Philippines housing market faces demand risk from higher borrowing costs
Residential property demand in the Philippines is coming under pressure as higher interest rates raise the prospect of more expensive mortgage financing. Subsidized loan programs for socialized housing are offering some relief for qualified buyers, but rising living costs and construction expenses are still weighing on affordability.
Highlights
- Bangko Sentral ng Pilipinas raised its benchmark rate by 50 basis points to 5.5% on Oct. 22, elevating mortgage costs and dampening residential demand.
- Pag-IBIG Fund's socialized housing loans surged 172% to P12.10 billion in the first nine months, financing 10,904 homes, up 173% from last year.
- Subsidized 3% interest rates under the 4PH Program and Pag-IBIG’s promotional rates help offset higher borrowing costs for lower and mid-tier homebuyers.
Rate hike pressure and financing support
As reported by BusinessWorld Online, property consultants say the Bangko Sentral ng Pilipinas' latest rate increase is threatening housing take-up as borrowing costs move higher for homebuyers. The Monetary Board raised its benchmark interest rate by 50 basis points to 5.5% on Oct. 22, a move that analysts say could feed through to mortgage repricing for existing borrowers and higher costs for new loans.Colliers Philippines Director and Head of Research Joey Roi Bondoc said higher rates are already hurting demand, with more buyers backing out as mortgage costs rise. He said the impact is proving detrimental to take-up in the residential market.
At the same time, government-backed financing is cushioning part of the pressure in the lower-cost segment. According to the Department of Human Settlements and Urban Development, socialized housing loans released by the Home Development Mutual Fund, or Pag-IBIG Fund, rose 172% to P12.10 billion in the first nine months from P4.45 billion a year earlier, while the number of homes financed increased 173% to 10,904 from 3,987.
Under the Expanded Pambansang Pabahay para sa Pilipino, or 4PH, Program, qualified borrowers buying socialized housing units can access a subsidized 3% interest rate. Pag-IBIG Fund also offers promotional rates of 4.5% for eligible housing loans above the socialized housing ceiling up to P4.9 million, and 5.75% for loans above P4.9 million up to P10 million, with both fixed for the first three years.
Our earlier article on the Philippines’ planned sovereign bond-market reforms explained how a new pricing convention for peso government bonds and expected index inclusion could improve liquidity and broaden the investor base. It also noted that cheaper funding is not automatic and still depends on global rates and fiscal credibility, while deeper capital-market development is needed so businesses are not overly reliant on bank lending.
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