Real estate sector to recover in 2022 – Diokno

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno is confident the real estate sector and the value of commercial properties will bounce back next year.

BSP Governor Benjamin E. Diokno

“The BSP anticipates that activity in the real estate market will recover in line with the rebound in overall economic growth in 2022,” said Diokno in a forum on Friday, Nov. 12.

Diokno cites initial results of the BSP’s newest real estate monitoring index, the Commercial Property Price Index (CPPI) which is yet to be released.

Based on the CPPI, the commercial property values have declined in the second half of 2020 when the economy was still under strict pandemic lockdown. The publication of the property indices will be lagged by one quarter.

The BSP’s Residential Real Estate Price Index (RREPI) as previously reported, showed a decline in the residential real estate prices of various types of new housing units in the second quarter this year. The housing sector is a leading economic indicator. Sustained declines in new housing means slowdown in the economy and can push it into a recession. Likewise, increases in housing activity triggers economic growth.

Nationwide house prices contracted by 9.4 percent year-on-year from -4.2 percent in the first three months of 2021 as the pandemic hit demand, noted Diokno. “However, high base effects may also have contributed to the significant decline during the period as the index peaked in the second quarter 2020 while posting a 4.8 percent increase quarter-on-quarter,” he added.

In October 2020, the BSP started to require banks to submit a quarterly report on appraised commercial properties (QRACP) to be used for its price monitoring of commercial real estate. The QRACP is groundwork to generate a CPPI to complement the existing RREPI, and it covers all appraised commercial properties which include property accepted as collateral in lending transactions and acquired asset in the settlement of loans.

Diokno said the release of the CPPI is part of the BSP’s expanding surveillance on banks’ financial exposures, as well as price trends in the property sector.

The two indicators RREPI and CPPI will help the BSP monitor the developments in the property sector as a whole and their linkages with the other sectors in the economy, said the BSP chief.

All throughout 2020, the real estate and construction sectors contracted. It was only in the second quarter of 2021 when the real estate and construction subsectors showed signs of recovery following the easing of lockdown measures.

“We also saw real estate demand slip due to pandemic-related uncertainties.

The capital values for office and residential units in the country’s major commercial and business districts decreased in 2020 due to lesser demand amid the pandemic,” said Diokno.

Diokno said that while the real estate industry “is not under the direct regulatory purview of the BSP” it is “viewed as an important sector in the BSP’s conduct of monetary policy and financial supervision.”

He added that asset prices affect volatility in general price levels and economic output, and that “volatility in asset prices, which could result from undue speculation or bubbles, may give rise to widespread financial instability.”

The BSP’s policy actions also affect the movements and behavior in the property market. “For example, a hike in policy rate lowers the value of asset holdings of individuals and financial institutions and could potentially make credit financing more costly for both buyers and property suppliers,” said Diokno.

Diokno said that in the past, a real estate boom is financed by bank lending. “Real estate is a credit-intensive good, but one of the most illiquid assets of financial institutions,” he said.


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