Fake numbers lead to a phony economy, with fraudulent policies, chasing a mirage—Bill Bonner
In this issue
The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility
Part I. The BSP’s Statistical Magic: From Crisis to Boom Overnight
I. A. Statistics as Spectacle — The Real Estate Index Makeover
I. B. The Tale of Two Indices: Deflation and Vacancies Erased: RPPI’s Parallel Universe of Price Optimism
I. C. Multiverse Economic Logic, Pandemic Pricing Without Mobility
I. D. BSP’s Statistical Signaling as Policy: Reflation by Design
Part II: The Confidence Transmission Loop and Liquidity Fragility
II. A. Confidence as Catalyst: BSP’s Keynesian Animal Spirits Playbook
II. B. Benchmark Rate Cuts and the Wealth Effect Mirage
II. C. Developer Euphoria: Liquidity, Debt, and Overreach
II. D. Affordability Fallout: Mispricing New Entrants
II. E. Vacancy vs. Real Demand: The Phantom of Occupancy, Market Hoarding and the Developer Divide
II. F. The Squeeze on Small Property Owners: Valuation Taxes and Hidden Costs
II. G. Sentiment Engineering: Policy Windfalls, Redistribution, Inequality
Part III: Policy Transmission: Consumer Debt, Market Dispersion, and the Mounting Fragility
III. A. Capital Market Transmission: Where Confidence Becomes Signal
III. B. Price Divergences and Latent Losses: Fort Bonifacio & Rockwell
III. C. Liquidity Spiral: From Losses to Liquidation Risk
III. D. Concentration Risk in Consumer Lending
III. E. Credit-Led Growth: Ideology and Fragility
III F. Employment Paradox and Inflation Disconnect
III G. Fragile Banking System: Liquidity Warnings Flashing
IV. Conclusion: The Dangerous Game of Inflating Asset Bubbles
The Confidence Illusion: BSP’s Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility
How benchmark-ism and sentiment engineering are used to buoy real estate and stock prices to back banks amid deepening stress.
Part I. The BSP’s Statistical Magic: From Crisis to Boom Overnight
I. A. Statistics as Spectacle — The Real Estate Index Makeover
In a fell swoop, the real estate industry’s record vacancy dilemma has been vanquished by the BSP.
All it took was for the monetary agency to overhaul its benchmark—replacing the Residential Real Estate Price Index (RREPI) with the Residential Property Price Index (RPPI). (BSP, July 2025)
And voilà, prices have been perpetually booming, and there was never an oversupply to begin with!
Regardless of the supposed “methodological upgrade”—anchored in hedonic regression and presented as aligned with global best practices—the index is built on assumptions and econometric modeling vulnerable to error or deliberate manipulation.
Let us not forget: the BSP is a political agency. Its goals are shaped by institutional motives, and there’s no third-party audit of its inputs or underlying calculations. The only true litmus test for the data? Economic logic.
I. B. The Tale of Two Indices: Deflation and Vacancies Erased: RPPI’s Parallel Universe of Price Optimism
Figure 1
Under the original RREPI, national price deflation was recorded during the pandemic recession: Q3 2020 (-0.4%), Q1 2021 (-4.2%), Q2 2021 (-9.4%). Deflation returned in Q3 2024 at -2.3%. (Figure 1, upper visual)
But under RPPI? No deflation at all.
Instead, the same quarters posted gains: Q3 2020 (6.3%), Q1 2021 (4.1%), Q2 2021 (2.4%), and Q3 2024 (7.6%). Not even a once-in-a-century health and mobility crisis could dent the official boom narrative.
The new RPPI also shows a material deviation from the year-on-year (YoY) price changes in residential and commercial prices in Makati reported by the Bank for International Settlements (BIS). Figure 1, lower pane)
The BSP’s narrative: “Property prices rise in Q1 2025, highest in the NCR.”
Yet media sources paint a starkly different picture—perhaps reporting from another universe—or even permanently bullish analysts observed that the vacancy woes were intensifying.
Just last April 29th, BusinessWorld noted:
"The vacancy rate for residential property in Metro Manila will likely hit 26% by the end of this year, with condominium developers reining in their launches to dispose of inventory, according to property consultant Colliers Philippines." (italics added)
On April 8th, GMA News also reported:
"The oversupply of condominium units in Metro Manila is now estimated to be worth 38 months, as the available supply has continued to increase while there have been 9,000 cancellations, a report released by Leechiu Property Consultants (LPC)." (italics added)
LPC reported last week that due to prevailing ‘soft demand,’ the NCR condominium oversupply slightly decreased to 37 months in Q2 2025.
And in a more sobering global perspective, on July 10 BusinessWorld cited findings from the 2025 ULI Asia-Pacific Home Attainability Index:
"The Philippine capital was identified as one of the most expensive livable cities in the Asia-Pacific region. Condominium prices in Metro Manila are now 19.8 times the median annual household income, far exceeding affordable levels. Townhouses are even more unattainable at 33.4 times the average income." (bold added)
More striking still, price inflation has persisted amid record oversupply.
I. C. Multiverse Economic Logic, Pandemic Pricing Without Mobility
Figure 2
The old RREPI captured the downturn in NCR condo units—four straight quarters of deflation in 2020–2021 and again in Q3 2024. But the new RPPI virtually erased this distress. According to its logic, speculative frenzy thrived even during ECQ lockdowns. (Figure 2, topmost graph)
But real estate isn’t like equities. Its transactions require physical inspection, legal documentation, and bureaucratic transfer procedures. To suggest booming prices during lockdowns implies buyers magically toured properties, exchanged notarized documents, and signed title transfers—while under mobility restrictions.
Only statistics can conjure such phenomena.
When vacancies surged again in Q3 2024, RPPI recorded a +5.3% gain. One quarter of mild contraction in Q4 2023 (-4.8%) is the lone blemish on its multiverse logic.
RPPI now behaves as if oversupply has nothing to do with prices—either the law of supply and demand has inverted, or RPPI reflects a speculative parallel reality
I. D. BSP’s Statistical Signaling as Policy: Reflation by Design
This isn’t just mismeasurement. It’s perceptional distortion.
The BSP’s policy appears aimed at hitting “two birds with one stone”: rescue the real estate sector—and by extension, shore up bank balance sheets.
Via rate cuts, RRR adjustments, market interventions, and benchmark-ism, statistics have been conscripted into policy signaling.
Part II: The Confidence Transmission Loop and Liquidity Fragility
II. A. Confidence as Catalyst: BSP’s Keynesian Animal Spirits Playbook
Steeped in Keynesian orthodoxy, the BSP continues to lean on “animal spirits” to animate growth. Confidence—organic or manufactured—is viewed as a tool to boost consumption, inflate GDP, and quietly ease the government’s debt burden.
Having redefined its benchmark index, the BSP now uses RPPI not just as data, but as a signaling instrument.
It projects housing resilience at a time of monetary easing, giving shape to a narrative of strength amid systemic stress. RPPI becomes a cornerstone of "benchmark-ism"—targeting real estate equity holders, property developers, and households alike.
II. B. Benchmark Rate Cuts and the Wealth Effect Mirage
The timing is telling.
This narrative engineering coincides with the underperformance of real estate equities. With property stocks dragging the Philippine Stock Exchange, "benchmark-ism" functions as a tactical lifeline to inflate valuations, revive confidence, and activate the so-called "wealth effect."
Rising property prices are meant to induce consumption—not only among equity holders but among homeowners who perceive themselves as wealthier. But this is stimulus by optics, not fundamentals.
II. C. Developer Euphoria: Liquidity, Debt, and Overreach
This ideological windfall extends to property developers. Easier financial conditions could boost demand, sales, and liquidity—justifying their ballooning debt loads and encouraging further capital spending.
Or, developers, emboldened by statistical optimism, may pursue growth despite structural weakness, compounding risks already embedded in their debt-heavy balance sheets.
For example, the published debt of the top five developers (SM Prime, Ayala Land, Megaworld, Robinsons Land and Vista Land) has a 6-year CAGR of 7.88%, even as their cash holdings grew by only 2.16% (Figure 2, middle image)
Additionally, the supply side real estate portfolio of Universal-commercial bank loans has accounted for 24% of production loans, total loans outstanding 20.68% net of Repos (RRP) and 20.28% gross of RRPs. This excludes consumer real estate loans, which in Q1 2025 accounted for 7.54%. (Figure 2, lowest chart)
But this is where the Keynesian blind spot emerges: artificially inflated prices distort economic signals.
II. D. Affordability Fallout: Mispricing New Entrants
In equities, inflated valuations misprice capital, leading to overcapacity and overinvestment in capital-intensive sectors like real estate or malinvestments.
In housing, speculative price increases distort affordability, widening the gap not only between renters and owners, but also between incumbent homeowners and prospective buyers—including those targeting new project launches by developers.
As developers capitalize on inflated valuations, pre-selling prices rise disproportionately to income growth, pushing ownership further out of reach for middle-income and first-time buyers.
This dynamic not only excludes a growing segment of the population, but also risks creating inventory mismatches, where units are sold but remain unoccupied due to affordability constraints.
The ULI Asia-Pacific Home Attainability Index pointed to such price-income mismatches
II. E. Vacancy vs. Real Demand: The Phantom of Occupancy, Market Hoarding and the Developer Divide
Vacancies extrapolate to an oversupply.
Even when a single buyer or monopolist absorbs all the vacancies, this doesn’t guarantee increased occupancy.
Demographics and socio-economic conditions—not speculative fervor—drive real demand.
Meanwhile, rising property prices also translate to higher collateral values, encouraging further credit expansion and balance sheet leveraging in the hope of stimulating consumption.
But this cycle of debt-fueled optimism risks compounding systemic fragility.
Rising prices also create friction between small developers and elite firms, the latter leveraging cheap capital and financial heft to dominate the industry.
Owners of large property portfolios can afford to hoard inventories, allowing prices to rise artificially while sidelining smaller players.
II. F. The Squeeze on Small Property Owners: Valuation Taxes and Hidden Costs
Beyond affordability, rising property prices carry compounding burdens for small-scale owners.
As valuations climb, so do real property taxes, which are pegged to assessed values and can reach up to 2% annually in Metro Manila.
Insurance premiums and maintenance costs—from association dues to repairs—rise in tandem. These escalating expenses disproportionately impact small owners, who lack the financial buffers of large developers or elite asset holders.
The result is a quiet squeeze: ownership becomes not just harder to attain, but harder to sustain.
II. G. Sentiment Engineering: Policy Windfalls, Redistribution, Inequality
Governments reap fiscal windfalls via inflated valuations, using funds to back deficit spending. But these redistributions often fund projects detached from systemic equity or real productivity.
Despite the optics, only a sliver of the population truly benefits.
Aside from the government, the other primary beneficiaries of asset inflation are the elite of the Forbes 100, not the broader population
This "trickle-down strategy", rooted in sentiment and asset inflation, risks deepening inequality and fueling balance sheet-driven malinvestments.
Part III: Policy Transmission: Consumer Debt, Market Dispersion, and the Mounting Fragility
III. A. Capital Market Transmission: Where Confidence Becomes Signal
Here is how the easing-benchmarkism policy is being transmitted at the PSE.
Figure 3
The PSE’s property index sharply bounced by 8.2% (MoM) in June 2025, while the bank-led financial index dropped 4.9%. This divergence reveals that asset reflation via statistical optics has buoyed developers—but failed to restore investor confidence in the banking sector. (Figure 3, topmost window)
During the first inning of the ‘propa-news’ campaign that “Easing Cycle equals Economic Boom” in Q3 2024, both indices had surged—property by 16.41% and financials by 19.4%. But Q2 2025 tells a different story: while property stocks outperformed the PSE again, financial stocks weighed it down. (Figure 3, middle diagram)
This magnified dispersion reflects the imbalance at play. As a ratio to the overall PSE, property stocks are gaining market cap dominance. At the same time, the free float market capitalization of the PSEi 30’s top three banks have declined—mirrored by the rising share of the two biggest property developers. (Figure 3, lowest visual)
Unless bank shares recover, gains in the property sector will likely be capped. After all, property developers remain the biggest clients of the Philippine banking system.
Put another way: whatever confidence boost the BSP engineers through easing and revised benchmarks, markets eventually push back against artificial gains.
Signal may dominate short-term sentiment—but fundamentals reclaim price over time.
III. B. Price Divergences and Latent Losses: Fort Bonifacio & Rockwell
There is more.
Figure 4
The widening divergence in pre-selling and secondary prices of condominiums in Fort Bonifacio and Rockwell Center signifies a deeper signal: the BSP’s implicit rescue of banks via the property sector is being tested on the ground. (Figure 4, topmost window)
The widening price gap implies mounting losses for pre-selling buyers—early investors who are now exposed to valuation markdowns in the secondary market.
So far, these losses have not translated into Non-Performing Loans (NPLs). Continued financing, sunk-cost inertia, buyer risk aversion, and an economy growing more through credit expansion than productivity have suppressed the impact.
But if these losses scale—or if the economy tips into recession or stagnation—underwater owners may surrender keys. This leads to cascading vacancies and NPLs, raising systemic risk.
III. C. Liquidity Spiral: From Losses to Liquidation Risk
Losses, once translated into constrained liquidity, spur escalating demand for liquid assets. This pressure breeds forced liquidations—not just by individual buyers of pre-selling projects, developers but among holders of debt-financed real estate.
Banks, as financial intermediaries, face direct exposure. When collateral values fall, they may issue a ‘collateral call’—requiring borrowers to post more assets—or a ‘call loan,’ demanding immediate repayment.
If rising NPLs escalate into operational or capital deficits, banks themselves become sellers—dumping assets to raise cash. This synchronized selloff in a buyer’s market fuels fire sales and elevates the risk of a broader debt crisis.
III. D. Concentration Risk in Consumer Lending
Last week, the Inquirer cited a Singaporean fintech company which raised concern about the extreme dependence on credit card usage in the Philippines, noting: “The 425-percent debt-to-income ratio in the Philippines—the worst in the region—indicates a ‘severe financial stress.’” (Figure 4, middle image)
Downplaying this, an industry official clarified that since the total credit card contracts were at 20 million, credit card debt averaged 54,000 pesos per contract. Since the number of individuals covered by the contracts was not identified, a person holding multiple credit card debt contracts could, collectively, contribute to a debt profile resembling the 425% debt-to-income ratio (for contract holders).
Based on BSP’s Q4 2023 financial inclusion data, only a significant minority—just 8.1% of the population as of 2021 (World Bank Findex)—carry credit card debt. Even if this figure has doubled or tripled, total exposure remains below 30%, highlighting mounting concentration risks among debt-laden consumers. (Figure 4, lowest table)
III. E. Credit-Led Growth: Ideology and Fragility
The seismic shift toward consumer lending has been driven not only by interest rate caps on credit cards, but by ideological faith in a consumer-driven economy.
Universal and commercial bank consumer credit surged 23.7% year-on-year in May. Credit card loans alone zoomed by 29.4%, marking the 34th consecutive month of 20%+ growth.
Figure 5
From January 2022 to May 2025, consumer and credit card loan shares climbed from 8.8% and 4.4% to 12.7% and 7.5%, respectively. Last May, credit card debt represented 59% of all non-real estate consumer loans. (Figure 5, upper chart)
Yet how much of credit card money found its way into supporting speculative activities in the stock market and real estate?
What if parts of bank lending to various industries found their way into asset speculation?
Once disbursed, banks and the BSP have limited visibility on end-use—adding opacity to the cycle they’re stimulating.
III F. Employment Paradox and Inflation Disconnect
Interestingly, this all-time high in debt coincides with near-record employment rates. The May employment rate rose to 96.11%, not far from the all-time highs of 96.9% in December 2023 and 2024, and June 2024. The employed population of 50.289 million last May was the second highest ever. (Figure 5, lowest graph)
Yet CPI inflation remains muted. Despite collapsing rice prices driven by the Php 20 rollout, inflation ticked up only slightly in June—from 1.3% to 1.4%.
With limited savings and shallow capital market penetration, the Philippines faces a precarious juncture. What happens when credit expansion and employment reverses from these historic highs?
And this won’t affect only residential real estate but would worsen conditions of every other property malinvestments like shopping malls/commercial, ‘improving’ office, hotel and accommodations etc.
III G. Fragile Banking System: Liquidity Warnings Flashing
Beneath the surface, bank stress is already visible.
Figure 6
Even as NPLs remain officially low—possibly understated—liquidity strains are worsening:
-Cash and due from banks posted a modest 3.4% MoM increase in May—but fell 26.4% YoY
(Figure 6, topmost image)
-Deposit growth edged from 4.04% in April to 4.96% in May
-Cash-to-deposit ratio bounced slightly from 9.68% to 9.87%, yet remains at its lowest level since at least 2013
-Liquid assets-to-deposit ratio fell from 48.29% in April to 47.5% in May
-Bank investment growth slowed from 8.84% to 6.5% (Figure 6, middle diagram)
-Portfolio growth dropped from 7.82% to 5.25%
Despite these constraints, banks continued lending.
Interbank lending (IBL) surged, pushing the Total Loan Portfolio (inclusive of IBL and Reverse Repos) from 10.2% to 12.7%, sending the loan-to-deposit ratio to its highest level since March 2020.
Beyond Held-to-Maturity (HTM) assets, underreported NPLs—particularly in real estate lending—may be compounding the liquidity strain and masking deeper fragility. The surge in HTMs has coincided with a steady decline in cash-to-deposit ratios, signaling stress beneath the statistical surface. (Figure 6, lowest visual)
IV. Conclusion: The Dangerous Game of Inflating Asset Bubbles
Despite the Q3 2024 surge in the Property Index—helping power the PSEi 30 upward—combined with a 6.7% rebound in the old real estate index in Q4, vacancy rates soared to record highs in Q1 and remain near all-time highs as of Q2 2025.
This unfolds amid surging consumer and bank credit, all-time high public liabilities fueled by near-record deficit spending, and peak employment rates.
Ironically, the distortions in stock markets—and the engineered statistical illusions embedded in the old property index—have barely moved the needle against real estate oversupply, as measured by vacancy data.
Not only has the BSP sustained its aggressive easing campaign, it is now amplifying statistical optics to reignite animal spirits—hoping to hit two birds with one stone: rescuing property sector balance sheets as a proxy for bank support.
Yet inflating asset bubbles magnifies destabilization risks—accelerating imbalances and expanding systemic leverage that bank balance sheets already betray.
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References
Bangko Sentral ng Pilipinas BSP's new Residential Property Price Index more accurately captures market trends June 27, 2025 bsp.gov.ph
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