Rising borrowing costs following the Bangko Sentral ng Pilipinas' (BSP) latest interest rate increase could weaken demand for residential property, although subsidized housing loans may provide some relief to eligible homebuyers, property consultants said.

"It will really have a detrimental impact on take-up because higher interest rates will likely result in higher mortgage rates. We're already seeing a lot of back-outs," Joey Roi Bondoc, director and head of research at Colliers Philippines, told BusinessWorld on the sidelines of the firm's third-quarter market briefing on Tuesday.

The Monetary Board lifted its benchmark interest rate — the overnight reverse repurchase rate that anchors lending costs across the banking system — by 50 basis points to 5.5% on Oct. 22. Analysts noted that higher policy rates could eventually feed through into increased mortgage costs, particularly for new borrowers and those whose existing loans are due for repricing. How quickly banks pass the higher policy rate into home-loan pricing is now a key variable for residential take-up.

Subsidized Lending Expands

As a counterpoint, socialized housing loans released by the Home Development Mutual Fund, better known as Pag-IBIG Fund, nearly tripled in the first nine months of the year, according to the Department of Human Settlements and Urban Development (DHSUD).

Financing for socialized housing climbed 172% to P12.10 billion from P4.45 billion a year earlier, while the number of homes financed rose 173% to 10,904 from 3,987.

Under the Expanded Pambansang Pabahay para sa Pilipino (4PH) Program — the government's flagship housing program addressing the country's long-running housing backlog — qualified borrowers purchasing socialized housing units can access a subsidized interest rate of 3%. Pag-IBIG Fund also extends promotional rates of 4.5% on eligible housing loans above the socialized housing ceiling and up to P4.9 million, and 5.75% on loans exceeding P4.9 million and up to P10 million. Both promotional rates are fixed for the first three years of the loan.

That mix matters for the broader market: as prevailing mortgage pricing comes under upward pressure, the subsidized and promotional windows give qualified borrowers a measure of insulation, increasingly splitting affordability outcomes between those who qualify for government-backed rates and those borrowing at market terms.

Dino Palanca, research director at Savills Philippines, said subsidized housing loan rates could help lighten monthly mortgage payments, even as rising living expenses and construction costs continue to weigh on affordability.

"Lower interest rates can make a significant difference by reducing monthly amortizations," Mr. Palanca said in a Viber message. "However, interest rates are only one part of the affordability equation. Inflation continues to affect household budgets through food, transportation, utilities, and other everyday expenses. Construction costs also influence the prices developers can offer."

Developers Recalibrate Offerings

Property developers are likewise reassessing their housing offerings as higher costs and shifting demand reshape the residential market.

Christopher Ryan T. Tan, president and chief executive officer of Hausland Holdings, Inc., said developers in Pampanga and the Clark area are confronting similar economic pressures.

"I think we are not immune in Pampanga, and specifically in the Clark area. We are also confronting the same issues," Mr. Tan said during a fireside chat at the Colliers briefing.

He said the company is offering housing options across different price segments to respond to varying buyer requirements. Hausland has also raised its planned socialized housing commitments through Fiesta Communities, Inc. to between 21,000 and 27,000 units, up from an earlier commitment of 9,000 units.

"We've increased the volume of our Fiesta Communities socialized housing [projects]. [We previously] committed 9,000 units, [but now] we upped it all the way up [between] 21,000 to 27,000 units," he said.

Land and Construction Costs

Beyond financing costs, developers are contending with challenges involving land availability, construction expenses, and project approvals, according to property consultants.

"Land availability and construction costs will continue to be major considerations, particularly in areas where demand is growing but suitable land is becoming more expensive," Mr. Palanca said.

A sustained pipeline of housing projects, he added, would require efficient approval processes, infrastructure development, and access to developable land.

Mr. Bondoc said developers outside Metro Manila could consider acquiring land ahead of the completion of major infrastructure projects to manage acquisition costs. "Outside of Metro Manila, what would be ideal to implement is to start land banking," he said. Securing sites before new road networks are completed, he noted, could allow developers to lock in land ahead of potential price increases.

For his part, Mr. Tan cited the Luzon Economic Corridor, an initiative involving the Philippines, the United States, and Japan, as a factor supporting housing demand in Pampanga and Tarlac.

"The support of the US government, then the Japanese government to really develop Clark and New Clark City is really pulling in a lot of demand, not only in Pampanga, but also in Tarlac City, and Tarlac province," he said.

He identified Clark, Mabalacat, Angeles, and San Fernando in Pampanga, as well as New Clark City in Tarlac, among the areas benefiting from interest in regional development. How the corridor's cross-border infrastructure commitments progress, and whether the expanded 4PH subsidy sustains its lending momentum through Pag-IBIG, are among the signposts to watch as the market absorbs the BSP's higher policy rate.

Source: BusinessWorld — reporting by Juliana Chloe A. Gonzales.