Online stockbroker Colfiancial.com said the high interest rate environment will continue to be a drag on the country’s property sector this year.
Colfinancial said with the central bank seen instituting more rate hikes, mortgage rates will remain high.
“In 2022, mortgage rates increased by around 200 bps (basis points) for the five-year and 10-year loans. We estimate that for every 100 bps increase in the home loan rate, the monthly amortization increases by around 2.45 percent for the five-year loans and around 4.5 percent for 10-year loans. This reduces the affordability of housing for buyers availing of bank loans, which comprises most of the market,” Colfinancial said.
It said while the steep rise in rates last year did not lead to a steep drop in sales take-up sales, buyers mostly overseas Filipino workers benefitted from the weak peso.
The soft drop in sales take-up was also attributed to higher demand brought by the reopening of the economy.
“Coupled with the deteriorating global economic outlook, overseas sales could see a slowdown this year. Local sales are also expected to face challenges brought about by higher prices of basic goods, higher mortgage rates, and slower economic growth,” it said.
Colfinancial said revenue growth of residential unit developers will continue to slow due to the lengthening payment terms since developers stretched their payment terms to entice more buyers in the last two years.
“While most developers have started to shorten their payment periods, they are still far from pre-pandemic levels. This means residential units sold since the pandemic started will take a lot longer to book, which in turn will lead to slower topline growth. Also, the stretched payment terms mean developers need to put more of their own capital to work during the construction period. This puts some strain on the balance sheet of smaller developers,” Colfinancial said.
In the office segment, Colfinancial said the high space inventory will keep leasing rates subdued this year though net take-ups will continue to grow.
“Take-ups were driven by the IT-BPM (information technology-business process management) segment and robust demand from the traditional office segment. This year we should see growth in office take-up to continue despite calls for more workplace flexibility among IT-BPM players,” it said.
Colfinancial, however, said despite the positive outlook on demand and take-ups, the office segment will continue to see higher vacancy rates primarily due to scheduled completion of more projects.
“While overall picture looks bleak, we expect office leasing revenues of listed developers to grow this year due to contribution of new spaces added last year and those to be added this year. Also, rents of existing tenants usually have built-in escalations annually. We expect renewal rate of expiring leases to remain high as they usually have been before the pandemic,” it added.
Colfinancial said leasing revenues will grow an average of 6.4 percent, slower than the 9.4 percent growth in the first nine months of last year.
The lifting of almost all mobility restrictions last year at the same time will continue to have a positive impact on the mall and retail segments.
Colfinancial expects higher revenues from existing tenants and higher mall occupancy rates as retailers gain more confidence and look to take advantage of the robust consumer spending.
“As of the third quarter, operational GLA (gross leasable area) improved to more than 80 percent of pre-COVID levels, foot traffic was around 80 to 90 percent of pre-COVID level, and tenant sales were almost at par with pre- COVID levels,” it said.
“We believe fourth quarter numbers will show foot traffic and tenant sale have exceeded fourth quarter 2019 levels,” it added.
Colfinancial expects the improving trend of consumer spending to continue this year, leading to higher variable rent revenues for the malls.
“In 2023, we expect mall revenues to grow by an average of 25 percent, slower than the nine months growth of 86.7 percent as there will be no more low base effect this year,” it said.
