Philippines Oversight Aims to Avert Asset Bubble: Southeast Asia

Bloomberg Businessweek - The Philippines’s move to enhance oversight of real-estate lending this year will help curb speculation and improve its ability to prevent a property bubble from forming, the central bank said. 

The regulator ordered banks to provide more details on their real-estate exposure in August, including reporting investments in stocks and bonds that fund property ventures and loans to developers of low-cost homes. Closer monitoring will encourage banks “to exercise more self-restraint,” Deputy Governor Nestor Espenilla said in a phone interview Sept. 7.

“It’s a preemptive move,” Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said in an interview the same day in his office. “We don’t see at this point signs of strains in the market but we don’t want to wait for that. That’s the trick with asset bubble; when you see it, that means it has formed and you’re too late.”

The country joins Asian nations including China and Singapore seeking to temper soaring property prices and avoid the economic fallout created by the bursting of the U.S. subprime bubble and real-estate crashes from Spain to Ireland. Philippine bank loans and investments in the property sector surged to a record in March, central bank data show, and rising prices have spurred Ayala Land Inc. and other developers to build more homes.

Property Stocks

Ayala Land Inc. (ALI), the nation’s biggest developer, led the decline among Philippine property companies in Manila trading. Ayala Land dropped 2.8 percent, Megaworld Corp. (MEG) lost 1.8 percent, and Vista Land & Lifescapes Inc. (VLL) fell 1.5 percent. The Philippine Stock Exchange Property Index slid 1.1 percent, compared with a 0.2 percent decline in the benchmark Philippine Stock Exchange Index.

Century Properties Group Inc. (CPG) said today its rising condominium sales in the past two years point to a property market fueled largely by legitimate end-user demand.

“The demand is driven by our 11-million strong Filipino expatriates, coupled by a growing local market with increased purchasing power because of favorable economic conditions,” Marco Antonio, Century Properties’ co-chief operating officer and managing director, said in an e-mailed statement.

Central bank monitoring of lenders’ real-estate exposure will protect the property industry from a bubble, the company said.

“It makes the market even stronger as it ensures that real-estate loans are given to worthwhile projects and weeds out speculators,” Antonio said.

Regulators Cautious

“Regulators are being cautious because they don’t want the recklessness that happened in the U.S. or China or even Europe to happen here,” said David Leechiu, country head of Jones Lang Lasalle Leechiu. Still, “there won’t be a property bubble in the Philippines in the next three years because household debt levels are very low.”

Bangko Sentral currently caps banks’ real-estate exposure at 20 percent of total lending, with some exclusions. With the additional information now required from lenders, the central bank will decide if its policy needs to be reviewed, Espenilla said.

The central bank said Aug. 23 it will expand reporting of real-estate exposure to include real-estate projects and “ancillary services like buying and selling, rental and management of real estate properties.” The scope is broader than the previous ruling, which limited real-estate activities to the acquisition, construction and improvement of property, it said.

Makati Prices

East West Banking Corp. (EW) President Antonio Moncupa and Moody’s Investors Service welcomed the central bank’s August directive. Leechiu said it could slow lending for some projects and make it harder for small Philippine developers to meet demand.

Prices in the Makati business district rose 2.3 percent to an average of 284,130 pesos ($6,819.39) a square meter in the first quarter from the previous quarter and may climb to a record 300,000 pesos by the end of March, 2013, according to a quarterly report by Colliers International UK Plc. In Fort Bonifacio, which is adjacent to Makati, values rose 28 percent as of March from a year earlier, it said.

“Prices are going up and before you know it, everybody thinks they could be a developer,” Moncupa said in a Sept. 6 interview. The central bank is “trying to manage the exposure of the banking system to real estate. That should also correct any speculative activity.”

Cheap Credit

Cheap credit at the end of the last decade inflated property prices, leading to housing bubbles in countries from the U.S. to Ireland and Spain. The collapse of those markets contributed to the global economic downturn, prompting the world’s biggest central banks to stimulate their economies and flood markets with liquidity. That money has found its way into emerging markets, pushing down borrowing costs and driving up housing prices.

The number of condominium units built in the Philippines rose 48 percent to 33,000 last year as construction of 50,000 units started, Colliers said in its report. The PSE Property Index (PPROP), which tracks developers including Ayala Land and SM Development Corp. (SMDC), has risen 35 percent this year, surpassing the 19 percent increase in the Hang Seng Property Index. (HSP)

Philippine banks’ loans and investments in the property sector rose to a record at the end of March to 538.1 billion pesos, 21 percent higher than a year earlier and 3.8 percent more than the previous quarter, central bank data show. Real estate made up 15.2 percent of lenders’ total loans in the first quarter, rising from 14.5 percent a quarter earlier, according to the central bank.

25,000 Homes

Ayala Land plans to start construction of a record 25,000 homes this year, 20 percent more than last year, Chief Executive Officer Jaime Augusto Zobel de Ayala said in an interview in March. It boosted 2012 spending to 47 billion pesos from an earlier budget of 37 billion pesos, Ayala Land said in a report posted on its website last month.

The central bank’s latest moves “are credit positive for Philippine banks with substantial real estate lending because they will prompt the banks to tighten credit controls,” Moody’s said on Aug. 30.
Growth in construction accelerated to 10 percent in the second quarter from 3.6 percent in the first three months of 2012, according to government data. Cement demand rose 25.5 percent during the period, data show.

“More bullish activities have been noted with respect to the high-rise condominium market,” Guinigundo said. “When you are now into your second or third or fourth house which is investment-related and you’re having some problems amortizing, then you can forgo the fourth or the third. And the banks would end up with bad assets. That’s what we want to prevent.”

BSP keeps easing options open

ABS-CBN - The Philippine's economy does not need more stimulus for now as domestic demand remained buoyant despite the global slowdown dampening exports, but the central bank can ease policy if needed later this year, its governor said on Wednesday.

Any adjustment to interest rates would depend whether the risk of inflation acclerating or risk of economic growth falling was greater, Governor Amando Tetangco told Reuters.

"Right now the balance of risks is broadly even," Tetangco said in an interview at his office in Manila.


The Philippines has shown resilience amid the global downturn that has slowed growth in China and other emerging market economies in the region.

Having posted one of the highest growth rates in Southeast Asia in the second quarter, there was evidence that the Philippines could sustain growth in the second half of 2012.

The Philippines' GDP expanded an average 6.1 percent in the first six months, and policymakers are optimistic growth will hit the higher end of a 5 to 6 percent target for this year, accelerating from last year's 3.9-percent expansion, despite weakening exports of electronics, the main export earner.

"The policy stimulus currently in place is sufficient to provide support to domestic economic activity amid the ongoing weaknesses globally," Tetangco told Reuters in an interview at his office in Manila.

"I'm not going to rule out possible further easing during the rest of the year, but that will depend on our assessment...of the stance of policy relative to the inflation target, which is our primary mandate, and relative to economic growth," he said.

The Bangko Sentral ng Pilipinas, which next meets on Oct 25 to review policy, has kept its overnight borrowing rate at a record low of 3.75 percent following three cuts totaling 75 basis points this year aimed at shielding the economy against external shocks.

STATE SPENDING
Capacity utilisation in the manufacturing sector was above 80 percent, and energy sales, an indicator of economic activity, was on the rise.

Accelerated government spending in the second half, and more efficient spending brought about by budget reforms would help sustain growth, Tetangco said.

"We expect to get more bang from each peso spent," he said.

Data released earlier on Wednesday showed government spending rose 10.4 percent in August from a year earlier, although it was down 22 percent from July.

Economists say there is scope to ease policy further to dampen rapid peso appreciation and curtail speculative inflows.

Having gained 5 percent against U.S. dollar so far this year, the Philippine peso is the second best performing currency among emerging Asian economies, only bettered by the Singapore dollar.

Sound macroeconomic fundamentals and the prospect of being rewarded with an investment grade credit rating in coming months have drawn investors, flush with cash thanks to easier monetary policies adopted in developed economies.

While a strong currency offers protection against the inflationary effects of higher prices of imports, it could also crimp growth as it makes the country's exports more expensive and reduces the buying power of foreign currency remittances from Filipinos working overseas.

Domestic consumption, which accounts for 70 percent of GDP, is driven by remittances, which average $1.7 billion a month.

Tetangco said higher oil and food prices in the world market were upside risks to inflation, but these risks were moderated by the weak global economic outlook.

While policymakers were closely watching asset prices particularly in the property market, a bright spot in the economy driven largely by a growing offshoring and outsourcing industry, there were no signs of asset bubbles yet.

"We continue to believe there is limited evidence of stretched valuations in the real estate market," Tetangco said.

Philippine real estate loans increase but sector remains healthy: central bank

PROPERTY REPORT - Real estate loans in the Philippines were worth PHP561.6 billion (US$13.5 billion) in June, up 18.9 percent year-on-year and 4.4 percent higher than the previous quarter ending in March 2012. The numbers are a strong indication of the boom in the country real estate industry, reported the Manila Bulletin.

According to The Bangko Sentral ng Pilipinas (BSP) in a monthly report, 38 universal and commercial banks accounted for 77.3 percent of the exposures, or PHP434 billion, while the rest are from the 72 thrift banks. BSP also said the majority of the loans were real estate loans with just 2.7 percent being in securities issued by real estate corporations.

In value terms, real estate loans increased by PHP22.3 billion with PHP11.9 billion coming from residential real estate loans.

Despite the increase in real estate loans, the central bank said that the level of real estate loans ratio to total loan portfolio remained stable at 15 percent, slightly lower than March’s total loan portfolio of 15.2 percent.
Another signs that the property sector is faring well is that the number of non-performing loans for the end of June decreased by 9.6 percent to PHP24.2 billion from PHP26.8 billion in March. The NPL ratio was also lower at four percent from 4.8 percent in the previous quarter, according to the Manila Bulletin.


Manila Bulletin - The country’s large-capitalized banks and some big thrift banks reported real estate exposures worth P561.6 billion as of June, up 18.9 percent year-on-year and 4.4 percent higher from the previous quarter ending in March, a strong indication of a continuing boom in the real estate sector.

The Bangko Sentral ng Pilipinas (BSP) in a monthly report said the 38 universal/commercial banks accounted for 77.3 percent of total exposure or P434 billion while 22.7 percent or P127.6 billion are from the 71 thrift banks.

Majority of the industry’s real estate exposures are real estate loans, about 97.3 percent of total while the remaining 2.7 percent are investments in securities issued by real estate corporations.
Real estate loans as of end-June amounted to P546.5 billion, which was 4.3 percent higher from March, while banks’ real estate securities totaled P1.2 billion, up 8.4 percent from the previous quarter.

In value terms, real estate loans increased by P22.3 billion which came from P11.9-billion residential real estate loans and P10.4 billion from commercial real estate loans.

During the period, real estate loans for commercial purposes accounted for 55.3 percent or P302 billion of total real estate loans while 44.7 percent or P244.4 billion are residential real estate loans.

The central bank said that despite the increasing level of real estate loans, the level of real estate loans ratio to total loan portfolio remained stable at 15 percent, lower compared to 15.2 percent in March total loan portfolio.

The universal/commercial and thrift banks’ non-performing real estate loans for the end of June decreased by 9.6 percent to P24.2 billion from P26.8 billion in March. The NPL ratio in the same period was also lower at four percent from 4.8 percent in the previous quarter.

Thrift banks have better quality real estate loans compared to the big banks. The thrift banks’ real estate NPLs stood at 4.1 percent while big banks at 4.5 percent.

The BSP has recently amended the way it captures real estate exposure data, by including investments in debt and equity securities and by expanding the scope of activities that are real estate-financing related.
As of end-June, the banks’ investments in debt securities issued by real estate companies rose 8.4 percent to P15.2 billion from p12.4 billion in the previous quarter.

Debt securities accounted for majority of the total real estate investments or about 80 percent or P12.1 billion while 20 percent or P3 billion are equity investments.

BSP said only universal/commercial banks have exposure in real estate investments.
 The central bank said with the inclusion of all loans, investments in debt and equity securities, all loans are now counted as a bank’s real estate exposure.

Banks’ real estate exposures will also be referenced against its adjusted capital and the single borrower’s loan limit. This will be consistent with the “sound risk management practices which espouse the maintenance by a bank of adequate capital that is commensurate to its risks,” said the BSP.

By BSP definition, real estate activities are activities that include construction and development of real estate projects as well as other ancillary services like buying and selling, rental and management of real estate properties.  This is a wider definition from the original circular which limits real estate activities to the acquisition, construction and improvement of real estate property.

A New City, A New Metro Manila, A New Future

Manila Bulletin — That new city must have a land use plan that reflects function and priorities. Creating an environment of trust in real estate investment at the national level and at the same time launching an intensive marketing drive for the new city will boost real estate prospects and effectively counter poor image and engender a positive overall perception of the country in this regard.
That new city should promote an environment-friendly lifestyle where residents have access to waste management technology and arrangements for recycling, re-using and disposing potentially polluting items and articles that would otherwise cause air, water and land pollution. With this in place, waterways and the city‘s sewerage and flood control system will be free of obstructions and can deal more capably with climate change phenomena. Greenery, open spaces and ecological efficiency are a "must" in the city‘s overall design and layout. An environmental conscience must be nurtured in the minds of both young and old citizens to reinforce ecological efficiency in practice.

That new city should be a veritable melting pot and dynamic hub for culture and the performing and fine arts, which are some of the most environment-friendly activities known to mankind. I envision cultural centers, schools, festivals and competitions for music in its diverse forms, creative writing, dance, film-making, painting, sculpture and other artistic endeavors, operating year-round and contributing to a golden age in the production of creative intellectual property.

That new city will be conducive to academic institutions as they provide higher learning, produce highly skilled individuals with masteral and doctoral degrees, and churn out research and development outputs for technological innovation and industrial growth. It should become an oasis for partnership between the academe and the business sector.

That new city should be a model of social inclusion in partnership with civil society. The city government must ensure the fair distribution of land, resources, services and opportunities among the city‘s residents. Neighborhood interventions should be undertaken through non-government organizations for cross-cultural education and dialogue that will enable citizens to celebrate their cultural diversity while enhancing their sense of community. To be truly inclusive, citizens must be empowered to make physical (mobile) and socio-cultural connections. And those connections must be facilitated through projects jointly conceived, planned and implemented by the city government and the private sector (consisting of the business sector and non-government organizations), in consultation with citizens.

Finally, that new city must have the critical catalysts for all of the foregoing in order to stimulate growth and human development—entrepreneurship development, management capability-building, a stable local government finance mechanism for revenue generation, and a menu of creative incentives that will effectively encourage all sectors to interface and cooperate. Such catalysts will greatly aid in mitigating threats to the natural environment while enhancing the capacity for urban living. With these incentives in place, such an enhancement can be implemented through a combination of low carbon and resource-efficient development with the use of information and communication technologies (ICT) to better manage complex urban systems.