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Rise in Real Estate NPLs Predicted by Prime Philippines

Posted by Vincent on February 1, 2023

Jet Yu, CEO of Prime Philippines, predicts difficulties for both real estate buyers and developers in the coming year. This is due to the 350 basis point increase in interest rates last year by the Philippine Central Bank and the expected continuation of rate hikes this year. Yu also cites inflation as a factor. The rising construction costs, which have increased 30-40% compared to 2019 levels, and interest payments on loans and debts, are causing pressure on developers’ bottom lines. Yu expects a rise in real estate-related non-performing loans (NPLs) by the end of the year, impacting developers, OFWs, and the working-class who have acquired properties during the pandemic.

Yu hopes for progress in reducing local inflation to delay or reverse interest rate hikes, as this is creating negative sentiments for real estate developers and occupiers. Real estate activities have been driving loan growth, with a 13.1% YoY increase in December 2022. However, residential real estate loans declined by 4.2% YoY in Q3 2022. BSP’s monitoring of NPLs shows a 4.04% ratio as of November 2022.

Yu sees potential in the office sector outside of Metro Manila and the industrial real estate sector. The Philippine Development Plan 2023-2028, which aims to attract investment into industrial activities, is also seen as positive. The industrial sector has recorded over 90% occupancy with a 10% YoY positive rental rate increase. Davao City and Iloilo City are the only two office locations with 90% plus occupancy rate. The continued support from overseas Filipinos and the Business Process Outsourcing sector is also expected to provide resilience. Yu advises clients to diversify into the industrial sector and expects OFWs’ and IT BPO sector’s revenue to positively impact the different property sectors.

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