Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said there is no asset bubble happening in the real estate sector despite the increase in property prices.
“There is no asset bubble [in the real estate sector]. The increase in property prices are actually demand driven,” Tetangco said during a panel discussion at the Philippine International Convention Center in Pasay City. Tetangco said property builders and developers were wiser and now more aware of the risks associated with the property business. “Before, most developers build, let’s say four towers first, before selling it to potential buyers. But now, they see to it that almost 80 percent of the first tower is sold before building another tower,” Tetangco said.
Asset bubbles are characterized by an upshot in asset prices, such as those in the real estate sector, that they no longer reflect real market rates due to perceived demand. Such is seen as detrimental to the economy.
Global debt watcher Fitch Ratings earlier said in a report that there was a limited clarity over macro-prudential risks stemming from the country’s real estate market. Fitch said the lack of data on property prices and affordability indicators made it difficult for the rating agency to assess the effect of credit growth on the real estate market. Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the macro-prudential measures employed by the banking regulator made the risks of asset price inflation manageable.
“The risks of asset price inflation appear manageable and have in fact been addressed by a number of macroprudential measures,” Guinigundo said in an earlier statement. Guinigundo said a significant runup in real estate prices in Makati and elsewhere could be true but at best anecdotal. He said there should be a residential real estate price index to make a general characterization of the real estate sector and the likely path of property prices.
“It is also useful to produce a decomposition into residential and commercial property prices which are driven by different dynamics. For housing, we continue to have a large backlog while the capacity of the clients has increased due to overseas remittances, higher employment and business process outsourcing,” Guinigundo said. He said for commercial establishments, the robust economic tempo had generated great interest among investors and their corresponding demand for commercial space was shooting up.
“But again, the various macro-prudential measures and careful monetary stance of the BSP have helped support the sustainability of this segment. We also believe that our key property builders and developers are now more risk-conscious and therefore have conducted themselves responsibly,” Guinigundo said.
Fitch cited a data published by Colliers International showing that average land values in the Makati central business district had risen by more than 50 percent since the end of 2012, although relatively low vacancy rates and strong growth in rents suggested some fundamental support for current price levels. Fitch said while private sector credit growth moderated from 19.9 percent year-on-year at end-2014 to 14.1 percent in June 2015, it was still growing at a brisk pace. Fitch said the proactive supervision and regulation of the Bangko Sentral, particularly on the introduction of real estate stress tests and caps on mortgage loan values relative to collateral, might help to contain risks.
Bangko Sentral plans to release a residential real estate price index later this year.
Guinigundo said banks engaged in real estate were advised to ensure their capital base was not unduly challenged by their exposure in real estate.
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