Philippine central bank concerned about property bubble

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Fort bonifacioThe Philippine central bank is firming up steps to avert a property bubble, including requiring banks to undergo a stress test, Deputy Governor Nestor Espenilla said according to a Bloomberg report.

“Real estate exposure historically has been the trigger of problems in many banking systems. It’s quite natural for regulators to be particularly wary of this,” Espenilla said. “We are implementing a risk-based type supervision,” he added, without specifying a time frame for its introduction.

The central bank is set to introduce a residential property-price index in the first half of the year, Deputy Governor Diwa Guinigundo had said in March, as record-low borrowing costs spur demand for homes and offices.

Property loans and investments rose 6.8 per cent to a record $20 billion in the second quarter of 2013 from the previous three-month period, the central bank said in November last year. Property made up 22 per cent of banks’ total loan portfolio.

“The central bank is being pre-emptive in addressing concerns of a potential real-estate bubble,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. “The impact on property lending will depend on how stringent the stress test will be. I suspect it will be moderate, as they won’t come out with a rule that will massively curtail real-estate lending.”

Shares in Ayala Land Inc., the nation’s largest developer by revenue, have risen about 45 per cent in the past two years, outpacing a 29 per cent gain in the benchmark index.

Greater oversight in the Philippines comes as China strengthens monitoring of credit extended to real estate developers and after Hong Kong and Singapore took steps to cool property prices. The Philippine central bank caps banks’ real-estate lending at 20 per cent of total outstanding loans, with some exclusions.

The price of land in the financial district of Makati surged 28 per cent from 2010 to 2013 to the highest level since 1997, according to UK-based Colliers International Plc. The monetary authority is closely monitoring the middle-market segment in residential housing, Espenilla said.

“Real estate is prone to asset-price inflation,” Espenilla said. At the same time, “you just can’t tell banks to stop real estate lending; it’s part of their business model,” he said, adding that the proposed measure is designed primarily to test lenders’ ability to withstand a defined stress scenario.

The central bank in 2012 widened its scope for monitoring the real estate sector. It ordered banks to report loans to developers of low-cost housing, investments in securities to finance real-estate activities and exposure of banks’ trust departments to the property sector.

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Reading Time: 2 minutes

The Philippine central bank is firming up steps to avert a property bubble, including requiring banks to undergo a stress test, Deputy Governor Nestor Espenilla said according to a Bloomberg report.

Reading Time: 2 minutes

Fort bonifacioThe Philippine central bank is firming up steps to avert a property bubble, including requiring banks to undergo a stress test, Deputy Governor Nestor Espenilla said according to a Bloomberg report.

“Real estate exposure historically has been the trigger of problems in many banking systems. It’s quite natural for regulators to be particularly wary of this,” Espenilla said. “We are implementing a risk-based type supervision,” he added, without specifying a time frame for its introduction.

The central bank is set to introduce a residential property-price index in the first half of the year, Deputy Governor Diwa Guinigundo had said in March, as record-low borrowing costs spur demand for homes and offices.

Property loans and investments rose 6.8 per cent to a record $20 billion in the second quarter of 2013 from the previous three-month period, the central bank said in November last year. Property made up 22 per cent of banks’ total loan portfolio.

“The central bank is being pre-emptive in addressing concerns of a potential real-estate bubble,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. “The impact on property lending will depend on how stringent the stress test will be. I suspect it will be moderate, as they won’t come out with a rule that will massively curtail real-estate lending.”

Shares in Ayala Land Inc., the nation’s largest developer by revenue, have risen about 45 per cent in the past two years, outpacing a 29 per cent gain in the benchmark index.

Greater oversight in the Philippines comes as China strengthens monitoring of credit extended to real estate developers and after Hong Kong and Singapore took steps to cool property prices. The Philippine central bank caps banks’ real-estate lending at 20 per cent of total outstanding loans, with some exclusions.

The price of land in the financial district of Makati surged 28 per cent from 2010 to 2013 to the highest level since 1997, according to UK-based Colliers International Plc. The monetary authority is closely monitoring the middle-market segment in residential housing, Espenilla said.

“Real estate is prone to asset-price inflation,” Espenilla said. At the same time, “you just can’t tell banks to stop real estate lending; it’s part of their business model,” he said, adding that the proposed measure is designed primarily to test lenders’ ability to withstand a defined stress scenario.

The central bank in 2012 widened its scope for monitoring the real estate sector. It ordered banks to report loans to developers of low-cost housing, investments in securities to finance real-estate activities and exposure of banks’ trust departments to the property sector.

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