MANILA - Prime Philippines, a Filipino-led real estate advisory firm, said it expects a rise in non-performing loans (NPLs) from both real estate buyers and real estate developers later this year.
Prime Philippines CEO Jet Yu said both real estate buyers and developers this year will be hard pressed by the cumulative 350 basis points in interest rate hikes last year, as well as an expected continuation of rate hikes this year.
Aside from this, Yu said developers and buyers will also have to deal with inflation as construction costs have risen about 30 to 40 percent compared to 2019 levels.
"So it is creating a lot of impact at their bottom line. So there are also developers who have buildings that were already completed but [are] still facing challenges because they are still paying the interest, loans, debts to the banks," Yu said.
Yu said he expects the real estate-related NPLs to rise practically across the board "from real estate developers, all the way up to OFWs, normal working class, who have condominium units, houses, residential lots."
For this reason, Yu is hoping for immediate progress in reducing local inflation, as this would ultimately lead to a delay or possibly even a reversal in interest rate hikes.
“Hopefully, the soonest time possible the government can control the inflation rate, because it is creating a lot of negative sentiments also for real estate developers and occupiers."
Based on the latest data from the Bangko Sentral ng Pilipinas, real estate activities have been driving loan growth rising 13.1 percent year-on-year in December.
Meanwhile, BSP monitoring of real estate loans shows that the number of residential real estate loans granted for all types of new housing units in the Philippines fell by 4.2 percent year-on-year in the third quarter of 2022. Quarter-on-quarter, however, there was an acceleration in housing loans of 19 percent.
Based on the BSP’s monitoring of non-performing loans, or loans that have fallen past due because of non-payment, the ratio of such loans to the total loan portfolio of the banking system is only 4.04 percent as of November 2022. The peak of the past due ratio for 2022 was 5 percent, which was hit in February.
However, Yu said there are still some bright spots, particularly in office space outside Metro Manila, as well as industrial real estate.
He said the PDP 2023-2028 focus on attracting more investment into industrial activities in the Philippines should also be a positive.
“We are seeing that consistently, the industrial sector, the industrial market will continue to drive the property sector. We have already recorded over 90 plus occupancy rate across the Philippines. And not only that, [the] industrial sector is the only property sector that recorded positive rental rate increase year-on-year averaging at 10 percent."
Prime advised many of its clients to diversify into open industrial parks, and industrial compounds to cater to the upcoming demand, Yu said.
“For the office sector, there are 2 areas that are still bullish: that is Davao City and Iloilo city, which are the only 2 locations with 90 plus percent occupancy rate. Primarily because they have very limited office [space] supplies and given the decentralization that is happening."
Apart from this, the resilient cash flows provided by overseas Filipinos and Business Process outsourcing is expected to continue to provide support.
“We still see some resilience, given the strengths, the position of the country with OFWs and the IT BPO sector supporting the economy.