Wednesday, June 25, 2025

PH mid-market home demand dampened by inflation, high rates — S&P Global

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Rising interest rates and inflation since late 2022 have significantly dampened demand from mid-market homebuyers in the Philippines, specifically in Metro Manila, S&P Global Ratings said in a report released on Thursday.

“The segment is oversupplied, especially in Metro Manila. By the end of 2024, unsold residential inventories reached a record P158 billion, according to Colliers International, a 77 percent increase from 2023,” S&P credit analyst Fiona Chen said.

More than 90 percent of these unsold units are from the mass-market segment, Chen, who is also global associate director at S&P Global, said.

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Developers with a larger landbank outside of Metro Manila, however, may get a boost due to the significantly lower residential supply in these areas, she said.

“Given the increasing inventory levels, we expect most developers to take a cautious approach, with a focus on clearing existing stock in Metro Manila alongside select launches,” she added.

Loans decline

Chen cited data from the Bangko Sentral ng Pilipinas (BSP) showing that the proportion of home loans granted in Metro Manila to the total home loans fell to 29 percent in 2024 from 48 percent in 2019.

As of the fourth quarter of 2024, BSP data showed total real estate loans approved by Philippine banks reached P2.950 trillion, 3.9 percent higher than the P2.840 trillion approved in the third quarter of the same year.

On a year-on-year basis, however, approved loans were lower by 0.1 percent from P2.954 trillion in the fourth quarter of 2023.

Of the total real estate loans in the period in review, 37.4 percent were for residential real estate loans, while the rest were for commercial real estate loans.

Residential real estate loans reached P1.104 trillion in the fourth quarter of 2024, 3.6 percent higher than P1.066 trillion in the previous quarter.  Year-on-year, fourth quarter 2024’s level was about the same as the fourth quarter 2023’s P1.104 trillion level.

By area, BSP said the loans granted in the NCR decreased by 5.4 percent in the fourth quarter of 2024 compared with the negative reading of 20.3 percent in the previous quarter.

Meanwhile, the decline in loans granted in areas outside of NCR, was little changed at 13.7 percent from 13.0 percent in the previous quarter.

Top developers

The report focused on the country’s top four real estate developers— Ayala Land Inc., Megaworld Corp., Robinsons Land Corp. and SM Prime Holdings Inc. However, the report was not intended for credit rating, S&P Global pointed out.

Chen said that the four developers account for 60 percent of the market capitalization of the sector and the total revenue among listed real estate companies in Philippines.

Chen noted that they have a long record in the Philippines, saying, “typically ranking first or second, by sales or portfolio scale, in their respective market niche.”

“The top four account for 55 percent of total debt raised and 75 percent of the capex of listed property companies in the Philippines. The companies’ business standing enables them to continue expanding aggressively, even amid economic and industry uncertainties,” Chen said.

Chen also stressed that these developers are leading their sector out of a post-pandemic hangover.

“The entities are pivoting to more high-end projects where demand has been resilient,” Chen said, stressing that the inventory levels of the top four remain manageable.

“The entities carry 12-24 months of inventory based on the trailing four quarters of presales. Their inventory is significantly shorter than the industry average of eight years,” Chen said.

Affordability is key

“A faster recovery in presales for mass-market housing is plausible, particularly as mortgage rates started moderating in the second half of 2024. The rate moves may also revive mid-market demand,” Chen said.

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However, Chen added that uncertainty around mortgage rate movements in light of evolving US tariffs and potential inflationary pressures could set back any recovery in the market.

“The widening price gap between units for presale and those in the secondary market is likely to shift buyers toward second-hand homes,” she said.

In some parts of Metro Manila, the average selling price per square meter of presale units was 50 percent to 90 percent higher than equivalent secondary apartments in 2024. That is a large jump from the 10 percent–35 percent gap seen as recently as 2020, Chen said.

“We expect this price gap to persist over the next two years. The large supply of empty residences will likely constrain secondary prices,” Chen said.

She added that presale unit prices are not likely to drop significantly soon due to a skew toward high-end projects, increasing construction costs, and developers’ reluctance to cut prices to avoid sending negative signals to the market.

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