Philippine Index to Monitor the Risk of Property Bubble

The Philippine central bank is set to introduce a residential property-price index in the first half of the year as it intensifies monitoring of asset-bubble risks, Deputy Governor Diwa Guinigundo said.

The index initially will cover Manila and nearby provinces using data including building permits and wholesale prices of construction materials of new housing units from 2006 to 2012, Guinigundo, 59, said in an interview in his office in Manila late yesterday.

“While there’s no evidence of asset bubbles, we need to really monitor what’s going on,” he said. “It will provide us with a solid indicator of price movements of residential units. We want to see not just the big picture but its components.”

Increased scrutiny in the Philippines comes after Hong Kong and Singapore adopted measures to cool property prices. President Benigno Aquino said in an interview last month there is no danger of the economy overheating, downplaying the risk of asset bubbles forming.

“This strengthens the Philippines’ surveillance and regulatory framework and boosts its ability to spot risks much earlier,” said Jeff Ng, a Singapore-based economist at Standard Chartered Plc. “While most of Asia including the Philippines have manageable exposure in the property sector, rising interest rates pose a key risk.”

Philippine developers Ayala Land Inc. and Vista Land & Lifescapes, Inc. declined today while the benchmark index was little changed at 10.43 a.m. in Manila. The peso slipped 0.3 percent to 44.837 against the U.S. dollar.

Rates Raised

Policy makers in emerging nations from Turkey to Brazil have raised interest rates this year to contain inflation and bolster currencies as the U.S. cuts monetary stimulus. The Philippine central bank will probably raise its benchmark to 4 percent by the end of the year, Bloomberg surveys show.

Bangko Sentral ng Pilipinas has held its key interest rate at a record-low 3.5 percent since October 2012. The economy expanded 7.2 percent in 2013 after gaining 6.8 percent in 2012, the fastest two-year pace since 1954-1955, data compiled by Bloomberg show.

Inflation probably accelerated to 4.3 percent in February from 4.2 percent in the previous month, according to a Bloomberg News survey ahead of a report due tomorrow. That would be the fastest pace since November 2011, according to data compiled by Bloomberg.

Colliers International in February projected property prices in Manila’s financial district Makati, which climbed to a record last year, will rise a further 8 percent in 2014. Ayala, the biggest Philippine developer by revenue, reported a 30 percent increase in net income to a record last year.

Liquidity Conditions

Real estate and construction activity together account for a fifth of the Philippine economy, the Oxford Business Group said in a report Feb. 27. Policy makers should closely watch the residential market as low interest rates and rising money supply may spur demand, Credit Suisse Group AG said last month.

The central bank last week said it is prepared to deploy necessary measures to ensure liquidity conditions are in line with its goals of price and financial stability, after money-supply growth reached a record in January. It has exceeded 30 percent every month from July.

“We are prepared to do whatever it takes to ensure liquidity is aligned with a growing economy and a deepening financial system without abetting any build-up in inflation pressures,” Guinigundo said yesterday.

Singapore began introducing property curbs four years ago with some of the strictest measures implemented in 2013, including a cap on debt at 60 percent of a borrower’s income, higher stamp duties on home purchases and an increase in real estate taxes.

Property Loans

Hong Kong has raised the minimum mortgage down payment six times since 2010 and imposed taxes including a doubling of the stamp duty on deals of more than HK$2 million ($258,000), plus an extra 15 percent levy on non-resident buyers.

In the Philippines, property loans and investments rose 6.8 percent to a record 900.1 billion pesos ($20 billion) in the second quarter of 2013 from the previous three-month period, the central bank reported in November. Property made up 22 percent of the total loan portfolio at banks.

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

The central bank is seeking the approval of the Philippine Statistics Authority before it can release the index, Guinigundo said. The index will gradually be expanded to include data on housing loans, existing homes, and other regions to come up with a nationwide index, he said.

More banks tightened lending standards for commercial real-estate loans for a sixth consecutive quarter in the three months through December, the central bank said in January. Lenders reported wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest-rate floors, and lower loan-to-value ratios, it said.

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