Colliers: BSP rate hike to discourage investors

CEBU, Philippines — The Bangko Sentral Ng Pilipinas’ (BSP) move to raise the interest rates is seen to dampen investor interest to build projects despite the consistent high demand in the market, this according to the latest market intelligence report released by Colliers International Philippines.

The same report showed that the real estate sector is up to face some challenges ahead, as issues like the rising interest rates, surging land values, among others are seen to slow down the growth of the property sector at least in the next 12 months.

“We see challenges ahead, including rising interest rates which could dampen low to mid-income residential demand over the next 12 to 24 months. Aside from surging land values in major business districts,” reported Colliers.

The BSP fired off three rate hikes in a row this year in the face of surging inflation.

Benchmark yields have risen by a cumulative 100 basis points from May to August as policy makers sought to rein in inflation expectations in an attempt to temper price increases for basic goods.

On August 8, BSP raised policy rates by 50 basis points, the most aggressive hike since the Global Financial Crisis in 2008.

In the last two quarters however, the property sector in the Philippines showed resilience with office, residential, and leisure poised for record-high demand and supply in 2018.

But it saw a slowdown in condominium project launches, due to developers’ concerns surrounding increasing interest rates.

On the other hand, the volatile interest rate regime is also seen to push local developers to open their doors for foreign partnerships.

Market analysts at Colliers believe that that a volatile interest rate environment should entice local developers to be more open to partnering with foreign firms to develop horizontal and vertical residential projects.

Higher interest rate would mean higher costs and a growing debt stock.

Likewise, analysts at Natixis Research said that tighter financial conditions in the Philippines do not bode well for local conglomerates, since these add pressure to “excessive” debt they may have accumulated.