Philippines Oversight Aims to Avert Asset Bubble: Southeast Asia

The Philippines’s move to enhance oversight of real-estate lending this year will help curb speculation and improve its ability to prevent a property bubble from forming, the central bank said.

The regulator ordered banks to provide more details on their real-estate exposure in August, including reporting investments in stocks and bonds that fund property ventures and loans to developers of low-cost homes. Closer monitoring will encourage banks “to exercise more self-restraint,” Deputy Governor Nestor Espenilla said in a phone interview Sept. 7.

“It’s a preemptive move,” Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said in an interview the same day in his office. “We don’t see at this point signs of strains in the market but we don’t want to wait for that. That’s the trick with asset bubble; when you see it, that means it has formed and you’re too late.”

The country joins Asian nations including China and Singapore seeking to temper soaring property prices and avoid the economic fallout created by the bursting of the U.S. subprime bubble and real-estate crashes from Spain to Ireland. Philippine bank loans and investments in the property sector surged to a record in March, central bank data show, and rising prices have spurred Ayala Land Inc. and other developers to build more homes.

Property Stocks

Ayala Land Inc. (ALI), the nation’s biggest developer, led the decline among Philippine property companies in Manila trading. Ayala Land dropped 2.8 percent, Megaworld Corp. (MEG) lost 1.8 percent, and Vista Land & Lifescapes Inc. (VLL) fell 1.5 percent. The Philippine Stock Exchange Property Index slid 1.1 percent, compared with a 0.2 percent decline in the benchmark Philippine Stock Exchange Index.

Century Properties Group Inc. (CPG) said today its rising condominium sales in the past two years point to a property market fueled largely by legitimate end-user demand.

“The demand is driven by our 11-million strong Filipino expatriates, coupled by a growing local market with increased purchasing power because of favorable economic conditions,” Marco Antonio, Century Properties’ co-chief operating officer and managing director, said in an e-mailed statement.

Central bank monitoring of lenders’ real-estate exposure will protect the property industry from a bubble, the company said.

“It makes the market even stronger as it ensures that real-estate loans are given to worthwhile projects and weeds out speculators,” Antonio said.

Regulators Cautious

“Regulators are being cautious because they don’t want the recklessness that happened in the U.S. or China or even Europe to happen here,” said David Leechiu, country head of Jones Lang Lasalle Leechiu. Still, “there won’t be a property bubble in the Philippines in the next three years because household debt levels are very low.”

Bangko Sentral currently caps banks’ real-estate exposure at 20 percent of total lending, with some exclusions. With the additional information now required from lenders, the central bank will decide if its policy needs to be reviewed, Espenilla said.

The central bank said Aug. 23 it will expand reporting of real-estate exposure to include real-estate projects and “ancillary services like buying and selling, rental and management of real estate properties.” The scope is broader than the previous ruling, which limited real-estate activities to the acquisition, construction and improvement of property, it said.

Makati Prices

East West Banking Corp. (EW) President Antonio Moncupa and Moody’s Investors Service welcomed the central bank’s August directive. Leechiu said it could slow lending for some projects and make it harder for small Philippine developers to meet demand.

Prices in the Makati business district rose 2.3 percent to an average of 284,130 pesos ($6,819.39) a square meter in the first quarter from the previous quarter and may climb to a record 300,000 pesos by the end of March, 2013, according to a quarterly report by Colliers International UK Plc. In Fort Bonifacio, which is adjacent to Makati, values rose 28 percent as of March from a year earlier, it said.

“Prices are going up and before you know it, everybody thinks they could be a developer,” Moncupa said in a Sept. 6 interview. The central bank is “trying to manage the exposure of the banking system to real estate. That should also correct any speculative activity.”

Cheap Credit

Cheap credit at the end of the last decade inflated property prices, leading to housing bubbles in countries from the U.S. to Ireland and Spain. The collapse of those markets contributed to the global economic downturn, prompting the world’s biggest central banks to stimulate their economies and flood markets with liquidity. That money has found its way into emerging markets, pushing down borrowing costs and driving up housing prices.

The number of condominium units built in the Philippines rose 48 percent to 33,000 last year as construction of 50,000 units started, Colliers said in its report. The PSE Property Index (PPROP), which tracks developers including Ayala Land and SM Development Corp. (SMDC), has risen 35 percent this year, surpassing the 19 percent increase in the Hang Seng Property Index. (HSP)

Philippine banks’ loans and investments in the property sector rose to a record at the end of March to 538.1 billion pesos, 21 percent higher than a year earlier and 3.8 percent more than the previous quarter, central bank data show. Real estate made up 15.2 percent of lenders’ total loans in the first quarter, rising from 14.5 percent a quarter earlier, according to the central bank.

25,000 Homes

Ayala Land plans to start construction of a record 25,000 homes this year, 20 percent more than last year, Chief Executive Officer Jaime Augusto Zobel de Ayala said in an interview in March. It boosted 2012 spending to 47 billion pesos from an earlier budget of 37 billion pesos, Ayala Land said in a report posted on its website last month.

The central bank’s latest moves “are credit positive for Philippine banks with substantial real estate lending because they will prompt the banks to tighten credit controls,” Moody’s said on Aug. 30.

Growth in construction accelerated to 10 percent in the second quarter from 3.6 percent in the first three months of 2012, according to government data. Cement demand rose 25.5 percent during the period, data show.

“More bullish activities have been noted with respect to the high-rise condominium market,” Guinigundo said. “When you are now into your second or third or fourth house which is investment-related and you’re having some problems amortizing, then you can forgo the fourth or the third. And the banks would end up with bad assets. That’s what we want to prevent.”

To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net; Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Norman P. Aquino in Manila at naquino1@bloomberg.net

To contact the editor responsible for this story: Lars Klemming at lklemming@bloomberg.net

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