Philippines Mulls Property-Loan Curbs, Rejects Capital Controls

The Philippines may further limit property loans to prevent a housing bubble as it uses lower interest rates rather than capital controls to deter inflows.

“We plan to reference real-estate exposure to adjusted capital of banks,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said in e-mailed replies on May 4. The nation isn’t considering capital controls for now, he said in an interview at an Asian Development Bank meeting in India the same day.

The Philippines has cut borrowing costs, banned foreign funds from special deposit accounts and eased rules for outflows, striving to manage an investment influx lured by economic growth exceeding 6 percent and improved credit ratings. Cheaper loans stoked an 18.9 percent climb in property lending and investment to a record 561.6 billion pesos ($13.7 billion) in the first half of 2012, central bank data show.

“We observe that financing terms are getting more and more attractive so we’d like to closely monitor this,” Tetangco said in the e-mail. While there are no signs of bubbles in the low and middle segments of real estate, “strong supply can outstrip demand eventually” in the high-end housing market, he said.

The Philippine Stock Exchange Index climbed 1.7 percent to a record 7,215.35 on May 3, the day after Standard & Poor’s raised the nation’s sovereign rating to investment grade, following a similar step by Fitch Ratings in March. The peso closed at 40.903 per dollar, the strongest level in a month.

Aquino’s Push

President Benigno Aquino is fighting graft and tax evasion to contain the budget deficit, increasing spending to a record and seeking over $17 billion of infrastructure investment to spur growth to as much as 7 percent this year.

The $225 billion economy expanded 6.6 percent in 2012, one of the fastest rates in Asia.

Bangko Sentral last month cut the rate it pays on special deposit accounts for a third time this year to 2 percent while keeping the benchmark rate at a record-low 3.5 percent. The central bank is considering “refinements” to the so-called SDA, Tetangco said on April 27.

Real-estate lending by banks is currently capped at 20 percent of total outstanding loans, with some exclusions. Rising prices have spurred developers including Ayala Land Inc. to build more homes.

Asian nations such as the Philippines, Thailand and South Korea have signaled concern that currency gains threaten to hurt export competitiveness.

Peso’s Rise

The peso has appreciated about 3 percent in the past 12 months, the best performance after the Thai baht in a basket of 11 Asian currencies tracked by Bloomberg.

“There are many difficulties associated with capital controls, particularly on the administrative side,” Tetangco said in the interview near New Delhi at the ADB’s annual meeting. “We’d rather see if there is a need to sharpen the tools that we have in the enhanced toolkit as a response to further inflows of capital.”

The central bank will assess the impact of previous SDA rate reductions and gauge whether it has scope to make further cuts, Tetangco said in the e-mail. The monetary-policy stance remains appropriate amid “benign” inflation, he said in India.

Inflation last month slowed to 2.8 percent, according to the median estimate of analysts surveyed by Bloomberg News before a report due May 7. It eased to 3.2 percent in March. At the same time, money-supply growth quickened to 11.41 percent that month, the fastest in almost three years.

“There remains a need for us to raise the investment rate, particularly given that there is sufficient liquidity in the system which has to be channeled to productive use,” Tetangco said in India. “It’s a good time for investors to take advantage of this liquidity, which is available at historically low interest rates.”

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE