The Market Monitor Minding the Nation's Business
Credit-rating firm Fitch Ratings has backed findings of the Bangko Sentral ng Pilipinas (BSP) on the possibility of a real-estate price bubble, as property prices continue to rise amid the rapid improvement in the economy and the business-process outsourcing (BPO) boom.
Fitch discounted increased risks on local bank asset quality against changes in property prices, as shown by the first real-estate price index of the BSP.
Over the weekend, the BSP released the results of its first residential real-estate price indices (Rrepi), which is a collection of approved real-estate loans since the second quarter of 2015.
According to the report, real-estate price inflation in the country rose by 9.2 percent, year-on-year, in the first quarter, backing monetary officials’ statement against an asset-price bubble in the Philippines.
BSP Governor Amando Tetangco Jr. said results of the index, which the BSP will use to measure trends in housing prices, answers concerns on housing prices in the country.
“While we believe that there’s no real-estate bubble right now, we want continue to monitor the property sector. So the residential real-estate price index will help us do that,” he said.
The index for the first quarter this year is at -0.2 percent for the National Capital Region (NCR), while it is 4.2 percent for Areas Outside NCR (AONCR).
In the first three quarters of 2015, the index showed that highest year-on-year growth rate was registered in the second quarter at 12.8 percent, followed by 5.1 percent in the last quarter, and 4.3 percent in the third quarter.
Real estate prices in AONCR posted a faster rate, due to “higher growth rates in prices of townhouses and condominium units.”
Price of condominium units registered the highest expansion at 12.9 percent for the quarter, while prices of townhouses followed at 8.5 percent.
Banks reported that about 70 percent of the loans approved during the covered period were for the acquisition of new housing units, most of which are condominium units in NCR and single detached housing units in AONCR.
Nationwide, the NCR accounted for 50.4 percent of the approved real-estate loans in the first quarter of this year followed by Calabarzon, 28.4 percent; Central Luzon, 7.6 percent; Western Visayas, 3.8 percent; and Central Visayas, 3.3 percent.
Fitch Ratings said the Rrepi “showed brisk, but not excessive, property-price growth, suggesting that robust real-estate activity over the last few years has not led to significant overheating in the property market.”
With this, the debt rater said its rated banks in the country “have mostly managed their property risks prudently amid rapid lending growth, with adequate risk controls and lending standards in place.”
“Notably too, the increases in the price index —though a limited dataset, thus far—do not appear untenable alongside continued strong economic growth,” it said.
The credit rater expects the Philippines to grow over 6 percent this year, to be boosted partly by rising incomes, which, in turn, is the reason for the sustained demand for housing units.
“Property prices are an important macroprudential risk indicator and excessive price inflation can be a sign of speculative overheating, leading to elevated risks to bank asset quality and profitability. For now, this does not appear to be the case in the Philippines and asset quality remains benign amid what appears to be sustainable price appreciation,” Fitch said.