Commercial property price index to help ensure financial stability
The central bank’s upcoming commercial property price index (CPPI) will help it gauge the impact of the coronavirus crisis on the real estate industry and give the regulator another indicator to monitor in fulfilling its financial stability mandate.
“It is crucial to monitor the commercial property prices and the commercial real estate sector during this crisis and as we move towards the new economy is the adverse effects of the pandemic on the outlook for the real estate sector,” the Bangko Sentral ng Pilipinas (BSP) said.
The CPPI will include details such as the actual use of a commercial property and appraised land value. Its bank-level data will include indices for commercial properties within Metro Manila and their uses such as office, retail, mixed use, and commercial vacant lot.
The BSP announced in June that it will release its first CPPI within the year, which will be patterned after its quarterly residential real estate price index (RREPI).
The Philippines is one of 59 countries that release quarterly RREPI data. This came after experts, following the Global Financial Crisis, said some indicators in the property sector could serve as warnings for a potential economic downturn.
While the consumer price index is the main indicator considered by the BSP when setting policy as an inflation-targeting central bank, it said the CPPI will also help it ensure the financial system’s stability.
“A wide set of economic variables is also taken into account in the BSP’s policy-making decisions regarding the appropriate stance of monetary policy, with the view to maintaining price stability conducive to sustainable growth and employment. These include monitoring the trends in the Philippine property sector,” the BSP said.
The price index for the commercial real estate sector could also be used as “an indicator of macroeconomic activity; an input to socioeconomic policies such as monetary and financial policies, and a basis for investment decisions and cross-country comparisons,” the central bank added.
The CPPI would also help the BSP assess how its policies affect the real estate sector, it said.
“A loose monetary policy could encourage a shift of capital flows into the real estate, which in turn could exert pressure on real estate prices to rise,” the BSP said. “Conversely, a hike in policy rates lowers the value of asset holdings of individuals and financial institutions, it could potentially make credit financing more costly for both buyers and property suppliers.”
The Financial Stability Coordination Council in July said the commercial real estate industry is among the sectors that will see a significant change in the “new normal” due to work-from-home and health protocols.
Officials noted that the exodus of foreign workers is a growing concern as they mainly drove demand for office space before the pandemic. They also noted the need to retrofit existing spaces and improve ventilation in order to comply with physical distancing and health protocols.
Residential property prices declined in the first quarter, mainly dragged by the lower costs of condominium units and duplexes due to weak demand amid the crisis. The RREPI was down by 4.2% year on year in the January to March period, the steepest decline recorded since the index was launched in 2016.