Home prices sustain modest growth in Q3, but rising interest rates to cap ascent

MANILA, Philippines — Home prices in the Philippines continued their modest ascent in the third quarter, although higher interest rates could temper demand for shelters in the coming months.

Data released by the Bangko Sentral ng Pilipinas on Thursday showed that Residential Real Estate Price Index, a measure of average change in the prices of various types of housing units, shot up 6.5% year-on-year in the third quarter. This was faster than the 6.3% recorded a year ago.

On a quarterly basis, housing prices climbed 4.6%. This was a steep increase from the 1.6% quarter-on-quarter growth recorded in the April-June period. 

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.

BSP data showed bank loans taken out to purchase new houses contracted 4.2% year-on-year in the third quarter. The drop came as bank loans declined from areas within and outside Metro Manila in the same period. 

To recall, the BSP has turned hawkish this year to fight multi-year high inflation, a move that would increase borrowing costs for several type of loans, including home loans.

“Home prices see normal growth alongside the recovery in the economy. The modest growth should dispel outsized concerns about a real estate bubble,” Nicholas Mapa, senior economist at ING Bank in Manila, said.

“Home prices to sustain growth but rising borrowing costs should cap the increase even as the economy improves,” Mapa added.

Broken down, prices of shelter in Metro Manila ballooned to 17.5% year-on-year in the third quarter, faster compared to the 6.3% recorded in the preceding quarter. Expensive condominium units and single-detached/attached houses drove the uptrend, offsetting declining prices of townhouses. 

Quarter-on-quarter, home prices in the National Capital Region mushroomed 14.6%. Outside Metro Manila, home prices rose 2.3% year-on-year in the third quarter.

“We are looking at higher full year figures for 2022 as take up is likely to be supported by improving business and consumer outlook. More businesses are reopening and even expanding, resulting in the generation of more employment opportunities. More OFWs are also being deployed and the continued rise in remittances should further buoy this demand,” Joey Bondoc, associate director for research at Colliers Philippines, said.

“Investors and end-users, however, need to constantly monitor rise in interest and mortgage rates,” Bondoc added.