BSP: No evidence on real property bubble

By Jun Vallecera, BusinessMirror

Posted at Jan 03 2013 07:57 AM | Updated as of Jan 03 2013 07:49 PM

Regulators looked but failed to gather evidence proving that investments of so-called high-net-worth individuals and some corporations in the more expensive segment of the real-estate sector have stretched prices to levels indicating beginnings of a property bubble.

In a text message, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said on Wednesday that all indicators had not signaled the feared heating up of the property sector.

But just because the indicators are not definitive at this point, he added, does not mean that regulatory vigilance will recede.

According to Guinigundo, the regulators are aware that while most buyers of real estate at the low end of the price spectrum should not be a cause for concern because they actually end up living in those spaces, real-estate buyers at the high end are another matter.

“This is something that could be shown by statistics, that most of these purchases are actually investments of high-net-worth individuals and even corporations themselves and, therefore, it is something we think may be sustainable over the medium term. We are closely looking at these numbers,” he said.

Guinigundo added that so-called macro prudential measures such as the 20-percent ceiling on bank lending to real estate, the reduced loan-to-value ratio of 85 percent and even the single borrower’s limit of 25 percent that the banks must observe at all times should be enough deterrent for lenders to engage in any inordinate amount of loans to the real-estate sector.

These existing measures, he said, will help ensure that “we avoid asset bubbles from forming in the real-estate sector.”

Guinigundo added that real-estate buyers have financing sources other than the banks helping them finance their property acquisitions, a development that helps mitigate the excessive buildup of property price pressures.

BSP data show corporations continue to tap the local capital market for financing in the form of bond sales totaling P211.8 billion as of end-August 2012.

This was 34 percent higher than year-ago bond sales totaling only P158.1 billion.

Equity capital raised in the Philippine Stock Exchange for the period amounted to P91.1 billion, or 48 percent, more than a year earlier.

“We’re nowhere close to the level of property prices in 1997 in terms of rentals, capital values of properties both commercial and residential. We are not approaching a property bubble,” Guinigundo said.

Collapsing real-estate prices that started in Thailand some 16 years earlier led to a region-wide financial crisis when banks refused to lend and economic output was either stunted or non-existent.

Guinigundo said real estate had been redefined for regulatory purposes to include not just the acquisition, construction and improvement on real estate but also rentals and even the management of pieces of property “so the BSP can see whether bubbles are forming.”

At this point, he added, there are no stretched real-estate property price valuations.