Cebu, the second-biggest city in the Philippines, enjoyed a property boom in recent years as growth in the local economy outstripped that of the capital, Manila. But now demand is faltering and the southern city’s previously thriving residential sector faces short-term oversupply risks.
Growth has come partly from a flourishing business process outsourcing sector and partly from the fact that the island of Cebu, with miles of tropical sandy beaches, attracts the largest numbers of tourists in the Philippines: 3.5m foreign and local tourists visited between January and October 2015, up 4.1 per cent on the same period in 2014.
The Central Visayas region, of which Cebu is a part, had economic growth of 8.8 per cent in 2014, compared with Metro Manila’s 5.9 percent.
Land reclamation projects have opened new space for large developments and a thriving residential sector has been boosted by foreign buyers, who account for between a quarter and a third of condominium sales. Real estate in Cebu has long been seen as a safe investment and its central location helps attract investment from around the country. Property prices have risen 5 to 10 per cent a year over the past five years.
But after an increase in construction by major developers such as Ayala Land, Filinvest and Megaworld, supply in the residential market has begun to outstrip demand.
Colliers, an international property agency, estimates that condominium sales in Cebu fell 20 per cent in 2015, a sharp decline that follows the softening of the residential market in Metro Manila.
Demand has faltered under restrictions on mortgage lending introduced by the central bank in 2014 and as the prospect of rising US interest rates deterred foreign investment in property across emerging markets.
On a recent visit to Cebu, FT Confidential Research, a unit of the Financial Times, found growing caution in the residential market, with developers slowing the pace of construction and of new market releases.
Ayala Land, for example, is staggering pre-sales across its four brands: the higher end Ayala Land Premier and Alveo Land brands, and lower end Avida and Amaia.
FTCR expects the slowdown to last for a couple of years, after which supply should rebalance with demand.
Underlying demand remains solid. Cebu’s population of 3.5m is expected to grow about 3 per cent a year over the coming decade, bolstered by workers migrating from the surrounding regions and by the large numbers of college graduates and outsourcing workers attracted to the city in recent years. Financial Times.