‘Property developers cut capex as housing glut weighs on sales’

Manila, Philippines — Philippine property developers are cutting back on expenditure and reallocating more funds to income-generating assets as a surplus of housing units, rising interest rates, and diminished purchasing power continue to impact residential sales, according to S&P Global Ratings. S&P's report highlights the heightened inventory levels, which will keep residential sales sluggish, prompting developers to bolster their financial stability through more stringent capital expenditure and a heightened emphasis on investment properties.

S&P stated, "Elevated inventory levels will dampen residential sales. Developers are enhancing resilience through disciplined capital expenditure and increased focus on their investment portfolios."

The contraction in property sales slowed to a 7% year-on-year decline in the first half, down from an 11% decrease in 2025; however, the inventory of ready-to-occupy properties remains substantial, suggesting developers still possess a considerable stock of completed units to sell. Developers are reacting to the excess supply by shifting towards more affordable residential projects outside Metro Manila, where supply and demand dynamics are more balanced.

Nevertheless, higher interest rates and reduced consumer spending power could dampen demand even in the mid-market and affordable segments over the subsequent 12 months. S&P categorizes high-end residential units as those valued at P12 million or more, while properties priced below P12 million fall under the mid-end and affordable segments.

The agency anticipates a challenging environment for Philippine developers this year, projecting a GDP growth of 2.9% in 2026 and 5.4% in 2027, with inflation expected to be 5.5% this year, before easing to 3.6% next year. Supply-chain disruptions, oversupply in Metro Manila, weaker purchasing power, and rising interest rates are cited as sources of uncertainty for consumers.

Additionally, domestic banks have become more cautious towards the property sector due to the industry's strains.

Four major developers covered in S&P's aggregate analysis—Ayala Land Inc., Megaworld Corp., SM Prime Holdings Inc., and Robinsons Land Corp.—have reduced their combined 2026 capital expenditure budgets by 25% from their initial projections due to macroeconomic and industry uncertainties. More of this spending will be directed from residential development towards investment properties, which yield more predictable income and could help developers weather weak housing sales.

Recurring income, encompassing regular earnings from assets such as malls, offices, and other investment properties, has emerged as a crucial safety net for developers. S&P noted that stable recurring cash flows can offset weaker residential sales while promoting steadier leverage and earnings. Real estate investment trusts (REITs) are also providing developers with additional funding flexibility by enabling them to recycle mature, income-generating properties into listed investment vehicles and allocate capital elsewhere.

S&P highlighted that majority-owned REIT subsidiaries remain a vital source of capital for developers through asset recycling. Ayala Land obtained regulatory approval for a P19.5 billion asset injection into AREIT Inc., while Megaworld's planned asset infusion is projected to increase the gross leasable area of MREIT Inc. by 47% in 2026.

Robinsons Land, on the other hand, has proposed a P10.6 billion asset injection into RL Commercial REIT Inc., which would expand the REIT's gross leasable area by 14%. Unlike some of its Southeast Asian counterparts, the Philippine market still faces softer demand, tighter financing conditions, or both.