Brokerage house remains bullish on property sector

Stockbrokerage Maybank ATR Kim Eng is upbeat on the Philippine property sector, taking heart from an assurance from the Bangko Sentral ng Pilipinas chief that there was no clear evidence of a bubble in the sector.

In a research note issued Friday, Maybank ATR Kim Eng analyst Rommel Rodrigo said they remained “overweight” on the property sector, noting that BSP Governor Amando Tetangco Jr. had confirmed the thesis of the house that there were no curbs introduced for property lending.

“Overweight” is a recommendation to accumulate stocks in excess of a reference portfolio index.

The institution’s view is that the BSP’s revised credit risk rules were “neutral” for the property sector as it introduced no new regulations for property lending.

Bangko Sentral ng Pilipinas building.  INQUIRER FILE PHOTO

The BSP’s policy-making Monetary Board recently approved major amendments to regulations governing credit risk-taking activities of banks and quasi-banks. The revised rules focus on sound credit underwriting and administration practices, signaling that collateral should play only a supporting role in credit decisions. In the case of real estate mortgage as collateral, the maximum loan value for regulatory purposes will be capped at 60 percent, lower than the earlier limit of 80 percent.

The BSP sees the collateral value cap being particularly relevant in securing Dosri (directors, officers, stockholders and related interests) loan transactions and in potentially accelerating the setting up of allowable loan for losses in case a loan account gets distressed.

The central bank clarified that the cap on real estate mortgage collateral value is not the same as a loan-to-value ratio limit imposed in some jurisdictions for real estate lending, which is synonymous to a minimum borrower equity requirement.

Maybank ATR Kim Eng cited Tetangco’s recent statement: “There are certain segments in the entire sector where prices or valuations may be rising too fast but overall, if you look at the entire sector, you don’t see any clear evidence of a real estate bubble.” The central bank has likewise signaled that there was no plan to put in place more measures, the brokerage house said.

While there continued to be confusion surrounding the revised credit risk framework from the central bank, the brokerage said the latest statement by Governor Tetangco should “help alleviate concerns not only about a property bubble but also that the central bank is acting to slow property lending.”

Maybank ATR Kim Eng’s top picks in the Philippine property sector are Ayala Land Inc., SM Prime Holdings and Megaworld Corp. The house favors Ayala Land “for its brisk execution in residential sales and recurring income build-up,” SM Prime for its “leadership in retail and opportunistic stance on residential real estate” and Megaworld for its “top position in office space development and bigger land bank.”