The price stability measures of the Bangko Sentral ng Pilipinas (BSP) translating as friction costs on the property sector are seen to persist during the year, online stockbroker Col Financial Group Inc. said in its paper released on Monday.
“In 2022, mortgage rates increased by around 200 bps for the five-year and 10-year loans. We estimate that for every 100 basis point increase in the home loan rate, the monthly amortization increases by around 2.45 percent for 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,” it said.
The stockbroker noted the steep rise in rates last year did not lead to a steep drop in the take-up of sales, in part due the depreciation of the local currency the peso that benefited mostly the dollar-earning overseas Filipino worker.
The rates pertain to the sharp rise in the policy rates of the BSP over a six-month period to 5.5 percent from only 2.25 percent.
But even then, the peso is no longer seen to depreciate as sharply this year against the dollar.
According to Col Financial, the soft drop in take-up sales may be traced to higher demand brought about 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.
The growth in revenues of residential unit developers should also continue to slow down due to the lengthening of payment terms since developers have stretched them to entice more buyers the past two years.
“While most developers have started to shorten their payment periods, they are still far from pre-pandemic levels. This means that residential units sold since the pandemic started will take a lot longer to book, which in turn will lead to slower top line 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,” the broker said.
As for the office segment, it said the high space inventory will keep leasing rates subdued this year although net take-up should 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.
Despite the positive outlook on demand and take-ups, the office segment should continue to see higher vacancy rates primarily due to scheduled completion of more projects.
“Colliers is forecasting a 20.5 percent vacancy rate in Metro Manila for 2023, up from 19.5 percent in 2022 and 15.7 percent in 2020.
“Makati and Pasay have the highest vacancy rates as 22 percent, followed by Ortigas as 17 percent. The vacancy rate should peak this year given the lower new supply expected to be completed in 2024 and 2025,” it said.
“While overall picture looks bleak, we expect office leasing revenues of listed developers to grow this year due to the 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 the renewal rate of expiring leases to remain high as they usually have been before the pandemic,” Col Financial said.
Leasing revenues should also continue grow an average of 6.4 percent, slower than the 9.4 percent growth in the first nine months of last year.
Col Financial 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 80-90 percent of pre-Covidl evel, and tenant sales were almost at par with pre-Covid levels.
“We believe fourth quarter numbers will show that foot traffic and tenant sale have exceeded fourth quarter 2019 levels,” it said.
Col Financial projects mall revenues to grow by an average of 25 percent, slower than the nine months figure of 86.7 percent in the absence of the so-called low base effect.
