Responding to concerns that tightening real-estate regulations in neighboring economies could be pushing speculative demand to the Philippines, the Bangko Sentral ng Pilipinas said a new directive further limiting the exposure of banks to the property sector was being readied.
The new regulation would also follow observations that supply of residential properties for the high-income segment was starting to become excessive.
What the BSP should do in particular was to limit banks’ real-estate loans and investments—which include housing loans granted to individuals, credit extended to property developers and holdings of securities issued by real estate firms—to a certain percentage of their capital.
BSP Governor Amando Tetangco Jr. told reporters that the central bank was still in the process of determining the exact figure for the cap, but added that the new regulation would be out soon to ensure threats of an asset price bubble would not materialize.
“Part of the funds used by real estate developers is coming from abroad, but we [BSP] cannot say right now how much exactly it is,” Tetangco said. “This is the direction the BSP is taking: To reference real-estate exposure of banks to their capital.”
Tetangco acknowledged as valid the observations that supply of real properties in the high-income market could now be exceeding demand. He said, however, that overall market supply remained below total demand as evidenced by the huge backlog in housing units, estimated at more than three million units, for the low-income segment.
Under existing regulations, banks in the country are required to limit their real-estate exposure to 20 percent of their total loan portfolio. The term “real estate exposure,” however, is limited to loans extended by banks to commercial real-estate developers.
In neighboring economies like China, Singapore and Hong Kong, tougher real-estate regulations have been issued recently in the wake of risks of asset price bubbles. The regulations ranged from higher taxes to limits on the number of properties individuals could buy.
Risks of a bubble are a result partly of stimulus measures implemented in advanced economies. In particular, portions of the funds being injected by the US Federal Reserve, the European Central Bank and the Bank of Japan to stimulate their lackluster economies were believed to be going to robustly growing Asian economies in the form of investments in real estate and portfolio assets.
Economists said that at a time when real-estate regulations were becoming tighter abroad, speculative demand in real estate (that is, demand from people buying properties for investments rather than for their own use) was poised to go to locations where the regulatory environment was more relaxed. This was the reason the Philippines should seriously consider adjusting its regulations, they said.
While foreign investments are welcome, economists said excessive demand for securities and real estate could cause prices to rise steeply. Very high prices are unsustainable and pose risks of a sudden and sharp drop, which, in turn, could lead to a crisis as investors suffer huge losses.
They said the Philippines, given its recent attainment of an investment grade and the bullish growth projections for its economy, was highly attractive to portfolio and real-estate investors.