Home prices inch up in Q1, but higher interest rates to dampen ascent

MANILA, Philippines — Filipinos were increasingly bullish on the property market as residential real estate prices continued to rise in the first quarter, but an analyst expects purchases to slow down as the Bangko Sentral ng Pilipinas began hiking interest rates.

Data released by the central bank on Thursday revealed the Residential Real Estate Price Index, a measure of the average change in the prices of various types of housing units, inched up 5.6% year-on-year in the first quarter.

The BSP noted the figures were consistent with the consumer expectations survey that found a higher percentage consumers looked to purchase real estate in the first quarter.

Introduced in the first quarter of 2016, the RREPI is based on banks’ data on actual mortgage loans granted to acquire new housing units only.

On a quarterly basis however, property prices inched down 1%.

Positive news aside, BSP data showed bank loans taken out to buy new houses shrank 9.2% year-on-year from January to March despite historically-low interest rates. The BSP explained this decline was mainly due to a 39.3% contraction of bank loans from Metro Manila in the same period.

Data dissected, prices of shelter in Metro Manila rose 9.5% year-on-year in the first quarter, slower compared to the 5% increase in the final quarter of 2021. This uptrend was driven by pricier condominium units and townhouses, counteracting the decline in prices of duplex housing units and single-detached/attached houses.

Quarter-on-quarter, home prices in the National Capital Region skidded 3.5%.

For Domini Velasquez, chief economist at China Banking Corporation, the start of the BSP's tightening cycle will have an impact on the public's appetite for real estate.

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"Growth of residential real estate prices may slow down due to possible increase in home lending rates, especially as we see the BSP gradually increasing its policy rates. A similar trend is evident in the US, where housing sector activities have softened due to higher mortgage rates," she said in a Viber message. 

Velasquez noted interest for real estate purchases "remain strong" as the economy reopened a month ago, especially among young and middle-income Filipinos.

Outside Metro Manila, home prices rose 5% year-on-year in the first quarter.

"Current inflation will only mildly affect the demand for housing given that housing is a longer-term investment and largely insulated from short-term price fluctuations," Velasquez said.

"But cost of housing, e.g. increase in the price of cement, bank interest rates, and the like will affect buyers decisions for this year and the next," she added.