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Real estate risks noted

Posted on May 26, 2013 09:04:39 PM [ BusinessWorld Online ]
By Diane Claire J. Jiao, Senior Reporter
THE ROLE of nonbanks in lending to real estate must be strictly monitored, an International Monetary Fund (IMF) official said.
"One area where we identified risks is the real estate sector due to low interest rates, so you could have riskier loans from both banks and nonbanks," IMF Resident Representative Shanaka Jayanath Peiris told reporters last week.
While the Bangko Sentral ng Pilipinas (BSP) has been keeping a close watch on banks and their real estate exposure, nonbanks such as lending firms can also extend credit to the sector, he noted.
"Nonbanks, those not regulated by BSP, may be difficult," Mr. Peiris said, thus new measures may have to be crafted.
He cited the Financial Stability Forum -- comprised of the BSP, Securities and Exchange Commission and the Department of Finance -- as key to the early detection of risks.
"For the BSP, banks are also lending to these nonbanks so, to an extent, it can still monitor what’s going on," he noted.
Real estate has again become a hot-button topic but the IMF official stressed that there were no signs of overheating. Based on metrics such as price-to-earnings ratios in the stock market and price-to-income ratios in the housing market, "no obvious picture of a bubble came up," Mr. Peiris said.
Regulators, however, may be looking at an incomplete picture.
"What we have to do is look deeper into the data but we have no good real estate data in the Philippines," he said.
"There is no real estate price index. You have to rely on private companies for their indices, but you don’t want a partial picture, you need an overall picture," he noted.
"We will be very supportive of any efforts that will lead to more enhanced information and statistics on real estate."
Mr. Peiris, meanwhile, commended the BSP’s work in monitoring the property market. Last year’s move to expand the definition of real estate exposure is supported by the IMF, he said.
"We agree with the more complete definition. In general, we don’t agree with exemptions. The true picture must be reflected as much as possible."
Banks were required to report not just real estate loans but also investments in debt and equity securities that finance real estate activities such as the acquisition, construction and development of properties as well as buying, selling, rental and management. Banks must also include loans for socialized and low-cost housing developments that were previously exempted from reportorial requirements.
The broader definition took banks’ real estate exposure to P821.7 billion last year -- 20.9% of their total loan portfolio and past the BSP-mandated 20% cap.
Mr. Peiris was unconcerned, though, saying there was no "magic number" to indicate when a property bubble was forming. Loan quality, he added, is a more important indicator.
The BSP believes the same, highlighting the prudence of banks in lending for real estate.
Non-performing real estate loans -- obligations unpaid at least 30 days after due date -- made up only 3.7% of banks’ total loan portfolio last year.
Moreover, stress tests showed that banks can withstand a default of 50% of their real estate loans. Their capital adequacy ratio would stand at 15.77%, well above the BSP’s minimum 10% requirement.
"Whatever happens, regulators have to be ahead of the market," Mr. Peiris said.
One emerging risk, he noted, is the tightening of real estate regulations and rising taxes in neighboring countries, which could drive investors to the Philippine property market.
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