Regulator to issue real estate index in Q1 of 2015

The Bangko Sentral ng Pilipinas (BSP) is set to release its first ever in-house price monitoring index for the property sector for the early detection of potential “bubbles” in the industry.

Scheduled for the first quarter of next year, the Residential Real Estate Price Index (RREPI) would depict data from the fourth quarter of 2014.

“[This] will provide a broader picture of the price conditions in the Philippine residential property market,” BSP Deputy Governor Diwa C. Guinigundo said in an e-mail.

“As such, the RREPI will be used by the BSP in its assessment of trends in property prices and the risk of bubbles in housing prices,” he told the Inquirer.

At the moment, regulators still rely on reports from private sector consultants to track land prices, and these cover only major areas such as Makati, Ortigas, and other business districts in the country.

Initially, RREPI would provide detailed information on average prices of different types of new homes such as single housing, apartments, duplexes, and condominiums in Metro Manila and surrounding cities. Officials earlier said the BSP plans to expand the coverage to other major cities like Cebu and Davao.

The RREPI will be the latest in a string of recent reforms that have targeted the property sector, which, if left unchecked, could threaten the stability of the domestic economy.

Last month the BSP amended regulations governing credit risk-taking activities of banks and quasi- banks. Under these new rules, the maximum loan value for real estate mortgages shall be capped at 60 percent of the appraised value of a property as loan collateral.

Prior to this, the BSP has introduced the Real Estate Stress Test (REST) in July to determine whether the capital level of banks are sufficient to absorb their credit risk to real estate.

Last year the BSP also broadened its monitoring of real estate exposure of banks to include bond and equity investments in the property sector aside from real estate loans.

Data from the central bank showed banks’ real estate exposure rose by more than a fifth P1.097 trillion at the end of June from P900.148 trillion in the same month last year. It was also higher than the P1.035 trillion recorded in last March.

BSP Deputy Governor Diwa C. Guinigundo admitted that in recent weeks, land prices in major business districts have risen to their highest levels since the 1997 Asian Financial Crisis.

“The BSP does not view this as a cause of concern at the moment,” Guinigundo said.

“Moreover, while land values and capital values for both office and residential segments have indeed been appreciating in nominal terms, they remain below their respective peak levels reached in 1997 in real terms,” he said.

He said demand for new homes and office space was supported by the boom in the business process outsourcing sector, which now employs over one million Filipinos. Expatriates working for local firms are also shoring up demand for high-end housing, while overseas Filipino workers (OFW) buy up cheaper homes for their families in the country, Guinigundo said.