Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

A lack of transparency results in distrust and a deep sense of insecurity — Dalai Lama 

In this issue

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

I. PSEi 30 Q2 2025: The Illusion of Resilience

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

IB. Structural Downtrend and Policy Transmission Breakdown

IC. Real Value Output in Decline, Political Optics and GDP Credibility

ID. Meralco’s Electricity Consumption Story: A Broken Proxy

II. Real Estate: The Recovery That Wasn’t

IIA. Overton Window vs. Market Reality

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

III. Retail and Food Services: Mixed Signals

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration

IV. Banking Revenues and Income: A Stalling Engine

IVA. Banking Sector: Credit Surge, Revenue Stall

V. The PSEi 30 Net Income Story

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation?

VB. SMC’s Financial Engineering? Escalating Systemic Risk

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

____

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong 

Beneath headline growth lies a fragile mix of policy stimulus, rising leverage, and mounting stagnation—masking systemic fragility. 

I. PSEi 30 Q2 2025: The Illusion of Resilience 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on same year index members; may include revisions to past data

1B: Historical comparison; includes only members present during the end of each respective period; based on unaudited releases

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

Q2 GDP at 5.5%?   

On paper, that should have translated into strong corporate earnings—especially when juxtaposed with the financial pulse of the PSEi 30. 

Yet that headline growth masks a deeper dissonance: These firms, positioned as frontline beneficiaries of BSP’s easing cycle and historic deficit spending, should have reflected the policy tailwinds.

Figure 1

Instead, the disconnect is glaring: while nominal GDP surged 7.2% in Q2 and 7.4% in H1, aggregate revenues of the PSEi 30 contracted by 0.3% in Q2 and barely budged at 1.7% for the first half. (Figure 1, upper graph) 

IB. Structural Downtrend and Policy Transmission Breakdown 

More troubling, this isn’t a one-off anomaly. 

2025’s performance merely extends a structural downtrend that peaked in 2022—raising uncomfortable questions about transmission mechanisms, institutional fragility, and the real beneficiaries of expansionary policy. 

Consider this: Universal bank credit hit a historic high in June 2025, with 12.63% growth, the fastest pace since 2022. Yet PSEi 30 revenue growth in H1 limped to just +1.7%. The juxtaposition is telling. (Figure 1, lower window) 

Rather than fueling productive consumption or corporate expansion, credit appears channeled into asset churn and balance sheet patchwork—rolling debt, patching liquidity gaps, gaming duration mismatches. It’s a kinetic mirage, where velocity substitutes for vitality—hallmarks of overleveraging and diminishing returns. 

The very tools meant to stimulate growth now signal policy transmission failure, where liquidity flows but impact stalls. 

IC. Real Value Output in Decline, Political Optics and GDP Credibility 

Worst still, when adjusted using the same deflators applied to GDP, the PSEi 30’s real output doesn’t just stagnate—it slips into quasi-recession. Both Q2 and H1 figures turn negative, ≈ -2% and -.4%, exposing a structural rot beneath the nominal gloss. (Note 1)

Figure 2 

And this isn’t a statistical fluke. 

A full third of the index—10 out of 30 firms—posted revenue contractions, led by holding firms San Miguel, Alliance Global, and Aboitiz Equity. These aren’t fringe players—they’re positional market leaders. (Figure 2, upper table) 

As a side note, AGI’s revenue decline was partly driven by the deconsolidation of Golden Arches Development Corp, following its reclassification as an associate in March 2025 (Note 2) 

The gap is too wide, too persistent a trend, to be dismissed as cyclical noise. 

Was the PSEi 30 shortfall simply papered over by government spending, with a boost from external trade? 

Or was GDP itself inflated for political ends—to justify lower interest rates, defend the proposed Php 6.793 trillion 2026 budget (+7.4% YoY), and tighten the administration’s grip on power? 

Most likely, the truth lies in some combination of both. 

ID. Meralco’s Electricity Consumption Story: A Broken Proxy 

That’s not all. 

Meralco’s electricity sales volume contracted −0.33% YoY in Q2, dragging H1 growth down to a mere +0.51%. This isn’t just a soft patch—it’s historic: 

• First Q2 contraction since Q1 2021,
• First negative H1 since 2020, —both periods marked by pandemic-induced recession. 

More tellingly, Meralco’s quarterly GWh chart—once a reliable proxy for real GDP—has broken correlation. The divergence, which began in Q1 2024, has now widened into a chasm. (Figure 2, lower chart) 

To compound this, peso electricity peso sales shrank by 1.74% in Q2, and Meralco’s topline declines—both in pesos and GWh—dovetailed with the 8% sales slump in aircon market leader Concepcion Industries Corporation, as we discussed in an earlier post. (see references) 

When electricity consumption decouples from GDP, it raises uncomfortable questions: 

• Is real consumption being overstated? 
• Are headline figures engineered to justify policy optics—lower rates, ballooning budgets, and political consolidation? 

The numbers suggest more than statistical noise. They hint at a manufactured narrative, where growth is declared, but not felt. 

II. Real Estate: The Recovery That Wasn’t 

IIA. Overton Window vs. Market Reality 

There’s more. The public has recently been bombarded with official-consensus messaging about a supposed real estate ‘recovery.’ 

 The BSP even revised its property benchmark to show consistently rising prices—curiously, at a time of record vacancies. (see references) By that logic, the laws of supply and demand no longer apply. 

To reinforce the recovery echo chamber, authorities published modest Q2 and H1 NGDP/RGDP figures of 5.7% and 5.4%, respectively. 

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain 

Figure 3

Yet the hard numbers tell another story: stagnation gripped the top 5 publicly listed property developers—SMPH, ALI, MEG, RLC, and VLL—whose aggregate Q2 revenues grew by a paltry 1.23% YoY. (Figure 3 topmost image)

Adjusted for GDP deflators, that’s a real contraction. In effect, published rent and real estate sales may be teetering on the brink of recession.

The relevance is clear: these five developers accounted for nearly 30% of the sector’s Q2 GDP, meaning their results are a critical proxy for actual conditions—assuming their disclosures are accurate.

Yet, if there’s one metric that’s consistently rising, it’s debt.

Published liabilities surged 5.5% or Php 53.924 billion, reaching a record Php 1.032 trillion in Q2. Meanwhile, cash reserves plunged to their lowest level since 2019. (Figure 3, middle chart)

And yet, net income rose 11.15% to Php 35.4 billion—a figure that invites scrutiny, given flat revenues, rising leverage, and tightening liquidity.

In reality, developers appear forced to draw down cash to sustain operations and patch liquidity gaps, a fragile foundation to prop up the GDP consensus.

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

Worse, the sector’s downstream segment remains mired in doldrums.

Sales of publicly listed market leaders in home improvement and construction supplies—Wilcon and AllHome—fell -1.95% and -22.1% in Q2, respectively. Both chains have been struggling since Q2 2023, but the latest data are striking: despite no store expansion, AllHome reported a -28% collapse in same-store sales, while Wilcon’s growth lagged despite opening new outlets in 2024–2025, underscoring weak organic demand and the record vacancies. (Figure 3, lowest visual)

Strip away the official spin, and the underlying pattern emerges: insufficient revenues, surging debt, and shrinking liquidity. Overlay this with record-high employment statistics, historic credit expansion and fiscal stimulus—what happens when these falters? 

Consumers are already struggling to sustain retail and property demand. Yet, embracing the ‘build-and-they-will-come’ dogma, developers continue to expand supply, worsening the malinvestment cycle: supply gluts, strained revenues, debt build-up, and thinning cash buffers—a crucible for a future real estate debt crisis. 

III. Retail and Food Services: Mixed Signals 

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot 

It’s not all bad news for consumers. 

Some segments gained traction from the “sweet spot” of easy money and fiscal stimulus—manifested in record bank credit and near all-time high employment rates. 

Figure 4

The most notable beneficiaries were non-construction retail chains, where expanded selling space (malls, outlets, stores) lifted revenues. The combined sales of the six listed majors—SM, Puregold, Robinsons Retail, Philippine Seven, SSI, and Metro Retail—rose 8.6% in Q2, their strongest showing since Q2 2023. (Figure 4, topmost graph) 

Still, signals remain mixed. In Q2, retail NGDP slipped to its lowest level since Q1 2021, while real consumer GDP bounced to 5.5%, its highest since Q1 2023. 

Company results reflected this divergence:

• SM: +8.9% YoY (best since Q4 2023)
• PGOLD: +12.3%
• RRHI: +5.9%
• SEVN: +8.6%
• SSI: −1.6%
• MRSGI: +6.6%

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends 

Interestingly, while Philippine Seven [PSE: SEVN] continues to boost headline growth via new store openings, same-store sales have operated in negative territory from Q4 2024 to Q2 2025. This divergence reveals how money at the fringes conceals internal vulnerabilities—weakening demand paired with oversupply. Once the benefit of new outlets erodes, excess capacity will magnify sales pressure, likely translating into eventual losses. (Figure 4, middle pane) 

Even as listed non-construction retail firms outpaced retail NGDP (6.8%) and RGDP (6.15%), their performance only partially resonates with the real GDP dynamic. 

Yet, the embedded trend across retail sales, consumer GDP, and retail NGDP remains conspicuously downward. 

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration 

The food service industry echoes this entropy. Jollibee’s domestic sales grew 10.13% in Q2, pulling aggregate revenue growth of the four listed food chains—JFC, PIZZA, MAXS, FRUIT—to 9.6%, still below the 10.7% NGDP and 8.34% RGDP for the sector. The growth trajectory, led by JFC, continues to decelerate. (Figure 4, lowest diagram) 

Notably, JFC accounted for 86% of aggregate listed food service sales, yet only 54% of Q2 Food Services GDP—a testament to its PACMAN strategy of horizontal expansion—an approach I first described in 2019—enabled by easy-money leverage in its pursuit of market dominance (see references) 

Unfortunately, visibility on the sector is now diminished. Since AGI reclassified Golden Arches (McDonald’s Philippines) as a non-core segment, its performance is no longer disclosed. For reference, McDonald’s sales plunged 11.5% in Q1 2025. 

Losing this datapoint is regrettable, given McDonald’s is Jollibee’s closest competitor and a critical indicator of industry health. 

IV. Banking Revenues and Income: A Stalling Engine 

IVA. Banking Sector: Credit Surge, Revenue Stall 

Finally, despite all-time high loan volumes, bank revenues slowed sharply in Q2—an unexpected deceleration given the credit surge. The top three PSEi 30 banks—BDO, BPI, and MBT—posted a modest 7.02% revenue increase, dragging 1H growth down to 7.99%. For context, Q1 2025 revenues rose by 9%, while Q2 2024 saw a robust 21.8% jump. Full-year 2024 growth stood at 20.5%, making Q2 2025’s performance less than half of the prior year’s pace. 

We dissected the worsening conditions of the banking sector in depth last week (see reference section) 

V. The PSEi 30 Net Income Story 

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation? 

For the PSEi 30, if revenue stagnation already stands out, net income tells a similar story.

Figure 5 

Q2 2025 net income rose by 11.5% (Php 28.7 billion), pulling down 1H income growth to 13.8% (Php 68.6 billion). While Q2 gross net income was the highest since 2020, its marginal increase and subdued growth rates marked the second slowest since 2021. (Figure 5, upper chart) 

The devil, of course, lies in the details. 

The biggest contributor to the PSEi 30’s net income growth in Q2 and 1H 2025 was San Miguel Corp. Its net increase of Php 18.7 billion in Q2 and Php 53.19 billion in H1 accounted for a staggering 65.2% and 77.54% of the total PSEi 30 net income growth, respectively—despite comprising just 8.5% and 11.8% of the index’s gross net income. (Figure 5, lower table) 

In effect, SMC was not merely a contributor but the primary engine behind the index’s earnings rebound.

Yet this dominance raises more questions than it answers.

Despite a sharp revenue slowdown and only marginal improvements in profit margins—still below pre-pandemic levels—SMC reported a substantial jump in cash holdings and a deceleration in debt accumulation. But this apparent financial strength stems not from operational resilience, but from non-core gains: fair value revaluations, FX translation effects, and dividends from associates.

The result is a balance sheet that appears healthier than it is, with cash levels inflated by accounting maneuvers rather than organic surplus.

VB. SMC’s Financial Engineering? Escalating Systemic Risk

Beneath the surface, SMC’s debt dynamics resemble quasi-Ponzi finance—borrowing Php 681 billion to repay Php 727 billion in 1H 2025, while plugging the gap with preferred share issuance and asset monetization. The latter includes the deconsolidation and valuation uplift of its residual stakes in the Ilijan power facility and Excellent Energy Resources Inc. (EERI), as well as the $3.3 billion LNG deal with Meralco and AboitizPower in Batangas. Though framed as strategic partnerships, these transactions involved asset transfers that contributed heavily to the surge in reported profits.

The simulacrum of deleveraging—from Php 1.56 trillion in Q4 2024 to Php 1.506 trillion in Q2/1H 2025—appears to be a product of financial engineering, not structural improvement. This disconnect between reported profitability and underlying liquidity mechanics raises concerns about transparency and sustainability.

In a market where banks, corporates, and individuals hold significant exposure to SMC debt (estimated at 4.3% of June 2025’s total financial resources), the company’s accounting-driven cash buildup may signal escalating systemic fragility—a risk that the recent equity selloff seems to be pricing in ahead of the curve.

Stripped of SMC’s potentially inflated income, Q2 and H1 net income for the PSEi 30 would rank as the second-lowest and lowest since 2021, respectively—underscoring the fragility behind the headline performance.

At the same time, and with curious timing, SMC announced its intent to undertake large-scale flood control across Metro Manila and Laguna—"at no cost to the government or the Filipino people". Whether this reflects a genuine civic gesture or a strategic bid to accumulate political capital remains unclear. But the optics are unmistakable: as SMC’s earnings distort the index’s headline strength, it simultaneously positions itself as a public benefactor.

Yet, is this narrative groundwork for a future bailout, or a preemptive reframing of corporate rescue as national service?

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap 

Finally, let us move on to the PSEi 30’s liquidity metrics: debt and cash. 

If there’s one structurally entrenched dynamic in the PSEi 30, it’s borrowing.

Figure 6

Published short- and long-term debt of the non-financial PSEi 30 surged to an all-time high of Php 5.95 trillion in 1H 2025—up 7.66% year-on-year. (Figure 6, topmost chart) 

The net increase of Php 423 billion amounted to 74.7% of the gross net income and a staggering 617% of the YoY net income increase. 

Including the bills payable of the four PSEi 30 banks—Php 859.7 billion, excluding bonds—total leverage rises to Php 6.8 trillion—with net borrowing gains of Php 760.5 billion, overshadowing declared net income of Php 566.7 billion. 

In short, the PSEi 30 borrowed Php 1.34 to generate every Php 1 in profit—assuming SMC’s profits are genuine. 

And this borrowing binge wasn’t isolated. Among the 26 non-financial firms, 18 increased their debt in 1H 2025. 

On average, debt now accounts for 27% of assets—or total liabilities plus equity. 

SMC, once the poster child of corporate borrowing, ceded the title this period to Meralco, Ayala Corp, and Aboitiz Equity Ventures. (Figure 6, middle table) 

Notably, MER and AEV’s borrowing spree coincides with their asset transfer deals with SMC. Whether this reflects strategic alignment or a quiet effort to absorb or ‘share’ SMC’s financial burden to deflect public scrutiny—such optics suggest a coordinated dance. 

If true, good luck to them—financial kabuki always yields to economic gravity. 

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure 

The thing is, transparency remains a persistent concern, especially in periods of mounting financial stress or pre-crisis fragility. 

First, there’s no assurance that published debt figures reflect full exposure. Some firms may be masking liabilities through other liabilities (leases, trade payables) or off-balance sheet arrangements. 

Second, asset valuations underpinning declared balance sheets may be unreliable. Accounting ratios offer little comfort when market liquidity evaporates—see the 2023 U.S. bank crisis or China’s ongoing property implosion. 

Despite historic borrowing and declared profits, PSEi 30 cash reserves barely budged—up just 0.96% YoY, with a net increase of Php 14.07 billion following two years of retrenchment. Cash levels have been on a steady decline since their 2020 peak. We suspect that recent upticks in cash are not in spite of borrowing, but because of it. 

This growing debt-income-revenue mismatch explains the establishment’s increasingly desperate calls for “MOAR easing” and declarations of a real estate “recovery.” 

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

The PSEi 30’s revenue stagnation belies the optics of headline GDP growth. Even in the supposed “sweet spot”—BSP easing, FX soft-peg subsidies, and record stimulus—consumer strain cuts across sectors.

Stimulus may persist, but its marginal impact is fading—manifesting the law of diminishing returns. The disconnect between policy effort and real economy traction is widening.

Q2 and H1 income growth seem to increasingly reflect on balance sheet theatrics driven more by financial engineering and accounting acrobatics than by operational reality.

When earnings are staged rather than earned, the gap between corporate performance and macro reality doesn’t just widen—it exposes a deepening structural mismatch. 

Deepening leverage also anchors the PSEi 30’s fundamentals. On both the demand and supply sides, debt props up activity while cash thins. The same fragility echoes through the banking system and money supply mechanics. 

This is not resilience—it’s choreography. And when liquidity recedes, the performance ends. 

As Buffett warned: "when the liquidity tide goes out, we’ll see who’s been swimming naked" We might be hosting a nudist festival. 

___ 

Notes: 

Note 1 While GDP measures value-added and corporate revenues reflect gross turnover, applying the same deflators provides a reasonable proxy for real comparison. 

Note 2: Alliance Global 17 Q August 18, 2025: Effective March 17, 2025, GADC was deconsolidated and ceased to be a business segment as it becomes an associate from that date, yet the Group’s ownership interest over GADC has not changed p.2 

References 

Prudent Investor Newsletter, Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum, June 01, 2025 (Substack) 

Prudent Investor Newsletter, Concepcion Industries Cools Off—And So Might GDP and the PLUS-Bound PSEi 30 (or Not?) July 28, 2025 

Prudent Investor Newsletter, The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility, July 13, 2025(Substack) 

Prudent Investor Newsletter, Jollibee’s Fantastic Paradigm Shift: From Consumer Value to Aggressive Debt-Financed Pacman Strategy March 3, 2019 

Prudent Investor Newsletter, Philippine Banks: June’s Financial Losses and Liquidity Strains Expose Late-Cycle Fragility, August 17, 2025 (Substack)

  

The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility

 

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. 

Worse, the turn toward benchmark-ism and sentiment engineering in the face of industry slowdown signals more than strategy—it reeks of desperation.

When monetary tools fall short, propaganda steps in to fill the gap—instilling false premises to manufacture resilience.

And the louder the optimism, the deeper the dissonance. 

____

References 

Bangko Sentral ng Pilipinas BSP's new Residential Property Price Index more accurately captures market trends June 27, 2025 bsp.gov.ph