No property bubble – banks

MANILA, Philippines - Banks are in agreement with the Bangko Sentral ng Pilipinas (BSP) when it said that a property bubble is far from forming despite exposures breaching regulatory limits.

Last Thursday, the central bank reported that property exposure of banks – real estate loans as a proportion of total loan portfolio – hit 20.86 percent last year, exceeding the 20-percent cap set during the Asian financial crisis.

The latest figure represented a revised calculation though, which dropped original exclusions granted to loans for low-cost housing and those with guarantees. It also captured data on securities issued to property firms.

“Exposure is still okay… We still have structural demand from new jobs and household formation,” Bankers Association of the Philippines president Lorenzo Tan said in a text message.

While data indeed exceeded limits, he said more important to monitor is the level of non-performing property loans – those unpaid 30 days after the due date – which continued to remain stable at just 3.7 percent of the total.

Vacancy levels in the market, affordable down payment schemes and the level of disposable income should also be watched.

“(Only) when these numbers exceed acceptable norms, it will be time to impose macro-prudential measures to down the market,” Tan pointed out.

For her part, Suzanne Felix, executive director of the Chamber of Thrift Banks, said the strong housing demand is structural in nature because it remains fueled primarily by a “booming economy.”

This, in effect, translates to higher per capita income across the population which in turn gives people more purchasing power to buy properties and developers to continue boosting the supply.

“End-users, which are a major market of thrift banks, remain the major market for housing, rather than speculators or investors,” Felix said in a separate text message.

“The Philippines is thus far from an oversupply problem,” she added.

The demand, BDO Capital president Eduardo Francisco said, is more of having “many opportunities” than banks relaxing their credit standards in chase of profits.

Jose Cuyegkeng, chief economist of ING Bank, said with the expectation of six- to seven-percent growth this year, it should not be a surprise that the real estate sector is expanding similarly fast.

What should be done is to contain the euphoria so that there is no “unwarranted exuberance in the property sector,” he said in a lecture over the weekend.

“That is why (the BSP) put in macro-prudential measures… They are always monitoring all these things, but so far I don’t think we have (asset bubbles),” Cuyegkeng said.