24 square meters from 20 square meters pre-pandemic.
Garcia said condo projects now have incorporated the office aspect in the designs, banking on the work-from-home and hybrid work arrangements.
While the real estate sector is poised to become one of the country’s strong economic drivers next year, property stakeholders reiterate the crucial role of the government in supporting the sector’s growth.
Leuterio said the government has to hasten its infrastructure projects and address the longstanding problem of traffic congestion. “What Cebu badly needs now is a better mass transportation system,” he said.
Uy also raised the concern about the moratorium on permits for condominium and subdivision projects in Lapu-Lapu City, saying it has already affected the company’s expansion plans in the city.
According to Uy, the moratorium on permits was initially set to be lifted in November, but the council has opted to extend it for another year.
“There will be no new launches. So the inventory is limited. Developers will be able to sell easily the existing units,” said Uy.
He clarified that while they understand the Lapu-Lapu City government’s intent to implement projects like road widening and initiate the skyway project, the extension provides them with no clarity on when the moratorium will be lifted.
“Their reasons are valid, but for developers and investors, there is no clarity. We invested in something; we want the return on our investments as soon as possible. If you keep on extending (the moratorium), this will discourage developers,” he said.
Leuterio said the government should relax its policies and practice ease of doing business as property developments have a multiplier effect on the economy.
“Real estate creates more jobs and generates taxes,” he said. “Why pressure developers when they are the ones who will change the economic landscape of the city?”