Rising interest rates to impact housing market

MANILA, Philippines — Rising interest rates and higher construction costs are among the headwinds in the country’s residential property market due to their potential impact on mortgage rates, according to a professional services and investment management firm.

“Colliers believes that developers need to be cautious with rising interest and mortgage rates, and the potential impact of a total POGO (Philippine offshore gaming operators) exodus on the secondary market. Compressing yields and costly construction materials could stifle launches across Metro Manila,” Colliers Philippines associate director for research Joey Roi Bondoc said in a report.

The professional management services firm said rising interest rates would affect the residential market, especially their potential impact on mortgage rates.

“The rising construction costs due to higher prices of imported raw materials are also likely to stifle launches in the pre-selling market,” it said.

Colliers said the decision of the central bank to raise interest rates would likely result in higher mortgage rates.

In September, the Bangko Sentral ng Pilipinas raised the policy rate for the fifth time this year to 4.25 percent, after the most recent 50-basis-point increase and a total of 225 basis points since May 2022, in a bid to tame the surge in inflation.

Colliers pointed out that average bank mortgage rates have also increased to 7.8 percent in the third quarter from 7.3 percent in the previous quarter and 7.4 percent in the same period last year.

“Colliers encourages investors to actively monitor interest and mortgage rates, particularly as these strongly influence the viability of residential investment,” it said.

Collier said interest rates should guide developers with their promos and payment schemes.

Meanwhile, the professional services firm said developers need to continue implementing attractive flexible payment terms given the substantial number of ready for occupancy (RFO) units in the market.

It said vacancy in the secondary residential market continues to hover above 17 percent.

“With the substantial inventory in the secondary market, developers should be proactive in offering leasing and early move-in promos for RFO projects, and we are already seeing some developers remaining aggressive in offering early move-in and rent-to-own schemes for their RFO units,” Colliers said.

It said that some developers are even allowing buyers to move-in with a down payment as low as five percent, and discounts of as much as 20 percent on total contract prices.

Meanwhile, Cushman and Wakefield Philippines said the recovery of the real estate market may slow down due to the government’s aggressive contractionary monetary policy stance.

“The aggressive contractionary monetary policy stance by the BSP, which is in sync with other central banks, prompted by the rallying prices, may slow down the global recovery, as well as delay the expected real estate market recovery in the short term as local and global locators assess the elevated uncertainties,” Cushman and Wakefield Philippines said in its latest Property Market News report.

It added that the affordable and mid-market housing segments are seen to be stirred up by the higher price for borrowing as a result of the several hikes in the benchmark interest rate.

“Households forming demand in the affordable and mid-market housing segment are expected to be impacted by the real income squeezes due to high inflation levels in the short-term to mid-term,” Cushman and Wakefield said.