Rates down, prospects up: Analyzing the impact of BSP’s rate cut

The more significant effects of the BSP’s rate cut will be felt in the real estate market.

As was widely expected, the Bangko Sentral ng Pilipinas (BSP) reduced its key policy interest rate from 6.5 percent to 6.25 percent during its recent Monetary Board meeting held on Aug. 15.

This 25-basis-point cut is more than just a number—it’s a signal, a catalyst, and a potential game-changer for various sectors of the Philippine economy, particularly in investments and the real estate market. As someone deeply involved in the world of investments and real estate, I want to unpack what this means for both property buyers and sellers, as well as the broader economic landscape.

Economic boost

At its core, an interest rate cut is a tool used by central banks to stimulate economic activity. Lower interest rates generally make it cheaper to finance business expansions and consumer purchases. By lowering the cost of borrowing, businesses (companies) and consumers (individuals) alike are encouraged to take loans and finance various economic activities. This increased spending, in turn, leads to income-generating activities, job creation, higher demand for goods and services, and overall economic growth.

For the Philippine economy, which has seen some slowdown in domestic consumption, this rate cut is a nudge to support our economic momentum, particularly as we aim for a stronger recovery postpandemic.

Investment implications

The investment landscape is intrinsically tied to interest rates. When risk-free rates decrease, the returns on equity investments and other higher-yielding assets become more attractive, as investors seek better returns than those of traditional savings or fixed-income products. In the short term, we can expect a boost in the stock market as investors recalibrate their portfolios to reflect the lower cost of capital. The Philippine stock market has since rallied, with attempts to break past the 7,000 index level, following the recent rate cut.

However, it’s also important to note that lower interest rates can sometimes lead to a shift of capital allocation into riskier assets. For savvy investors, this is a time to be discerning. While opportunities abound, so do risks. Diversification and careful analysis of market fundamentals will be key to navigating this environment.

Real estate boost

The more significant effects of the BSP’s rate cut will be felt in the real estate market. For potential property buyers, this is good news. Lower interest rates translate to more affordable home loans, which can make purchasing property more accessible. Whether you’re a first-time homebuyer or looking to invest in additional real estate, the reduction in borrowing costs can make a significant difference in your purchasing power.

This environment could lead to increased demand for real estate, particularly in segments where affordability is a key concern. Expect more activity in the middle and affordable housing markets, as well as a potential uptick in property investments from overseas Filipino workers (OFWs) who can take advantage of better loan terms.

On the flip side, sellers might find themselves in a more competitive market. With more buyers now able to afford homes, inventory could move faster, but the pricing power may shift slightly. Sellers may need to adjust their expectations or offer added value to attract buyers who are now more cost-conscious. For those selling investment properties, it’s crucial to highlight the long-term value and potential for appreciation, as buyers will be weighing these factors against the lower cost of borrowing.

Strategic considerations

For both property buyers and sellers, the BSP’s interest rate cut is a double-edged sword. While it opens up opportunities, it also requires a strategic approach to maximize benefits and mitigate risks.

For buyers, this could be the perfect time to lock in lower interest rates and secure favorable loan terms. However, it’s essential to assess the long-term sustainability of your investment, especially in a market that might see fluctuations as the economy adjusts to the new rate environment.

For sellers, the key will be to stay competitive and offer properties that stand out in a potentially crowded market. This might mean investing in upgrades, offering flexible payment terms, or positioning your property in a way that appeals to the most active buyer segments.

The BSP’s recent interest rate cut is a calculated move to stimulate the economy and provide relief to borrowers. Its effects will ripple across various sectors, but it’s in the real estate market where we might see some of the most tangible impacts. Whether you’re looking to buy, sell, or invest, understanding these dynamics will be crucial in making informed decisions that align with your financial goals.

As we navigate this evolving landscape, staying informed and adaptable will be key to capitalizing on the opportunities and challenges that lie ahead.

The author, CIS, CSR, CTP, CUSP and CFMP, has 19 years of experience as an entrepreneur, real estate investor, stock broker, financial literacy advocate, educator and a public speaker. He is the VP and head of Business Development and Market Education Departments together with the OFW Desk of First Metro Securities Brokerage Corp., and is a member of Metrobank’s Financial Education Editorial Advisory Board. If you are looking for world-class, customized, exclusive and gamified financial and investment literacy programs, economic briefings, market updates, and sales and leadership workshops for your company, school or organization, email him via [email protected]