The recent decision by the Bangko Sentral ng Pilipinas (BSP) to lower interest rates by 25 basis points is expected to benefit demand across key segments of the Philippine property market, according to experts in the field.
“Despite the Philippine Peso being the worst-performing currency, and headline inflation spiking towards the tail-end of Q2 2024, the off-cycle reduction in short-term interest rates by the BSP will positively impact demand growth for key property segments in the Philippine property market,” said Claro Cordero, Director and Head of Research, Consulting & Advisory Services at Cushman & Wakefield, in a statement.
Cordero added, “The decrease in key policy rates will foster more positive forward-looking expectations of more significant reductions and set a more positive investor mindset, allowing more unlocked investment deals in the medium term.”
On August 15, the BSP announced that the Monetary Board had decided to reduce the Target Reverse Repurchase (RRP) Rate by 25 basis points to 6.25 percent. Correspondingly, the interest rates on the overnight deposit and lending facilities were adjusted to 5.75 percent and 6.75 percent, respectively.
“With inflation on a target-consistent path, the current macroeconomic outlook supports a calibrated shift to a less restrictive monetary policy stance. Nonetheless, monetary authorities remain mindful of lingering upside risks to prices,” the central bank stated.
The BSP emphasized that the Monetary Board will continue to take a measured approach in ensuring price stability, conducive to balanced and sustainable economic growth and employment moving forward.
Market outlook and geopolitical risks
Cordero noted that despite the reduction in interest rates, the long-anticipated recovery of the Philippine property market may still be delayed due to various headwinds.
“Given the varying degrees of geopolitical, climate, and interest rate risks present in the Philippine property market, the long-expected return to the recovery track is at bay for an extended period. While most asset types have exhibited healthy growth of demand drivers, the overall industry outlook is nuanced due to various market headwinds,” he said.
As it earlier anticipated an interest rate cut, Leechiu Property Consultants (LPC) in July said that beyond stabilizing real estate values in the immediate term, interest rate reductions are expected to have significant near- and long-term ripple effects, fostering a more confident market sentiment.
“Improved access to financing is poised to empower developers, enabling them to launch more projects, activate dormant land banks, and acquire additional properties for future development,” LPC said earlier.
It added that declining interest rates are likely to bolster confidence among buyers and investors, enhancing their ability to manage mortgage obligations and facilitating participation in new developments.
“As the likelihood of rate cuts increases, we anticipate seeing a boost in transaction volumes and overall activity. With a more affordable cost of borrowing, buyers will likely feel more confident to reinvest, subsequently enabling developers to kickstart planned projects and expand their land holdings for future development,” LPC Director of Investment Sales Tam Angel said earlier.
Residential price growth remains muted
Meanwhile, Cushman & Wakefield noted that as the more significant reduction of the benchmark interest rate continues to be pushed back, a relatively tamed residential price growth is expected.
“This anemic capital value growth, especially for the middle-income market, will be more highlighted due to increased levels of new and existing supply on the market and constrained demand attributable to affordability pressures,” the property services firm said.
Citing data from the BSP, Cushman and Wakefield noted that overall residential real estate prices in the first quarter of 2024 grew significantly slower year on year at 6.1 percent from 10.2 percent in the same period last year and 6.5 percent in the fourth quarter of 2023.
On a quarter-on-quarter basis (QoQ), however, residential prices grew faster at 1.1 percent in 1Q 2024, a reversal from a decline of 3.6 percent QoQ last quarter, driven by the recovery in prices of duplex property types, which increased by 71.2 percent QoQ from a contraction of 42.0 percent QoQ last quarter.
Moreover, residential prices of properties located in Metro Manila and outside the capital region posted growth in 1Q 2024 at 2.8 percent YoY and 7.4 percent YoY, respectively, slower than their respective performances in 4Q 2023 at 4.3 percent YoY and 7.8 percent YoY.
In Metro Manila, price contraction in single detached/attached house properties at 14.6 percent YoY (from a growth of 12.4 percent YoY in 4Q 2023) was offset by the price growth of townhouse properties at 16.7 percent YoY (from 18.7 percent YoY) and condominium units at 7.6 percent YoY (from -0.3 percent YoY).
Year-on-year growth of residential prices across all property types for units located outside the capital regions grew by 8.1 percent for single detached/attached units, 26.6 percent for duplex properties, 2.8 percent for townhouses, and 13.5 percent for condominium units.
