Interest rate hikes may impact Philippine real estate market

Philippine real estate market

The Philippine real estate market may be impacted by continued interest rate hikes being carried out by Bangko Sentral ng Pilipinas (BSP). The central bank has raised rates five times in 2022 as it looks to curb inflation. However, this move also affects mortgages with increases meaning it costs more for people to take out a home loan.

“The aggressive contractionary monetary policy stance by the BSP (Bangko Sentral ng Pilipinas) 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 & Wakefield Philippines opined in a recent report.

Inflation came in above six percent in both August and September and the BSP has already said more additional rate increases may be in the pipeline should the situation fail to improve over the coming months.

According to Cushman & Wakefield Philippines, the affordable and mid-market housing segments are the most vulnerable. Facing higher prices for things like food and gas, buyers in these areas may opt to delay homebuying decisions until rates are more favorable.

“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,” the consultancy explained.

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Philippine real estate market rebound may be short lived

The Philippine real estate market was seeing a recovery earlier in 2022 as people began returning to work. Offices across Metro Manila are resuming in-person operations which is fueling increased activity there. Meanwhile, locations outside of the city near infrastructure projects continue to be in demand from property seekers.

“The residential segment is finally seeing a gradual market correction after both the demand and new launches were postponed at the height of the pandemic,” Claro Cordero Jr., Director and Head of Research, Consulting and Advisory Services Cushman and Wakefield, stated. “The segment will continue to build momentum along with the improving business environment, with the demand for properties in the provincial areas with strategic locations and infrastructure developments to remain robust.”

However, the BSP’s aggressive rate hikes may pour cold water on the recovery, at least in the short term.