IMF says price bubble not likely in PH market

While policymakers are advised to remain vigilant, fears over a price bubble in the domestic property segment remain unfounded given the still-severe housing backlog that affects millions.

The International Monetary Fund (IMF) said growth in home and office prices in the Philippines has been relatively modest compared to other markets in the region. The share of construction to the size of the economy also remained low despite rapid growth rates in recent years.

“In real terms, condo prices remain below their peak that prevailed prior to the global financial crisis,” the IMF said in its staff report on the Philippines released last week. “This likely reflects in part the large supply increase in this market segment in recent years.”

So far, the IMF said, the supply of homes in the middle to high-end segments remained adequate while a severe backlog persisted in the low-end housing market. This backlog was expected to persist up to 2030, the IMF said, citing government records.

Growth in the property market has also been largely driven by market forces, with real estate developers holding back on new projects until existing ones have been sold out.

Latest data showed private construction activity declined by 6 percent in the first quarter of this year, pulling down GDP (gross domestic product) growth by four-tenths of a percentage point.

“The slowdown in residential construction is also evident from the drop in the number of licenses issued by the Housing and Land Use Regulatory Board to developers allowing them to sell residential properties,” the IMF said.

The IMF keeps special watch on the real estate sectors of all its member countries due to the historical implications of housing problems on economies. The 2008 global financial crisis was caused by excessive lending by American banks to low-income borrowers.

Last July, the BSP imposed new rules to restrict bank lending to the real estate sector. The size of banks’ real estate portfolios were now limited to the amount of capital they have—a regulation unique to the Philippines, regulators said.