Philippine Markets Newsletter

MONDAY MACRO: This index is starting to show a shift in behavior, particularly as people work from home in the long run

October 10, 2021

With so many publicly-listed companies in the real estate business, it’s no surprise that real estate is always in the news, both good and bad.

However, this one emerging real estate trend seems to have gone under the radar, which this index has been showing. 

Philippine Markets Newsletter: 
The Monday Macro Report
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Just a few years ago, many investors and analysts were growing more and more concerned the Philippines was headed towards a real estate bubble.

In 2018, real estate prices in the country were steadily growing, but by Q3 2019, prices significantly jumped by an average of 12%. 

Many attributed this rapid increase to the influx of Philippine Offshore Gaming Operators (POGOs), who were driving the large demand for condominiums.

That said, although condominiums were the biggest driver of residential real estate prices in 2019, it wasn’t the only type of housing that grew during that year. Every type of housing unit displayed strong growth at the time.

Now, any concerns about a real estate bubble have been erased by the pandemic. Philippine real estate prices drastically dropped in Q3 2020 from Q2 2020 peaks, and prices have been slow to recover since then.

However, looking at the Philippines real estate residential price index as a whole can be misleading, especially during a special situation such as this pandemic.

The drop in prices in Q3 2020 was a reaction to the tight lockdown measures. In order to curb the spread of the virus, restrictions were placed on those who were considered essential workers or travelers. 

Many offices had to institute work-from-home policies, which meant those renting condominiums near their offices could choose to go back to their homes or provinces and work with limited issues.

This is why even as the Philippine economy has started to reopen, we’re not seeing real estate prices rebound at a faster pace as demand in the National Capital Region (NCR) remains muted.

However, it’s worth noting that there’s another trend flying under the radar. Residential real estate prices of areas outside NCR (AONCR) have actually returned to historical highs. Since 2020, real estate prices in AONCR have been 30% higher than 2014 prices (Q1 2014 = 100). 

We’re seeing this trend in the US where home prices exploded as people have chosen to move to less densely populated states. 

Although the exodus has been less pronounced in the Philippines, with many still relying on jobs outside the digital economy, the data seems to indicate that people are slowly moving away from Metro Manila.

The popularity of work-from-home arrangements due to the pandemic has made living or traveling to NCR for work largely unnecessary.

As a result, if work-from-home becomes even more prevalent in the coming years, we will likely see real estate prices in AONCR reach new highs and become a bigger influence to the overall index.

Another reason why real estate prices in NCR may take longer to rebound is that POGOs that have left the country amidst the pandemic might not return due to the imposition of a new tax specifically targeted at POGOs. This will leave a lot of office and residential units unoccupied and will reduce future demand, both of which are headwinds to residential real estate prices in NCR.

Investors with exposure to the real estate sector need to monitor these trends. With the recent listing of REITs and the resulting cash that companies have amassed, it would be interesting to see how the different real estate companies will look to capitalize on the situation in the coming years.

If the mentioned trends do develop, we will likely see these reflect over time in the Real Estate Residential Price Index.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available. 

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data. 

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms. 

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful. 

Stay tuned for next week’s Monday Macro report! 


Angelica Lim 

Research Director
Philippine Markets Newsletter
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