BSP widens monitoring of PH property market to spot risks early

BSP Gov. Benjamin E. Diokno. INQUIRER FILE PHOTO

MANILA, Philippines—The Philippine central bank is keeping a close watch on real estate prices as part of its efforts to protect the financial system preemptively against risks, which would set the stage for the regulator to augment current monitoring mechanism to improve its early warning system.

At an online press briefing, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said that the regulator will add a Commercial Property Price Index “within the year” to give policy makers a clearer picture of the market currently provided by its quarterly Residential Real Estate Price Index.

“Together, these two indicators may be used to monitor the developments in the Philippine property sector as a whole and their linkages with the other sectors in the economy,” he said.

According to Diokno, the adoption by the BSP of the property price index has strengthened its market surveillance activities which are essential to the identification of risks and the formulation of policies.

“Using [property price] data, the BSP is able to measure and monitor the banking sector’s exposure to the residential property sector, monitor developing price and credit trends, and develop timely and appropriate policies, together with other regulatory agencies, if needed, to stem the rise of systemic risk,” he said.

The real estate data serve as an indicator of change in the prices of residential properties in the Philippines over a period of time. The growth rate of the index measures house price inflation. A rising index denotes rising residential prices on average, while a declining index indicates the reverse.

The BSP developed the property price index in response to the scarcity of official data on the property sector of the Philippines. It was first published during the first quarter of 2016.

The development of the index was borne out of the experience during the Global Financial Crisis in 2007–2008, which highlighted the vulnerabilities of the financial sector to domestic and external shocks due to the sizeable exposure of banks in the real property sector and the limited amount of information on the property exposures of banks.

“As such, it is imperative for policy makers to possess timely, relevant and accurate data on financial exposure of banks, as well as price trends, in the property sector of a country,” Diokno said.

The latest BSP data showed that residential property prices in the Philippines rose marginally in the fourth quarter of 2020, recovering from a steep decline in the three prior months induced by the economic uncertainties associated with the coronavirus pandemic.

TSB