RESIDENTIAL

Residential Sector: What’s next?

PRIME Philippines Research & Advisory Group • May 22, 2020

A few months after the new coronavirus (COVID-19) outbreak, the Philippine property market, specifically the residential sector, managed to remain stable. In fact, in the first two months of the year, the residential market continued to launch some projects. Even after the implementation of the enhanced community quarantine (ECQ), it managed to continue its transactions online. There may be a slowdown, but the business kept going. 

 

It is safe to say, then, that the residential has been the most resilient among the real estate sectors in the midst of a global pandemic, but will things stay the same after the crisis? What could possibly happen to the residential market, post-COVID-19? 

 

Delay in constructions and launches 

The completion of more than 60% of this year’s upcoming projects in Metro Manila alone may carry over to 2021 due to the supply chain disruption and lack of labor caused by the implementation of the ECQ. There may be fewer project launches as well, as some developers cut their capital expenditure (capex) and adjust their cash flow strategies. 

 

Slowdown in sales and take up

Due to the extended travel ban and ECQ, increasing unemployment, and declining remittances from Filipinos overseas, a softer demand from the residential market is expected. Given the situation, developers came up with strategies to attract buyers by offering flexible payment packages and terms and exploring creative leasing schemes (i.e. co-living). Sales and take-up will likely soften, as well, as most of the potential buyers (i.e. OFWs, local and foreign investors, end-user buyers) would try to conserve cash while assessing the situation. The residential sector recorded a 4.8% drop in sales take-up from its 99.1% in 4Q19 to 94.3% in 1Q20. Despite the slowdown, sales are expected to be sustained post-COVID, considering that the mid-market segment still has a stable cash flow from receivables. 

 

Redevelopment of residential projects

Once the ECQ has been lifted and the pandemic is over, things will never go back to how they were before, but rather, revolve around the new normal. So, it is expected for residential projects to be redeveloped according to what the new normal would be, which may include: (1) larger unit sizes and lower unit densities per floor for privacy; (2) hands-free facilities and disinfecting rooms for hygiene and sanitation; and (3) CCTVs all over the place for safety. 

 

Capitalization on technology

With the COVID-19 outbreak, the residential market started to capitalize on technology by conducting virtual tours and performing online transactions to reduce the stigma brought by the pandemic and to keep its business going. This practice, however, may continue even after the pandemic as people are likely to become more cautious than ever. 

 

As the virus continues to affect the country and its economy, it is expected to have a drop in demand and slowdown of take-up in the residential market; however, if the virus is contained and market sentiment improves within this year, the residential sector is seen to bounce back in a year. 

 

The COVID-19 pandemic may have adversely affected the residential market, but it also highlighted the importance of having a safe place to stay in in times of crisis. After the pandemic, consumers will certainly focus on buying essentials and may hold off any plans of investing in the residential market but will never disregard them as everybody will need their own home, one way or another.

Tags:
PRIME Philippines, real estate, residential sector in the philippines, residential construction, effect of COVID-19 to residential sector, COVID-19
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