BSP RE PRICE INDEX (RREPI)

The BSP's Residential Real Estate Price Index (RREPI) registered a 12.9% year-on-year increase in 3Q2023. How do we interpret this data?

BSP Real Estate Price Index 3Q2023 Highlights

Let's first look at how the BSP derived this number.

+ The BSP has banks report details of all residential RE loans granted.

+ They then compile all the appraised values, and they get a weighted average (by the share of the properties on the total floor area).

Problems with RREPI

1. Assume a buyer bought a condo in 2018 with a 5-year payment term. In 2023, he gets a loan to fund the balance. What value does the bank report in 2023? The value of the condo in 2018, right (otherwise, banks would be holding on highly inflated amounts of collateral)? Therefore, this makes the index an incredibly lagging indicator for properties with extended payment terms (i.e., condos). Condos represent a third of the data used for the index.

2. If you've seen appraisal reports in the PH, their comparables are often ASKING prices on similar properties–not DONE prices. The absence of a central registry for DONE prices makes appraisal reports less reliable.

3. The RREPI only takes into consideration loans granted for NEW housing units (stated in the footnote of the report). Moreover, usually, only those with stable incomes (e.g., employed people) are granted loans. Therefore, the RREPI only captures a portion of the market.

For these reasons, I wouldn't use the RREPI as a basis to depict the state of the RE sector. Instead, it should be viewed as a measure of the asset (collateral) quality of banks.

Explanation for the +12.9%

When interest rates rose in 2023, banks granted loans to those who could afford the increased monthly payments. The data then reflects purchases of more monied buyers (i.e., higher value properties).

If the government wanted to come up with an index to measure the state of the RE sector, the best way to capture data would be through the BIR because all transactions are coursed through them. Since zonal values have been updated more frequently, the time of undervaluation is ending, and the prices reported are more reflective of the market. But I think they're in the process of doing this as they come up with the "schedule of market values."