MANILA - Prime Philippines CEO Jet Yu is forecasting some troubled times for both real estate buyers and developers this year, due to cumulative 350 basis points in interest rate hikes last year by the Philippine Central Bank, 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.
“Recently I have spoken to a few real estate developers. One, some of them have projects under construction. So obviously it is creating pressure because it is not only the interest rate that is the threat here, it is also the construction cost. Construction cost has already rose to about 30 to 40% comparing 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 still facing challenges because they are still paying the interest, loans, debts to the banks. What we are seeing, at least by the end of the year, obviously there will be some increase in non-performing loans," he said.
Yu expects the real estate-related non-performing loans (NPLs), or loans that have fallen past due because of non-payment, to rise practically across the board.
“Non-performing loans on institutional side, from real estate developers, all the way up to OFWs, normal working class, who have condominium units, houses, residential lots that they have acquired during the pandemic," he said.
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," he said.
Based on the latest data from the Bangko Sentral ng Pilipinas (BSP), real estate activities have been driving loan growth rising 13.1 percent year-on-year in December.
Meanwhile, BSP monitoring of real estate loans show 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.
Looking at the BSP’s monitoring of NPLs, 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 ration for 2022 was 5 percent hit in February.
However, Yu still sees some bright spots, particularly in office space outside Metro Manila, as well as industrial real estate.
He said the Philippine Development Plan 2023-2028 focusing 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, industrial sector is the only property sector that recorded positive rental rate increase y-o-y averaging at 10 percent. (2021-2022) So this is a very promising sector, and we have advised many of our clients to diversify to this kind of business, open industrial parks, 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 supplies and given the decentralization that is happening," he added.
Apart from this, the ever-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. We expect these revenues we derive from these sectors can stimulate the economy and affect positively the different property sectors. For IT BPO that would be the office spaces, for the OFWs, a lot of it would be put into housing investment, condominium unit investments," Yu said.
non-performing loans, interest rates, inflation, real estate, foreign investment, rural development, ANC, ANC promo