Property developers remain bullish on launching new projects this year amid the sustained strong demand from local and foreign tenants, despite the rising interest rates.
When it comes to real estate, a rising inflation is a major concern for the industry as this could eventually lead to higher interest rates. The two figures typically move in the same direction.
The Philippines has enjoyed a low interest-rate environment for several years, encouraging homebuyers to tap bank loans to purchase condominium units in Metro Manila or single-detached houses in the provinces.
With inflation rate beginning to pick up above 5 percent, the Bangko Sentral ng Pilipinas saw it wise to adjust the benchmark interest rate by a total of 100 basis points in three separate Monetary Board meetings this year. This brought the overnight borrowing rate to 4 percent.
This could be one reason the property index was down 5.25 percent as of Aug. 3.
The 1997 Asian financial crisis when many property companies suffered financially on sharp increases in interest rates, liquidity problems and excessive indebtedness still lingers in the minds of businessmen, who learned the lesson the hard way two decades ago.
Developers this time remain bullish despite the rising interest rate and are aggressive with their project launches.
Property developer Ayala Land Inc. said it would launch more projects in the second half, as the economy continued to be supportive of the property sector.
“The growth of the domestic economy continues to be supportive of the property sector. We have seen growth across-the-board in all product lines and in all market segments which we participate in. So for the balance of the year, given what we see in the economy, we are optimistic we will be able to sustain the growth we achieved in the first half of the year,” Ayala Land president and chief executive Bernard Vincent Dy said.
Dy said while interest rates increased, the underlying mortgage rates, which are more important factors for homebuyers, did not move significantly.
“We are not seeing the impact on the consumer level and residential buyer level. The increase in benchmark rates has not translated into higher mortgage rates,” Dy said.
Ayala Land chief finance officer Augusto Bengzon agreed, saying the reason mortgage rates remained steady was the stiff competition among banks.
Bengzon said many banks were looking to increase their loan portfolio by at least 15 percent. These banks are targeting retail borrowers as well as small and medium enterprises, he said.
“If you look at the 10-year mortgage rate which has come down to 7.75 percent, banks are still able to get a better spread if they lend to the retail borrowers and SMEs. It is also profitable for them, so banks are focusing on retail market,” Bengzon said.
Ayala Land launched P39.5 billion worth of projects in the first half. Reservation sales reached P72 billion, up 17 percent year-on-year.
SM Prime Holdings, the country’s largest property firm, booked reservation sales of P34.45 billion in the first half, an increase of 25 percent from P27.55 billion recorded in the same period last year. This translated into a 7-percent increase in unit sales to 9,319 from 8,699 in 2017.
SM Prime said the major contributors to the increase in sales were strong demand from local and foreign buyers, strong overseas Filipino workers’ remittances and rising disposable income of the emerging middle class.
SM Prime said that for this year, it would launch 15,000 to 18,000 residential units across high-rise buildings, mid-rise buildings and single-detached house and lot projects.
These projects are located in Metro Manila and key areas in the provinces.