Philippines Ready to Act on Property Loan Surge: Southeast Asia

The Philippine central bank is reviewing property loans data to determine whether cooling measures are needed to avert a bubble, Deputy Governor Nestor Espenilla said in an interview.

“Our source of concern is the rapid growth of credit,” Espenilla said in his office on April 24. “The central bank is very mindful of seeing the foundation of an asset bubble that can burst and create dislocations in the economy.”

Bangko Sentral ng Pilipinas, which yesterday cut the rate on its special deposit accounts for a third time this year, is monitoring the property market after bank loans and investments surged to a record, based on the most recent central bank data. Rising prices have spurred developers including Ayala Land Inc. to build more homes.

Property loans and investments rose 18.9 percent to a record 561.6 billion pesos ($13.6 billion) at the end of the first half of 2012, according to the latest central bank data. Lending expanded by 4.4 percent in the three months ended June from the previous quarter, it said.

“The central bank is just being prudent and it’s not making these moves because it already sees a bubble,” said Rico Gomez, who helps manage $2.8 billion at Rizal Commercial Banking Corp. in Manila. “When things are buoyant, it’s always prudent to remain vigilant.”

The Monetary Board may be presented with the latest data as early as next week and will assess if any action is needed, Espenilla said. “There is a range of options and I don’t want to preempt the Monetary Board,” he said when asked to elaborate on the possible measures.

Property Proportion

Real estate made up 15 percent of total loans in the first half of 2012, increasing from 14.3 percent a year earlier, the central bank said. Lending to the property industry rose to 17.6 percent of total loans last year from 16.1 percent at the end of 2011, Espenilla said, declining to give more details on the latest report.

Bangko Sentral currently caps banks’ real-estate lending to 20 percent of total outstanding loans, with some exclusions.

“Demand is still growing,” Henry Sy Jr., chief executive officer of SM Development Corp., said in an April 24 interview. “But there’s danger in some areas because good days don’t last forever.”

SM Development, which is controlled by the Philippines’ richest family, plans to spend 71 billion pesos on expansion up until 2015, President Jeffrey Lim said this week.

Record Profit

Residential land values in central business districts in the Philippines rose 8.3 percent in 2012 from a year earlier, and are expected to increase 6.2 percent this year as the economy expands and demand from expatriates rises, according to a quarterly report by Colliers International UK Plc.

Ayala Land, the nation’s biggest developer, expects a record profit this year as it takes advantage of a shortage of 4 million homes, President Antonino Aquino said in a Bloomberg Television interview on March 20.

Century Properties Group Inc., a builder of residential towers, forecasts reservation sales, or the value of pre-sold units, will climb to 30 billion pesos in 2015 from an estimated 24 billion pesos this year as it expands outside of the capital, Chief Financial Officer Carlo Antonio said last month.

The central bank ordered lenders to provide more details on their real-estate loans in August as capital inflows rose to a 10-year high in 2012, adding to concern that some areas may be vulnerable to excessive valuations.

Excess Liquidity

Low borrowing costs 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.

“There could be some surplus in the upper end of the market,” central bank Deputy Governor Diwa Guinigundo told reporters yesterday. “On the more significant parts of the market like the low-cost, socialized and medium-cost, there are no signs of a bubble formation.”

Deploying Funds

Bangko Sentral yesterday cut the rate on 1.9 trillion pesos ($46 billion) in its special deposit accounts to 2 percent from 2.5 percent, the third such reduction this year, a move that may encourage funds to seek other investments. Asia’s emerging economies should consider reining in monetary stimulus to curb the risk of asset bubbles, the World Bank said in its East Asia and Pacific Economic Update released on April 15.

“Investors are buying property shares calculating that the central bank’s cut in special deposit accounts will force banks to deploy these funds to more productive use,” said James Lago, head of research at Manila-based PCCI Securities. “These funds will likely go to housing and consumer loans, which provide higher rates than these accounts.”

The Philippine Stock Exchange Property Index rose 1.4 percent as of 1:46 p.m., snapping three days of declines. Ayala Land rose 2.3 percent, while Megaworld Corp. advanced 3.2 percent. SM Development fell 1.6 percent.

High-End Segment

“It’s those in the high-end segment that merit a second look,” SM Development’s Sy said. “The middle to affordable markets still look good.”

The Philippine Stock Exchange Index has climbed 20 percent this year, reaching a record 7,120.48 this week.

Prices of luxury condominiums in the central Makati district rose 1.6 percent to as much as 155,850 pesos per square meter ($351 per square foot) in the last quarter of 2012 from the previous quarter, Colliers said. Prices are expected to climb more than 6 percent in these districts in the last quarter of 2013 from a year earlier, it said. Land values in Makati are expected to gain more than 5 percent in the fourth quarter from a year earlier, it said.

“I don’t see any signs of overheating,” Rizal Bank’s Gomez said. “Property developers have properly spaced their project rollouts, prices haven’t significantly risen and banks remain very prudent with allowable mortgages to equity.”