This is the conclusion of my feature on Davao City as a viable property investment hub. The city remains an attractive site for outsourcing companies and its competitiveness spills over to the residential sector.
Davao City is deemed a residential hotspot in Mindanao and is a preferred site of both end-users and investors.
The sustained demand over the past four years has encouraged national and homegrown condominium and house and lot developers to invest in the city.
However, Colliers believes that the demand is likely to be curtailed by the COVID-19 pandemic while supply will likely be pared down due to quarantine measures. We believe that over the next few years, buyers are likely to prefer units within integrated communities and near infrastructure projects Aside from highlighting these features, developers should also look at alternative sites.
Pared down supply
Colliers sees slower condominium completion in 2020 due to construction delays.
Like Metro Manila, Davao City was also placed under a lockdown, which affected the construction of condominium projects all over the city.
In our opinion, the city and national governments as well as the private developers are likely to implement physical distancing measures throughout the end of the year, which may delay a number of residential projects. Hence, from our initial estimate of 2,940 units, we see a delay of close to 1,000 units or a third less compared to our original forecast.
Preference for vertical
Colliers recorded an annual average take-up of 4,500 units for condominium projects in Davao City from 2016 to 2019. Launches during the period stood at 4,700 units per year. Demand in the city practically matches annual condominium supply.
Colliers believes that Davao City has become a viable residential hub in Mindanao due to its competitiveness. The 2019 Cities and Municipalities Competitiveness Index ranked Davao as the third most competitive in the country based on economic dynamism, government efficiency, infrastructure and resiliency.
Former Davao Mayor Rodrigo Duterte’s election as Philippine president further raised interest in the city and has since transformed Davao into a preferred residential haven even by those from nearby cities and provinces. In our opinion, Davao will likely sustain its attractiveness as a property investment hub even beyond the term of President Duterte.
At present, the major concern is the economic impact of the COVID-19 pandemic on both investor and end-user appetite for condominium units. The slower leasing of office space in the city is indicative of businesses’ wait-and-see stance and this cautious outlook is likely to affect the condominium market.
COVID-19 to affect house and lot demand
The mid-income and affordable house and lot segments recorded a strong take-up in 2019. These are the housing segments that command an average price of between P1.7 million and P6 million. In 2019, both segments accounted for 66 percent of total demand in Davao City.
The latest available data from the Philippine Statistics Authority (PSA) showed that Davao region is one of the major sources of OFW deployment among the Visayas and Mindanao regions.
Colliers believes that demand for house and lot will likely be affected by the slowdown in OFW remittances. Some government officials and economic think tanks are forecasting a drop of between $3 billion and $6 billion (P153 billion to P306 billion) in remittances in 2020.
In our opinion, this is likely to derail residential take up for both house and lot, and condominium segments. We see a greater impact on the house and lot segment as this is primarily end-user demand driven. Anecdotally, OFWs looking for larger lots are among the major drivers of this residential segment.
So how should property developers and investors seize opportunities in the city?
Highlight residential projects in integrated communities
The COVID-19 pandemic has highlighted the need to be in an integrated community.
In our opinion, Davao City will likely remain an attractive residential option for both end-users and investors in Mindanao post-pandemic. But the demand for residential projects, whether house and lot or condominium units, will likely hinge on integrated features, i.e. unit owners can easily access essential goods and services.
Hence, we encourage developers to highlight the integrated features of their residential projects as this will likely be among the major considerations of unit owners even after the lockdown and COVID-19 pandemic. Residential units in townships currently make up 16 percent of Davao’s existing condominium stock and we expect that 35 percent of the upcoming supply from 2020 to 2022 will come from these integrated communities. Residential investors and developers should also highlight access to clinics and health facilities as this will be a major consideration of residential buyers going forward.
Bank on infra projects
In our opinion, developers should highlight the price appreciation potential of land and residential projects that are planned near key public projects lined up by the government, including Davao Coastal Road, Davao Monorail, Mindanao Railway Project (MRP) and the Davao Bus Rapid Transit (BRT).
These projects are likely to help spur demand for residential projects even beyond the COVID-19 pandemic. Colliers believes that Davao City, being a preferred business location in Mindanao, will be major beneficiary of the government’s massive infrastructure push.