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Friday, July 7, 2017

The Unbearable Volatility of BSP's Residential Real Estate Price Index

Perhaps because the index has been in its infancy but according to BSP's Residential Real Estate Price Index (RREPI) investors in residential real estate have been experiencing a nausea-inducing roller-coaster ride in terms of asset prices.

The swings in the areas outside the National Capital Region (Ex-NCR) are particularly problematic. Within the past two years, RREPI - All Types for the Ex-NCR area has swung from a high of 125.7 in the second quarter of 2016 from a low of 106.2 as of the 2nd Qtr. of 2015, an increase of 15.51% in just one year. Then in the next quarter, the index drops by 10.74% to 112.2 as of the 3rd Qtr of 2016. The RREPI - All Types index for the Ex-NCR area now rests at 116.8 as of the 1st Qtr 2017 or 4.10% higher than what it was just two quarters ago.

This volatility of the Ex-NCR RREPI-All Types has influenced large swings in the overall Philippine RREPI-All Types. Since its inception, the nationwide index has swung 10.18% from bottom to top. No doubt, the volatility of the Philippine-wide RREPI-All Types was tempered by the low volatility of the NCR RREPI - All Types, which fluctuated by only 2.63% from peak to trough.

The same dynamic has been playing out as you drill down into the index's sub-sectors, whether they be Single Detached Homes, Duplex, Townhouses, or Condominiums. Ex-NCR is volatile while NCR has smoother fluctuations, leading to a more volatile nationwide index for each sub-sector.

The Philippines was one of the last countries in the ASEAN to institute a National Residential Real Estate Index. Other countries have done this much sooner. However, late is better than never. In the meantime, for planning purposes, the index has limited utility.

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