Philippine real estate amid economic uncertainties

The dichotomy of the Philippine economic outlook and its effects on real estate

March 31, 2023

The Philippine real estate market gradually recovered in 2022, driven by stronger demand as mobility restrictions were further reduced after the pandemic. Despite this, a slowdown in market activity is anticipated due to escalating economic challenges weighing down on market recovery.

The Bangko Sentral ng Pilipinas (BSP), the country’s central bank, further hiked policy interest rates by 50 basis points (bps) in February 2023 to 6%, in order to tame consumer price inflation which registered 8.6% y-o-y during the same time. Policy rate is anticipated to further rise by 50 bps within 2023 as the central bank continues to tighten policies with the aim to cool down inflation to its target of 2%-4%. Peaking interest rates may lead to higher investment, which could delay decision making among investors, potentially slowing down market activities.

Inflation remains elevated despite cooling incrementally in February 2023. This may translate to higher construction and operational costs for developers, and limited consumer spending as people allocate more of their budget towards daily essentials. This may also weigh down on the recovery of the retail and residential segments, specifically in the first half of the year.

Nonetheless, not all is down the slope. A positive outlook in some economic indicators is seen, potentially aiding the performance of the industry amid an expected market slowdown. The Philippine economy recorded an outstanding performance in 2022, growing by 7.2% y-o-y, due to strong consumption. This positive movement is seen to carry over to 2023 when gross domestic product (GDP) is expected to expand by 6%-7% y-o-y. The resilient economy may bring confidence among investors, spurring investment activities across real estate sectors.

Personal Overseas Filipino (OF) remittances saw a record high of USD 36.14 billion in 2022, up by 3.6% y-o-y, accounting for 8.9% of the country’s GDP. The BSP projects personal remittances to further accelerate by 4.0% in 2023. The solid inflow of remittances coming from OFs is anticipated to buoy the residential market amid tightening budget of locals.

Lastly, the Department of Tourism is targeting 4.8 million foreign tourist arrivals in 2023, almost double of the recorded arrivals in 2022. The strong demand for inbound foreign guests may propel the hospitality market, buoying occupancy rates, as well as the retail market with more sales recorded from tourists.

The Philippines, much like other countries, is bracing for tightening economic headwinds and their market repercussions. Nonetheless, the projected healthy performance of select key indicators may offset some of the economic burdens and buoy the market amid challenges.