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Watch on housing sector tightened

Posted on November 25, 2015 11:20:00 PM [ BusinessWorld Online ]
By Melissa Luz T. Lopez, Reporter

THE GOVERNMENT has further tightened its vigilance for any sign of a bubble developing in the property sector, with the central bank now requiring banks to report quarterly on housing loans approved as it prepares to roll out a residential real estate price index (RREPI) early next year.

Circular 892, dated Nov. 16 and posted on the Web site of the Bangko Sentral ng Pilipinas (BSP), now requires universal, commercial and thrift banks to submit quarterly reports on approved residential real estate loans (RRELs) that will indicate the month a residential real estate loan was granted/booked; type of the property (whether new, pre-owned or foreclosed); location and total appraised value of the property; type of the housing unit (single detached, single attached, duplex, townhouse/accesoria/detached row house, apartment or condominium); appraised value of the housing unit; total floor area, number of floors, bedrooms and unit’s age; lot area and its appraised value; housing segment to which it belongs; acquisition cost; as well as names of developers.

Covered are loans granted to individual households for the purpose of financing acquisition of houses “and any associated land that is or will be occupied by the borrower,” the circular read.

Excluded are loans meant for the purchase of vacant lots, improve existing homes or ancillary activities like buying and selling as well as rental and management of such properties.

The requirement covers both Metro Manila and areas outside the national capital.

“The bank quarterly report on RRELs is designed to provide information for the generation of the REEPI which would provide a valuable tool in assessing the real estate and credit market conditions in the country,” read the circular that was signed by BSP Governor Amando M. Tetangco, Jr. and which takes effect 15 calendar days from publication either in the Official Gazette or in a general-circulation newspaper.

The move was approved by the BSP’s Monetary Board in its Oct. 29 meeting, the central bank said in a statement yesterday.

“Information from RRELs will provide information for the generation of a residential real estate price index,” the statement read.

“The construction of RREPI based on banks’ approved housing loan applications is a first in the Philippines and is expected to provide a valuable tool in assessing the real estate and credit market conditions in the country,” the BSP explained.

“The availability of data on property prices is one of the information gaps identified in the Group of Twenty report following the Global Financial Crisis, and is also included in the Special Data Dissemination Standard Plus categories under Financial Soundness Indicators that member-countries of the International Monetary Fund should adhere to within five years from the time the country signifies its intent to participate in this global undertaking.”

Earlier this year, the BSP had said it planned to establish the RREPI by “early third quarter”. Asked yesterday when the index will likely be established, BSP Deputy Governor Diwa C. Guinigundo said in an interview: “Next year... we are still looking at it. Siguro (Maybe) within the first half.”

To be sure, the central bank has been monitoring property prices, but it does not have an index that enables tracking data over periods as well as across locations and market segments to determine whether a bubble is forming, thus, requiring preemptive action. So far, the BSP has been relying on standard indicators like price-to-earnings ratio to measure developers’ valuations as well as price-to-income ratio to ascertain housing affordability.

Following the release of the new circular, banks must now submit data covering the second and third quarters by Dec. 29. Succeeding reports must be submitted by the 20th banking day after every quarter.

Banks that fail to comply with the quarterly report deadlines -- as well as those that submit erroneous reports -- face monetary penalties for delayed reporting, the circular read.

Sought for comment, Socioeconomic Planning Secretary Arsenio M. Balisacan said in an interview on the sidelines of a budget hearing at the Senate: “It will tell you if you are getting hot and then you have to watch out kasi, alam mo, ‘yung mga property bubbles can be so destructive”.

A housing bubble is marked by rapidly rising prices as developers undertake more and more projects in a bid to meet projected increasing demand that eventually does not materialize, leading to a crash in prices. Speculation -- by those who buy such properties not to occupy them but in hopes of later selling these for a profit -- is cited as a key cause of unrealistic industry expectations.

“A real property price index is a welcome development as there is a need to have a publicly available index to measure developments in the sector,” Ildemarc C. Bautista, head of research at the Metropolitan Bank & Trust Co., said in an e-mail.

“Current asset prices in the sector are not really worrisome per se as these are really expected given the good purchasing power of consumers,” Mr. Bautista assured.

“What might prove worrisome down the road are asset prices in the sector that are escalating too quickly, which may indicate highly speculative activities,” he explained.

“Such an index can thus be very helpful to have a pulse on prices, for the use of the regulators and the banking sector itself to gauge developments in the sector.”

Property loans extended by banks totaled P1.176 trillion last semester, 25.8% more than the P934.89 billion lent in 2014’s comparable six months. Of this amount, home loans rose by 17.3% to P411.18 billion from P350.55 billion. RRELs made up 34.95% of the total loan portfolio of local banks last semester, down from 37.81% in the first five months.

Asked if he is concerned that a bubble is forming in the entire property industry, Mr. Balisacan replied: “I don’t think so. Our fundamentals are quite strong and the vacancy rates, especially for offices, are very low.”

“There may be some over build-up already for certain segments in the market, but the backlog for mass housing ay napakalaki, lalo na mga (is so big, particularly in) low-income housing.”

In October, Alistair Hughes, Jones Lang LaSalle, Inc. chief executive officer for Asia Pacific, noted that property prices in the Philippines remain reasonably and competitively priced, while property consultancy KMC Mag Group, Inc. in September said a recent drop in sales was not due to lower demand but to fewer projects launched.

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