Recovery in real estate projected next year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is anticipating the real estate market to recover amid the expected rebound in overall economic growth next year after slumping last year due to pandemic-related uncertainties.

BSP Governor Benjamin Diokno said the real estate and construction subsectors have started to recover in the second quarter after contracting throughout 2020 and the first quarter of 2021.

Diokno traced the improvement to the gradual easing of restrictions on mobility and economic activity.

“The BSP anticipates that activity in the real estate market will recover in line with rebound in overall economic growth in 2022,” Diokno said.

The BSP chief said real estate demand slipped due to the uncertainties brought about by the global health crisis as capital values for office and residential units in the country’s major commercial and business districts slumped in 2020.

Based on the latest Residential Real Estate Price Index (RREPI), the residential real estate prices of various types of new housing units declined further in the second quarter. Nationwide house prices contracted by 9.4 percent year-on-year in the second quarter this year, slower than the 4.2 percent contraction in the first quarter as the COVID-19 pandemic hit demand.

“However, high base effects may also have contributed to the significant decline during the period as the index peaked in the second quarter of 2020 while posting a 4.8 percent increase quarter-on-quarter,” Diokno said.

Likewise, Diokno pointed out the national Commercial Property Price Index, which measures the average changes in appraised values of commercial properties, showed a deceleration in growth in the second half of last year.

According to Diokno, the real estate industry is viewed as an important sector in the BSP’s conduct of monetary policy and financial supervision.

“First, asset prices affect volatility in general price levels and economic output.

Also, volatility in asset prices, which could result from undue speculation or bubbles, may give rise to widespread financial instability, he said.

Diokno said real estate is a credit-intensive good, but is one of the most illiquid assets of financial institutions.

The BSP chief explained that the central bank’s policy actions affect the movements and behavior in the property market.

For one, he said a hike in policy rate lowers the value of asset holdings of individuals and financial institutions, potentially making credit financing more costly for both buyers and property suppliers.

Real estate loans grew by 6.1 percent to P2.3 trillion as of end-June this year. The real estate exposures of banks are largely composed of real estate loans at 85.4 percent of the total.

Likewise, banks have also invested in debt and equity securities, the proceeds of which are used to finance real estate activities, although at a smaller magnitude.

Diokno said banks have remained prudent in their assessment of real estate loans as the ratio of overall non-performing real estate loans to total real estate loans remained at single digit level.

“The BSP foresees that lending to the sector will remain a priority area for banks for the years ahead,” Dioko said.

He added that the First Semester Banking Outlook Survey indicated that lending to real estate activities would be among the primary services of corporate and retail segments of banks for the next two years.

Diokno cited the firm demand for real estate given the national government’s strategy of establishing safe, resilient and sustainable communities under the Philippine Development Plan.

“There is greater urgency to achieve this goal now more than ever due to the propensity of the COVID-19 virus to propagate in densely populated