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Rate hikes may derail real estate sector recovery

The Philippine real estate sector’s recovery may be derailed by the Bangko Sentral ng Pilipinas’ (BSP) aggressive rate hikes, according to Cushman & Wakefield Philippines.

“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,” the real estate services firm said in a recent report.

Last month, the BSP raised its benchmark policy rate by 50 basis points (bps) to 4.25% as it seeks to tame inflation. Rates on the overnight deposit and lending facilities also rose by 50 bps to 3.75% and 4.75%.

Since May, the Monetary Board has raised rates by 225 bps.

Cushman & Wakefield said demand for affordable and mid-market residential projects may take a hit amid the rise in borrowing costs.

“The affordable and mid-market housing segments are seen to be stirred up by the higher price for borrowing as the 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,” it said.

Inflation accelerated to 6.9% in September, from 6.3% in August and 4.2% in September 2021, driven by higher prices of food, utilities and transport.

September also marked the sixth straight month that inflation breached the BSP 2-4% target band this year.

In the first nine months, inflation averaged 5.1%, higher than 4% a year ago but still below the BSP’s 5.6% forecast for the full year.

Despite higher prices of many goods, the retail sector’s recovery may get a lift as many Filipinos return to on-site work and students go back to school for face-to-face classes, Cushman & Wakefield said.

“The increase in the number of employees that have returned to work in the office, as well as the return to face-to-face classes of many educational institutions, are seen to buoy the recovery of the retail segment amidst the rising prices of consumer goods,” it said.

Also, Cushman & Wakefield said the hospitality sector’s rebound may also be affected by elevated global inflation.

“The recent uptick in visitor arrivals has aided the strong domestic travel appetite in increasing the recovery pace of the hospitality segment from its turbulent period during the COVID-19 crisis. The long-term outlook for the hospitality segment hinges on the sustained easing of international travel restrictions, whilst the global inflation crisis may dampen international tourism flows in the short-term,” the real estate service firm said.

By: Cathy Rose A. Garcia, Business World

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