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Business World, 08-28-2013

ON TREND with the performance of the Philippine real estate industry as a whole, prospects for the country's high-end and luxury residential property markets, particularly the condominium segments, are looking quite bright but not as bright as the prospects for the middle end market.

"There is a very thin line between luxury and high-end condominiums," said Angela Manese, residential sales and leasing executive for KMC MAG Group, in an interview. She explained that the terms are often used interchangeably, but a few characteristics differentiate one from the other. For instance, luxury condominiums usually have lower densities as opposed to high-end condominiums. A luxury development would typically have anywhere from two to four units per floor, while a high-end one would have closer to eight to 12 units.

Furthermore, while both market segments typically have the same type and quality of amenities, because of density, their difference lies in the number of people who use them. "For example, there are high-end developments that have huge amenity levels, but [the amenities] are shared by about three towers," said Ms. Manese. "Luxury developments, [on the other hand], have about the same [amenities], but [these are] shared by one or two towers at most."

Despite these, however, high-end and luxury condominiums remain very similar, with a clearer distinction existing between high-end and middle end developments. Ms. Manese explained that for luxury and high-end condominiums, unit cuts are usually at least 150 square meters, and can reach up to about 400 or 500 square meters. Selling prices also fall within the same area, at about P190,000 per square meter.

According to KMC MAG Group consulting and research associate Antton Nordberg, however, prices of luxury condominiums are also more prone to fluctuation. "It's at least P190,000, but it can reach around P300,000 to P400,000 [per square meter]," he said. Mr. Nordberg also explained that given that the supply for high-end and luxury condominiums is going to be limited, prices will most probably continue to rise at the current rate of 6% to 9% per annum. However, a high vacancy rate, especially in the high-end market, could also keep the price increase at a moderate level.

In terms of residential rents, Colliers International reported that in the last quarter of 2012, the average rent for luxury three-bedroom units in the Makati central business district (CBD) was at P720 per square meter per month, which would translate to a monthly rent of about P180.000 for a 250 square meter unit. The same report also noted that average rents in both the Makati CBD and Bonifacio Global City (BGC) had been at parity since the second quarter of 2012. Rockwell Center, on the other hand, remained the most expensive area on a per square meter basis at P800 monthly. The report also said that rents were expected to improve by more than 6% in BGC and the Makati CBD, and by over 7% in Rockwell Center by the end of 2013.

In the first half of this year, the high-end and luxury market segments posted an increase in both capital values and rental values, reflecting the positive performance of the local real estate industry as a whole. "From 2009 to the first half of 2013, the compound annual growth rate (CAGR) of inflation adjusted selling prices of preselling luxury residential condominium developments is estimated at around 8%, while the CAGR of capital values of existing high-mid/luxury residential condominium developments is estimated at around 3% within Metro Manila," said Jones Lang LaSalle Philippines research, consulting, and valuation advisory head Claro Cordero, Jr. in an Aug. 13 post on the Jones Lang LaSalle blog. He added that growth of demand for residential accommodations was driven by the steady growth of remittances from overseas Filipino workers, as well as by the phenomenal growth of the business process outsourcing industry.

The market for high-end and luxury condominiums is composed of a good mix of local and foreign investors, expats, and other high income individuals. The developments are usually located within Metro Manila's three CBDs, and include Discovery Primea in Makati; St. Francis ShangriLa and One ShangriLa Place in Ortigas; and Essensa, Regent Parkway, Pacific Plaza, and the Grand Hyatt Residences in Bonifacio Global City. The Rockwell Center in Makati City also holds a number of high-end condominiums.

There are only about three high-end residential developments under construction at the moment, but the middle end market, on the other hand, seems to be flourishing.

"The market now is leaning toward middle end developments; the middle income families are the major target since the volume is there," said Ms. Manese. "Their purchasing power is also increasing so this seems to be the current sweet spot for developers as shown in the small number of high-end developments now and the concentration on the middle end market."