By Luisa Maria Jacinta C. Jocson, Reporter
THE REVELATION of Philippine banks and trust institutions to the real estate sector continued to decrease by the end of September, fallingto a five-year minimum, according to data from the Bangko Sentral ng Pilipinas (BSP).
The ratio of banks’ exposure to real estate dwindled to 19.55% at the end of September, down from 19.92% at the conclusion of June and from 20.55% at the end of September in 2023.
This marks the lowest real estate exposure ratio recorded in five years, similar to the 19.5% noted as of September 2019.
The BSP oversees the level of lenders’ involvement in the real estate sector as part of its obligation to sustain financial stability.
Investments and loans provided by Philippine banks and trust divisions to the real estate sector experienced a 2% increase to P3.22 trillion as of September, rising from P3.16 trillion a year earlier.
BSP statistics indicated that real estate loans rose by 7.9% to P2.84 trillion as of the end of September compared to P2.64 trillion a year earlier.
Loans for residential real estate surged by an annual 8.1% to P1.07 trillion, while commercial real estate loans increased by 7.8% to P1.78 trillion.
Loans overdue in real estate reached P148.157 billion, an increase of 10% from P134.828 billion the previous year.
Specifically, overdue residential real estate loans escalated by 10.1% to P104.967 billion, whereas overdue commercial real estate loans rose by 9.4% to P43.189 billion.
Simultaneously, gross nonperforming real estate loans climbed by 7.1% to P111.554 billion as of the third quarter, up from P104.138 billion a year ago.
This led the gross nonperforming real estate loan ratio to reach 3.92% at the end of September, slightly lower than 3.95% from a year prior.
Conversely, real estate investments declined by 15.5% to P376.406 billion at the end of September from P445.666 billion during the same timeframe the previous year.
This was partly due to a 14.6% annual decrease in debt securities to P246.041 billion, while equity securities fell by 17.2% to P130.365 billion.
Joey Roi H. Bondoc, director and head of research at Colliers Philippines, stated that the reduced real estate exposure observed at the end of September is attributable to the developers’ “lackluster interest” in new projects.
“They’re not initiating many new projects. Whether for office or residential, there’s truly a minimal interest for new developments at this time,” he remarked during a phone interview.
Over the next three years, Colliers anticipates an addition of around 400,000 to 450,000 square meters (sq.m.) of new office space to the Philippine market.
“That is significantly smaller, in fact, less than half of 1 million square meters of new office space from 2017 to 2019,” Mr. Bondoc noted.
“If you consider launches during the first nine months of this year, they have decreased by about 50-60% compared to the same timeframe last year,” he added.
Mr. Bondoc mentioned that developers are concentrating on their existing inventories.
“We don’t observe a considerable expansion as they are waiting for their remaining current stock to be taken up, to be absorbed.”
For instance, he pointed out that there is 2.6 million sq.m. of unoccupied office space that is projected to take five years to be absorbed by the market.
“In the residential sector in Metro Manila, it will take over five years. In other words, you need around 70 months for the remaining unsold condominium inventory, which encompasses pre-selling and ready for occupancy, to be absorbed by the market.”
“It’s really fluctuating between that span, five to six years, regardless if you look at office or residential. They’re waiting for this leftover inventory to be taken up or absorbed by the market.”
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also highlighted the rising vacancy rates amid the prohibition on Philippine Offshore Gaming Operators (POGOs).
During his State of the Nation Address in July, President Ferdinand R. Marcos, Jr. mandated a complete ban on all offshore gaming operations, citing connections to unlawful activities such as money laundering and human trafficking.
The Philippine Amusement and Gaming Corp. stated earlier this month that only 17 POGOs remain active out of a total of 298 licensed POGOs in 2019.
“Currently, why are we witnessing numerous vacant office spaces and unsold condominiums in Metro Manila? The exodus of POGOs,” Mr. Bondoc remarked, explaining that POGOs had initially propelled demand for office space and condominiums.
Looking ahead, Mr. Bondoc speculated that banks’ real estate exposure is expected to lessen further in the next three to five years.
“We will likely observe fewer completions resulting from these limited launches currently visible in the market, particularly in Metro Manila,” he stated.
Conversely, the central bank’s series of rate cuts might balance this outlook.
“Hopefully, additional cuts from the central bank this month will carry over into the next year and yield lower mortgage rates. This hopefully provides a necessary boost,” Mr. Bondoc commented.
“However, will it significantly stimulate the market? I don’t believe so. We have yet to assess the extent of the impact on mortgage rates of these interest rate reductions,” he added.
The Monetary Board is anticipated to lower the benchmark rate by 25 basis points (bps) during its meeting on Thursday, based on a poll of 13 out of 16 analysts conducted for BusinessWorld.
The central bank initiated its easing cycle in August this year with a 25-bp cut and made another 25-bp reduction in October.
BSP Governor Eli M. Remolona, Jr. has further indicated the possibility of additional rate cuts next year within a 100-bp range.
“Additional reductions in local policy rates would serve as a favorable offsetting factor for the real estate sector, potentially leading to a rebound in demand for real estate loans from both developers and purchasers, albeit with some lag effects,” Mr. Ricafort added.
In 2020, the central bank raised the limit for real estate loans of banks to 25% of their total loan portfolio from 20% previously to facilitate greater liquidity as a relief measure during the coronavirus pandemic.