The decreasing Vy is just a factor in getting to service ceiling. If you maintain the book Vy (which is only true at SL, standard temperature, specified weight) then you will be going too fast and have a ceiling similar to the one you originally calculated. It is the combination of decreasing Vy and the low propeller efficiency at Vy sea level (which means you have a lot more of the engines effective power as ‘excess’ than you would expect. i.e. the power used to overcome drag is substantially less than 65% of the engine power (65% being what one might expect based on 35% of rated power available for initial climb rate)
