Tag: passive-income

Condominium oversupply, geopolitical risk, and the 2028 election: an economic view

Metro Manila’s condominium market is under strain. Thousands of units remain unsold, vacancies are high, and rents in several districts are still far below their pre-pandemic levels. Some observers see structural oversupply; others argue that good location and management still set strong properties apart from weak ones.

The real question is broader: is this an ordinary real estate cycle, or a structural imbalance that global instability and the 2028 presidential election could prolong?

The evidence points to the second, but not to a crash. Metro Manila is going through a slow, uneven adjustment caused by a mismatch between the housing being built and what households can actually afford.

What the numbers show

Unsold condominium inventory stood at about 82,900 units in the second quarter of 2026, enough for 34 months of sales. By the third quarter it had dropped to about 80,000 units and 28 months, as take-up rose 17% to 8,454 units. Demand has not disappeared. But one good quarter does not clear an inventory that would still take more than two years to sell, and residential vacancy remains near 25%.

The adjustment is also uneven. Second-quarter rents compared with pre-pandemic levels:

District	Rent (₱/sq.m./month)	Change vs. pre-pandemic
Bay Area / Pasay	706	−59%
Alabang / Muntinlupa	715	−42%
Ortigas / Mandaluyong	729	−25%
Makati	887	−18%
Bonifacio Global City	1,105	+0.1%
Other Taguig	715	+15%

The Bay Area was hit hardest: heavy new supply, followed by the loss of tenants after the 2024 ban on offshore gaming operators (POGOs), left vacancy there near 58%. BGC, by contrast, has held its ground. There is no single Metro Manila condominium market, only district markets in very different conditions.

A housing shortage alongside unsold units

Metro Manila had a housing backlog of about 819,000 units in 2025, yet some 80,000 condominium units sit unsold. The contradiction disappears once we separate housing need from effective demand: what households are actually able to pay for at today’s prices. Developers build for the second, not the first.

The numbers make the gap plain. The median NCR family earned about ₱33,672 a month in 2023 (PSA Family Income and Expenditure Survey). Two-thirds of unsold units are priced between ₱4 million and ₱12 million. A ₱4 million unit with 20% down, a 20-year loan, and an illustrative 7% interest rate costs about ₱24,800 a month: roughly 74% of that family’s income, before dues, utilities, and taxes. A ₱12 million unit would cost more than twice the family’s entire monthly income.

Metro Manila does not have too much housing. It has too much of the wrong housing for the households that need it.

Why prices have not crashed

Real estate adjusts slowly. Developers and owners carry loans and sunk costs, and many expect a recovery, so they resist cutting list prices. The correction shows up first in other ways: longer selling periods, promotional discounts, rental concessions, and postponed launches. Watching list prices alone understates how far the adjustment has already gone.

Investor demand adds another layer. Many units were bought for rental income and capital gains, not to live in. When rents fall, returns shrink, investors stop buying, absorption slows, and rents come under further pressure. That cycle is hardest on investors who rely on rent to pay their own loans.

Good management helps individual buildings, but it mostly draws tenants from competing buildings. One property’s success is not the market’s recovery.

Global shocks and the 2028 election

The Philippines imports most of its fuel and depends heavily on remittances, so trouble abroad reaches the housing market quickly. Higher oil prices feed inflation and squeeze household budgets. Persistent inflation keeps interest rates and mortgage costs high. Conflict in host countries can hit overseas Filipino workers and the remittances that fund many home purchases. None of this adds supply; it simply weakens the demand needed to absorb the existing stock.

The May 2028 election adds domestic uncertainty. Real estate involves large, long-term commitments that are hard to reverse, so developers and investors often wait for policy direction to become clear. That waiting cuts both ways. Fewer launches would help clear the oversupply, but prolonged hesitation could slow investment and job growth. What matters is not who wins but whether economic policy stays predictable and credible.

So, will prices fall?

Three paths are possible to 2028:

• Stabilization: energy prices and inflation ease, borrowing gets cheaper, incomes rise, and the inventory is gradually absorbed.
• Prolonged adjustment: affordability stays tight and investors return slowly. Vacancies persist in oversupplied districts and effective prices drift lower in places.
• Adverse shock: a new geopolitical crisis brings higher inflation and tighter credit. Combined with forced selling by stretched investors, it produces a deeper, longer correction.

The second path is the most likely. A full collapse cannot be inferred from condominium oversupply alone. That would take widespread financial distress, heavy leverage, and forced selling across other property sectors, and the evidence for those is not there.

A correction would not be all bad. Lower rents leave tenants more to spend, more affordable units improve access to jobs, and less speculative building frees capital for productive uses. Rising prices are not proof of economic success, and falling prices are not proof of failure.

The real question is not whether Metro Manila’s property prices will fall. It is whether the coming adjustment will finally close the gap between the housing being built and the housing Filipinos can actually afford.

*Figures are from published Q2–Q3 2026 property-market research and the PSA 2023 Family Income and Expenditure Survey; the scenarios are conditional assessments, not price forecasts.

Augusto B. Agosto is an economist and a licensed real estate consultant, appraiser, and environmental planner.

In the previous article, I discussed the relationship between engineering and appraisal, particularly when valuation involves buildings, machinery and equipment, and other technically complex improvements.

Real estate appraisal is the professional domain of the appraiser. The increasing technical complexity of a property does not change that. What it does change is the nature and extent of the technical evidence the appraiser may need from engineers and other specialists in developing a credible opinion of value. Engineers provide essential evidence about the physical asset — its specifications, capacity, condition, performance, technical life, and replacement requirements.

In today’s volatile property market, even fully leased buildings can face uncertainty when interest rates rise and yields compress. One of our clients is a developer with a 30-storey, 76-unit office tower in Bonifacio Global City. They sought clarity on whether their investment was still performing as expected. Through econometric analysis, we transformed complex market data into actions. This gave them financial insight that helped them see beyond occupancy rates. They focus on true value, risk, and return.

The Client’s Challenge

A private developer approached our team with a critical question:

“Is our 30-storey, 76-unit office building in Bonifacio Global City still financially viable under current market conditions?”

The client had completed construction two years earlier. The building was fully leased. They were concerned about rising interest rates. Modest rental escalations are eroding investment returns.

The property’s leasing structure appeared competitive. It includes a mix of bare-shell and fitted office units. These units range from PhP1,500 to PhP1,800 per sqm per month. However, management wanted to know if the building’s cash flows truly reflected its economic value. They questioned whether adjustments in pricing, escalation, or capital structure were necessary.

In short, the challenge was not occupancy — it was understanding profitability in a tightening capital market.

Our Approach

Instead of relying on conventional yield assumptions, our team applied econometric modeling. This is an analytical framework that links property-level performance to measurable macroeconomic drivers.

We began by reconstructing the building’s income statement. We also reconstructed rental schedules across 76 office units and all 30 floors. We factored in current lease terms and 3% annual escalations. Additionally, we used observed market data from Pinnacle Real Estate Consulting and Arcadis Philippines.

From there, we derived two distinct discount rates using both finance-based and property-specific risk models:

Method	Formula	Result
Finance-Based (CAPM)	R=Rf+β(ERP)+SRP	17.40%
Real Estate Build-Up	R=Rf+∑RiskPremiums	13.16%

Each parameter was anchored to empirical data. This includes the risk-free rate, beta, and risk premiums. These were tied to data from the Bangko Sentral ng Pilipinas, PSA inflation series, and Damodaran’s country risk tables.

By integrating these variables, we aligned the building’s valuation with economic reality rather than static, one-size-fits-all assumptions.

Findings: Translating Data into Decision

Our projection model covered a 10-year period, reflecting the economic life of the building’s interior improvements.

Discount Rate	Present Value of Cash Flows (PhP)	Fit-out & Equipment Cost (PhP)	NPV (PhP)	Interpretation
13.16%	11,801,358	12,472,358	–671,000	Breakeven (stabilized scenario)
17.40%	10,655,646	12,472,358	–1,816,000	Slightly negative (equity scenario)

Despite the modest NPV results, the cash inflows were sufficient to recover the capital outlay within the project’s economic life. This indicated a financially balanced asset — not speculative, but self-sustaining and capital-preserving.

The key insight for the client was that profitability was not being lost. It was simply redefined by changing macroeconomic conditions. In other words, the property’s yield had adjusted to reflect a maturing market.

We extended the analysis to examine how the project would perform under various economic shocks:

• A 1% increase in the discount rate (e.g., due to rising interest rates) would reduce the property’s value by approximately PhP700,000.
• A 1% increase in rental escalation would improve valuation by about PhP500,000.

This confirmed that interest-rate and capital-market movements have a greater effect on value than marginal rental adjustments.

The adopted PhP1,800 per sqm rate for fitted offices is advantageous. It places the property squarely within the prime BGC rental range of PhP1,400–PhP1,900. The effective yield is 7–8% per annum. This is a level consistent with institutional benchmarks in Metro Manila’s investment-grade office sector.

The results of the econometric analysis allowed the client to make well-informed and financially sound decisions. Our findings confirmed the current rental rate structure of PHP 1,500 to PHP 1,800 per square meter per month. This rate was aligned with prevailing market conditions. These rates match the conditions in Bonifacio Global City. Attempting to increase the rates further would risk higher tenant turnover without producing a proportional increase in building value. Hence, the most strategic course was to maintain existing rents, ensuring consistent occupancy and stable revenue streams.

Second, the study validated the client’s 3% annual escalation policy. It demonstrated that this policy accurately reflected the average inflation rate. It also matched the standard lease renewal adjustments in the area. This approach ensured that income growth would remain sustainable and competitive, balancing tenant affordability with long-term asset performance.

Finally, we advised the client to reclassify the building’s investment profile—from a short-term growth-driven asset to a core income property. This repositioning recognized that the building had already reached stabilization, with 100% occupancy and predictable cash inflows. The property could now serve as a capital preservation anchor within the client’s portfolio. It would provide reliable income to offset higher-risk, higher-yield developments elsewhere.

What initially seemed like a modest or even negative Net Present Value (NPV) was reinterpreted. It became a measure of financial efficiency. The building’s inflows matched its cost of capital. This indicated that it was performing exactly as expected in a mature market like BGC. Through this shift in perspective, the client gained a clearer understanding of the property’s value. The client also gained a more strategic framework for portfolio management, anchored in data, discipline, and economic logic.

This case highlights how econometric reasoning transforms real estate valuation from a static appraisal into a dynamic decision-making tool. We treated rents, yields, and escalation rates as variables linked to broader economic conditions. This approach helped us uncover not just the property’s value but also the logic behind it. The client learned that a neutral or breakeven NPV is not necessarily a weakness. It can signify equilibrium and maturity in a market. In this market, stability is the new form of strength.

For investors, the key takeaway is that macro-driven valuation brings clarity in times of uncertainty. Understanding how discount rates move with monetary policy provides a sharper sense of timing. Recognizing how escalation aligns with inflation sharpens your understanding of risk and opportunity. For developers, the lesson is strategic. Once a building reaches full occupancy and stable returns, it should be viewed as a core income asset. This asset anchors the portfolio and preserves capital rather than being seen as a speculative venture.

Ultimately, the study demonstrates that data and discipline lead to confidence. In Bonifacio Global City, every percentage point of yield and risk can mean millions in value. Econometric analysis offers a distinct advantage. It gives clients the ability to move beyond intuition. Consultants can also ground their investment strategies on measurable, defensible evidence.

By: AB Agosto, JD, REA, REB, REC, MA Economics (University of San Carlos)
Paralegal – Real Estate, Environmental & Corporate Law