Rate cuts seen helping recovery of property sector

The property sector may not see its prepandemic levels returning this year, but the anticipated further easing of monetary policy could help in the slow recovery of an industry that has been taking a hit from elevated interest rates for years.

In a report, Unicapital Securities Inc. said real estate firms may still shy away from launching new developments this year, with new projects expected to decline by 8 percent to P221 billion.

This amount represents just 54 percent of 2019 levels, according to the stock brokerage house.

Geographically, new launches will be focused in areas outside Metro Manila due to higher demand in these regions, the report said.

However, Unicapital research head Wendy Estacio-Cruz pointed out that demand for properties would start to rise in the first quarter of 2025, allowing inventory levels to stabilize.

Unicapital found in its report that inventory levels could ease at an average of nine months’ worth of sales next year, from 11 months currently.

This is due mainly to the projected cut in interest rates. The real estate sector, particularly the middle income segment, has been negatively impacted by the prolonged high interest rate environment, as heightened borrowing costs dissuaded clients from buying new property.

Property clients typically borrow money from banks to support their purchase.

Unicapital found that although real estate loans grew by 7 percent in the first quarter of 2024, this was still below the 10-year historical average growth of around 11 percent.

But with the Bangko Sentral ng Pilipinas expected to again slash its key rate by at least 25 basis points (bps), Estacio-Cruz said this could lead to lower mortgage rates.

Leeway

“As of the second quarter, mortgage rates have declined by an average of 15 bps across all tenors, even ahead of the BSP’s policy rate reduction, as we think banks recognize that they still have leeway given that rates are still significantly higher than 2019 levels,” Unicapital said in its report.

Unicapital, which covers five property companies listed on the local bourse, forecasts that residential sales take-up, a key indicator of demand as this measures how quickly properties are being sold, would increase by 9 percent next year.

As for the office sector, Unicapital said developers may “temper new office supply at least in the next three years,” following President Marcos’ ban on Philippine offshore gaming operators.

Office vacancy rate this year is expected to reach an all-time high of 22 percent from 19 percent in 2023, Unicapital added.

“We think the policy shift should be cushioned by new office demand from the projected additional BPO (business process outsourcing) headcount, which will mostly come from rural areas,” it said. INQ