Philippine Property Market at Risk? Fitch ‘Negative Outlook’ Signals Real Estate Slowdown Ahead

The Philippine property sector has spent the past few years riding a fragile recovery—buoyed by reopening momentum, resilient remittances, and steady infrastructure rollout. But a fresh warning from Fitch Ratings has introduced a new layer of uncertainty.

With the country’s sovereign outlook revised to “negative,” investors, developers, and homebuyers are now asking a more cautious question: Is a real estate slowdown inevitable?

This isn’t just another macroeconomic headline. Credit outlook shifts tend to ripple through financing conditions, interest rates, and investor sentiment—three pillars that directly shape the trajectory of the property market.

A Macro Warning That Hits Property First

A negative outlook signals heightened risk in the country’s economic direction. In this case, concerns center around rising energy costs, fiscal pressure, and moderating growth. While these may seem distant from real estate, the transmission effect is immediate.

When sovereign risk perceptions rise, borrowing costs often follow. For property developers, that means more expensive project financing. For buyers, it translates into higher mortgage rates and stricter loan approvals. For investors, it raises the question of whether property remains a stable store of value in the near term.

In a market like the Philippines—where real estate growth has long been credit-driven—this matters more than ever.

Residential Market: Affordability Under Pressure

The residential segment, particularly Metro Manila’s condominium market, is the most sensitive to shifts in financing conditions. Over the past decade, vertical developments have relied heavily on middle-income buyers and overseas Filipino remittances. But affordability is already under strain.

Higher interest rates, combined with inflation driven by energy costs, reduce purchasing power. Monthly amortizations rise, and fewer buyers qualify for loans. This creates a double squeeze: demand softens just as developers continue to complete previously launched projects.

The result could be a slower absorption rate, longer selling cycles, and increased promotional activity—discounts, flexible payment terms, and rent-to-own schemes becoming more common.

Developers Face a More Expensive Landscape

For developers, the implications go beyond slower sales. A negative sovereign outlook can indirectly increase the cost of capital, especially for firms relying on external financing or bond issuances.

Large players may weather this shift due to strong balance sheets, diversified portfolios, and access to funding. But smaller and mid-tier developers could face tighter liquidity conditions. This may lead to:

• Delayed project launches

• Phased construction strategies

• Greater focus on pre-selling before breaking ground

In practical terms, expect fewer speculative developments and a shift toward more demand-driven projects.

Commercial and Office Sector: Caution Meets Opportunity

The office market, still recalibrating after the pandemic-era remote work shift, now faces another layer of uncertainty. Companies expanding cautiously may delay leasing decisions if economic signals weaken further.

However, not all is negative. The Philippines continues to benefit from a strong business process outsourcing (BPO) sector, which remains a key driver of office demand. If global firms maintain their outsourcing strategies, prime office spaces in key districts could remain relatively resilient.

That said, secondary locations and older buildings may struggle to compete, especially if tenants become more selective.

Investor Sentiment: Wait-and-See Mode

Real estate investors—both local and foreign—are highly sensitive to macro signals. A negative outlook doesn’t automatically trigger capital flight, but it does encourage caution.

Investors may begin to:

• Delay acquisitions while waiting for price corrections

• Shift focus to income-generating assets rather than speculative land plays

• Prioritize locations with strong infrastructure backing

This is particularly relevant for foreign investors, whose confidence is closely tied to sovereign risk assessments.

Banking Sector Behavior: The Silent Signal

One of the more telling indicators is how banks respond. Even before the latest outlook revision, Philippine banks had already begun moderating their exposure to real estate.

This trend reflects a more cautious risk posture. While lending to the property sector continues, it is increasingly selective. Borrowers with strong financial profiles and projects in prime locations are more likely to secure financing, while marginal deals face greater scrutiny.

For buyers, this means stricter loan approvals. For developers, it reinforces the importance of project viability and location strength.

Not All Doom: Structural Strengths Remain

Despite these headwinds, the Philippine real estate market is not without resilience. Several long-term fundamentals continue to support the sector:

A young and growing population sustains underlying housing demand. Urbanization remains ongoing, with secondary cities emerging as new growth centers. Infrastructure projects continue to improve connectivity, unlocking land value in previously overlooked areas. And overseas Filipino remittances still provide a steady inflow of purchasing power.

These factors suggest that while growth may slow, a severe downturn is not the base case.

What Buyers and Investors Should Do Now

In a shifting market, strategy matters more than timing. Buyers should focus on affordability, ensuring that mortgage obligations remain manageable even if rates rise further. Fixed-rate loans and conservative financial planning become essential.

Investors, meanwhile, should look beyond short-term volatility. Properties tied to infrastructure development, economic zones, and emerging urban corridors may offer better long-term value than saturated city centers.

For developers, the message is clear: align supply with real demand, manage leverage carefully, and prioritize execution over expansion.

The negative outlook from Fitch Ratings is not a collapse signal—but it is a warning. It highlights vulnerabilities in the broader economy that could translate into a more cautious, slower-moving property market.

For the Philippine real estate sector, the next phase will likely be defined not by rapid expansion, but by adjustment. Growth may continue, but at a more measured pace, with greater emphasis on sustainability and resilience.

In that environment, the winners will be those who adapt early—buyers who stay financially disciplined, developers who build strategically, and investors who focus on fundamentals rather than speculation.

Source: Ziggurat Real Estate

BMI keeps 5.2% growth estimate

Fitch Solutions unit BMI has kept its 2026 growth forecast for the Philippines despite the last year’s miss as it expects public and private investments to recover.

BMI sees the Philippine economy expanding by 5.2% this year, unchanged from its earlier projection.

“For now, we are maintaining our 2026 growth forecast at 5.2%, but the lower 2025 base makes this a more pessimistic outlook,” it said in a report.

This is within the government’s 5%-6% growth target for the year.

Philippine gross domestic product (GDP) expanded by 3% in the fourth quarter, slower than 5.3% in the same period a year prior and the revised 3.9% print in the third quarter, the government reported last week.

This was the slowest quarterly print in nearly five years or since the 3.8% contraction in the first quarter of 2021. Outside of the coronavirus pandemic, this was the worst since the 1.8% growth recorded in the fourth quarter of 2009, or during the Global Financial Crisis.

This brought full-year 2025 GDP growth to 4.4%, below the government’s 5.5%-6.5% goal. This was slower than 2024’s 5.7% and was the weakest annual expansion since the 3.9% in 2011, counting out the 9.5% contraction in 2020 due to the pandemic.

Officials said tighter public spending and weak investor confidence due to the flood control scandal continued to drag growth.

BMI said it sees both public and private investments rebounding this year as the government works to ramp up spending and amid the lagged impact of the Bangko Sentral ng Pilipinas’ (BSP) past rate cuts on demand.

“The government probably underspent its capital budget in 2025… Beyond rhetoric from government officials pledging catch-up capital spending, we have not seen any indication of when the Senate investigation into corruption will conclude or when delayed infrastructure projects will be restarted,” it said.

“We would, however, be surprised if policymakers allowed the probe to drag on public capex (capital expenditure) for much longer — a quick recovery in infrastructure spending is necessary to hit the government’s 5-6% growth target for 2026. Our best guess for now is that the government will make up for the underspending of the capital budget in H2 (second half) 2026, with the low base flattering GDP growth in H2.”

It added that household consumption may also rebound this year, with the peso’s weakness to increase the value of remittances from migrant Filipinos.

However, the country’s external sector could weaken as last year’s export strength was largely driven by frontloading ahead of higher tariffs and increased electronics demand due to the artificial intelligence (AI) boom — which are both expected to lose steam this year, BMI said.

“Early indicators are starting to reflect deteriorating external orders… The global semiconductor upcycle appears to have peaked, as firms reassess the returns on AI-driven investments. This will materially affect electronic exports — about 54% of Philippine exports. Accordingly, we expect export growth to moderate as frontloading tapers and the higher 2025 base will mechanically make strong year-on-year growth hard to sustain,” it said.

“Should there be continued delays to infrastructure spending, household spending and exports will not be enough to offset weaker public spending, posing downside risks to our forecast. Inflation may also run hotter than we forecast if oil prices get another boost from rising geopolitical risks, limiting the BSP’s room for rate cuts.”

BMI expects the Monetary Board (MB) to deliver 50 basis points (bps) in cuts this year.

For its part, Deutsche Bank Research said the “surprise” growth slowdown last quarter increases the odds of a sixth straight rate cut by the BSP this month.

“We think that a February rate cut from the BSP is now almost certainly ‘on the table,’” it said in a report.

“We also see a rising likelihood of another rate cut in H1  (first half) given the likely wider-than-expected negative output gap,” it added “We will refresh our view pending more up-to-date data from 2026, including inflation, government disbursements, and BSP’s guidance in the February MB meeting.”

BSP Governor Eli M. Remolona, Jr. said on Sunday that a cut is possible at their Feb. 19 policy review if the fourth-quarter GDP slowdown proves demand-driven.

“If we can help on the demand side and still keep inflation low, then of course we’ll help,” he said.

He added that they will continue to assess the available data and decide “one meeting at a time.”

The Monetary Board has slashed benchmark borrowing costs by 200 bps since August 2024, bringing the policy rate to 4.5%.

Source: Business World

Growth outlook slashed

Economy now seen expanding by just 5.2% next year

Philippine economic growth will continue to lose momentum next year as both household spending and investments cool, a Fitch Group unit said.

“Headwinds to growth are mounting,” BMI Country Risk & Industry Research said as it cut the 2026 growth forecast for the country to 5.2 percent from 6.2 percent.

That for 2025 was kept at 5.4 percent — lower than the 2024 result of 5.7 percent — and growth is also expected to slow in the last six months of the year.

Both forecasts fall below the government’s 5.5- to 6.5-percent target for this year and 6.0-7.5 percent for 2026. If realized, growth will have fallen below target for four straight years.

“Growth in H1 2025 was driven by front-loading activity and robust domestic consumption. However, we expect growth to slow in H2 2025,” BMI said in an Oct. 22 commentary.

“Investment is likely to stay subdued in H2 given the uncertain global environment and weak infrastructure spending.”

An ongoing corruption scandal was said to have worsened investor sentiment, with BMI noting that the Philippine Stock Exchange index had fallen to a near six-month low last Sept. 30.

Manufacturing activity has also shown signs of strain, with the purchasing managers’ index contracting for the first time in six months in September.

Exports, meanwhile, sharply slowed in August from a month earlier.

‘Outsized impact’

As for 2026, BMI said that remittance growth was likely to slow due to tighter United States immigration policy and a 1-percent tax.

“A slowdown in remittances will weigh on domestic consumption, which will have an outsized impact on growth given the domestically driven economy,” it said.

The trade balance also expected to worsen given a US-Philippines deal that imposed a 19-percent duty on Philippine exports and none on American goods.

Erratic US trade policies and global uncertainty, BMI added, are seen constraining foreign direct investment flows into the country.

The Fitch unit cautioned that the risks to its forecast were tilted to the downside.

“Should the ongoing probe uncover corruption across other infrastructure projects beyond flood control, it could lead to even tighter scrutiny on government spending and reduce spending substantially below fiscally programmed levels,” it said.

The economy has underperformed so far for the year, averaging just below the 5.5- to 6.5-percent target as of end-June following 5.4-percent and 5.5-percent results in the first two quarters.

Preliminary third-quarter growth data will be released on Nov. 7, and economic managers have warned of a slowdown due to government spending having slowed due to the corruption mess.

BMI expects growth to rebound to 6.2 percent in 2027 and 6.3 percent in 2028.

Deficit to narrow

The Fitch unit, in a separate Oct. 22 commentary, also said that the country was likely to post a narrower fiscal deficit with spending having fallen below target.

BMI said the shortfall was likely to hit 5.5 percent of gross domestic product this year, down from 5.7 percent in 2024, and ease further to 5.4 percent next year.

While revenue collections have exceeded average monthly targets since the start of the year up to August, spending over the same period was behind programmed levels due to an election ban and weak infrastructure disbursements.

The spending shortfall will likely narrow but still undershoot the 2025 budget, BMI said, noting that Budget Secretary Amenah Pangandaman has warned of a slowdown due to the corruption mess.

Government infrastructure spending slowed by 5.6 percent to P798.4 billion as of end-August from P845.3 billion recorded last year, Budget department data showed.

Budget officials said the infrastructure project implementation will likely accelerate in the fourth quarter with the typhoon season over, and ”payment of progress billings may also start to normalize in the latter part of the year as internal controls have been put in place” by the Public Works department.

Fiscal consolidation will remain slow next year, BMI said, with tax collections unlikely to keep up with next year’s proposed P6.79-trillion government budget.

Tariff collections are also expected to fall due to the trade deal with the US.

‘Fiscally unfeasible’

Next year’s fiscal deficit forecast, BMI said, is supported by a “one-off privatization” — equivalent to 0.3 percent of gross domestic product — planned by the government.

“We think that this is fiscally unfeasible over the long run,” it said.

BMI noted that the Philippines’ public finances remain fragile with the debt-to-GDP (gross domestic product) ratio hovering around 60 percent, significantly above the pre-pandemic level of 40 percent.

“Elevated borrowing costs and a narrow revenue base further limit Manila’s ability to deliver large-scale fiscal support without compromising debt sustainability,” it added.

Debt-to-GDP ratio as of end-June, meanwhile, had climbed to 63.1 percent from 62 percent in the previous quarter and 60.9 percent a year earlier. It also exceeded the 60-percent threshold that multilateral lenders consider manageable for developing economies.

Source: Manila Times