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Real estate loans rise in ‘09

Posted on 07:56 PM, March 07, 2010 [ BusinessWorld Online ]

UNIVERSAL, commercial and thrift banks increased their exposure to the real estate sector in 2009 by extending more loans, central bank data showed.

Data released on Friday showed that total exposure of these lenders to the real estate sector reached P393.6 billion as of December, up by 9.4% from the previous year.

Universal and commercial banks accounted for almost three quarters of the total, while thrift lenders accounted for the balance.

“The additional exposure came primarily from real estate loans, which rose [by 9.67% year-on-year] to P383.7 billion,” a statement from the Bangko Sentral ng Pilipinas (BSP) explained.

“Investments in [debt and equity] securities issued by real estate companies also expanded by 1% to P9.9 billion.”

Total real estate exposure as ratio of banks’ total loans excluding loans they made between themselves rose to 14.47% from 13.96% from a year ago.

But Victor J. Asuncion, director for research and consultancy at CB Richard Ellis Philippines, Inc., downplayed the figures, pointing out that while loans to the real estate sector have been growing, the rise has been tempered by other funding sources available to developers.

“Real estate developers, if they can help it, don’t want to borrow from banks anymore... because loans that have floating rates make their borrowing costs more volatile... [Bank loans] are still a part of funding sources, but no longer the primary one,” he said.

Mr. Asuncion added that property companies prefer to fund projects with equity, bonds or from pre-selling projects, and the share of bank loans as a funding source could go down with the introduction of real estate investment trusts or REIT, a company that pools funds and invests these in properties.

Central bank data also showed that real estate loans for construction and development of commercial properties accounted for nearly three-fifths of total real estate loans at P221.1 billion, while the balance was granted for the construction or improvement of residential units by individual borrowers.

Of total real estate loans granted by universal and commercial banks, 73.7% or P203.1 billion were directed to commercial projects, while the balance of P72.6 billion went to residential purposes.

Thrift banks lent out P90 billion to finance the acquisition, improvement or construction of residential units for households, and provided only P18 billion for commercial real estate loans.

Soured real estate loans rose to P23.18 billion from last year’s P22.83 billion, but as percentage of total real estate loans, slid to 6.04% in December from 6.53% a year ago because of a higher growth in loans.

In February, BSP Deputy Governor Diwa C. Guinigundo said monetary authorities may further limit banks’ exposure to the real estate sector from the current 20% of total loans as a way of controlling excessive foreign capital flows that may stoke an asset price bubble.

The deputy governor noted that the central bank had done this before when it limited banks’ exposure to the real estate industry to 20% from 30% after the Asian financial crisis in 1997.

He said that while an asset bubble is unlikely to emerge in the Philippines, this policy tool is available to the BSP in case a slower than expected recovery in developed markets prompts investors to seek higher yields in emerging economies. -- Don Gil K. Carreon


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