Index to monitor risk of property bubble on track

By Bianca Cuaresma, BusinessMirror

Posted at Mar 05 2014 07:44 AM | Updated as of Mar 05 2014 03:44 PM

MANILA - The creation of the standard price index that will serve as official guide for valuing residential properties in the country is on track and is set for completion before its formal launching likely within the year, a Bangko Sentral ng Pilipinas (BSP) official said.

At an economic forum held in Makati City on Tuesday, Assistant Governor for the Monetary Policy Subsector Ma. Almasara Cyd N. Tuaño-Amador said the so-called Residential Property Index (Repi) has already been presented for approval by the BSP Monetary Board only recently.

The index was earlier cited by BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo as a BSP initiative helping regulators and real-estate practitioners to further monitor prices in the sector and prevent price misalignments that led to property bubbles.

“We are doing it in stages. So what is keeping us from publicly disseminating is that we have [yet] to present it to the PSA [Philippine Statistics Authority]. Since they are still organizing themselves, they haven’t formed the board yet. Once they have the board already in place, then we present it. Whenever you come up with indices—that is the process,” Tuaño-Amador said.

The BSP official explained that the RePi is focused primarily on the residential sector but that the central bank hopes to expand the mechanism to the commercial sector in the future.

She also said the index only covers prices of residential property in the National Capital Region (NCR) as there were some “difficulties” in gathering data from places outside the country’s capital. This, too, was seen broadened in coverage after the initial index had been launched.

The index is said to be a function of several indicators, including both from the supply and demand curve of the industry. In terms of supply, Tuaño-Amador cited the cost of materials and business permits as some of the considerations, while in terms of demand, they measure it through the number of applications of permits, among others.

The PSA is expected to make a critical examination of the prepared index and will make suggestions or fine-tuning measures, if any, before releasing it to the public.

The BSP has imposed more stringent monitoring of the real-estate sector a few years back, especially the
banks’ collective exposure to real-estate loans and instruments. said the real estate sector is an obvious sector where bubbles form.

She said that although there had been no property bubble the past several years, there was a period of hefty investments in property prior to the 1997 Asian financial crisis.

“Because it is the largest asset that any household can own so fundamentally, it can be an obvious candidate for possible misalignments. But my thinking is that…it could be a candidate but we are not seeing signs of that [bubble] yet,” she said.

According to Amador, the rise in property prices observed in the market today is due to the structural shift of a growing population in terms of its number and in terms of income. She also cited the rise in demand from overseas Filipino workers to own residential property in the Philippines.

“What we saw was some correction in the prices of residential property in 2009 to 2010, so there was a correction and now it is growing. But it is still manageable, the demand is being driven by an organic story,” Amador said.

“There is an increase in property prices – in residential and office spaces – but I don’t think it is getting ahead of itself,” she added.