benjamin e diokno : the role of real estate practitioners in advancing sustainable growth in the new normal speech by mr benjamin e diokno, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the 43rd annual convention of the real estate brokers association of the philippines, 11 november 2021. * * * officials of the real estate brokers association of the philippines ( rebap ), ladies and gentlemen, a pleasant afternoon to all of you. thank you for inviting me to your 43rd annual convention. the theme of the convention, “ spirited rebap : thriving and working together in shaping the future ”, reminds us of the need to dream big and to take bold action. thus, i welcome this opportunity to share the bsp ’ s thoughts on the critical role of real estate practitioners in advancing our common objective of achieving sustainable growth in the postcovid - 19 economy. i will start by discussing the economic landscape, including developments in the real estate market. this will be followed by highlights on the performance of the philippine banking system. next, i will focus my discussion on the bsp ’ s initiatives relevant to real estate practitioners and share how these initiatives have affected financing to the real estate sector. i will conclude with a few thoughts on how the bsp and the industry can further strengthen our partnership for purposes of supporting the recovery of the philippine economy. while the real estate industry is not under the direct regulatory purview of the bsp, it is viewed as an important sector in the bsp ’ s conduct of monetary policy and financial supervision for the following reasons : first, asset prices affect volatility in general price levels and economic output. also, volatility in asset prices, which could result from undue speculation or bubbles, may give rise to widespread financial instability. in the past, a real estate boom is primarily financed by bank lending. real estate is a creditintensive good, but one of the most illiquid assets of financial institutions. moreover, the bsp ’ s policy actions affect the movements and behavior in the property market. for example, a hike in policy rate lowers the value of asset holdings of individuals and financial institutions and could potentially make credit financing more costly for both buyers and property suppliers. in 2020, like most of the industries, the real estate and construction sectors contracted in q1 2020 and throughout the pandemic year 2020. in the second quarter of 2021,

however, the real estate and construction subsectors have started to recover as restrictions on mobility and economic activity were gradually relaxed. we also saw real estate demand slip due to pandemic - related uncertainties. the capital values for office and residential units in the country ’ s major commercial and business 1 / 6 bis central bankers'speeches districts decreased in 2020 due to lesser demand amid the pandemic. a higher vacancy rate was also recorded during the period due mainly to slowdown in leasing activities, weak demand and a cautious market. based on the latest residential real estate price index, the residential real estate prices of various types of new housing units declined further in q2 2021. the nationwide house prices contracted by 9. 4 percent year - on - year in q2 2021, from – 4. 2 percent in q1 2021 as the pandemic hit demand. however, high base effects may also have contributed to the significant decline during the period as the index peaked in q2 2020 while posting a 4. 8 percent increase quarter - on - quarter. meanwhile, the national commercial property price index, which measures the average changes in appraised values of commercial properties, shows a deceleration in growth in the second half of 2020. the bsp anticipates that activity in the real estate market will recover in line with rebound in overall economic growth in 2022. meanwhile, the philippine banking system remained on solid footing as shown by continued growth in assets, deposits and capital, as well as positive net profit, stable capital and liquidity buffers, ample loan loss reserves and manageable loan quality. overall, the banking system ’ s financial condition remains supportive of the country ’ s financing needs. at the height of the pandemic in 2020, the bsp implemented liquidity - enhancing measures to support financing requirements of the economy. for instance, the bsp lowered the bsp ’ s policy rate by 200 basis points. this rate has since been maintained at 2. 0 percent, the lowest rate since the beginning of the pandemic. the bsp also reduced reserve requirements of universal banks to 12 percent from 14 percent. this policy stance has contributed to a general decline in lending rates across all loan product categories. for instance, the weighted average interest rate of housing loans dropped to 6. 6 percent as of end - june 2021 from 8 percent in end - march 2020. similarly, the weighted average interest rate of loans to corporations fell to 4. 9 percent as of