The Bangko Sentral ng Pilipinas (BSP) is not expecting the formation of asset price bubbles in the real-estate sector of the economy.
BSP Governor Amando Tetangco Jr. said that there is a lower risk of asset bubbles forming in real estate because of market price actions such as the declining prices of stocks, bonds and lower exchange rate.
The local stock index declined for five straight weeks and plummeted 25.7 percent to 5,789.06 from its record-high close of 7,392.20 on May 15.
On the other hand, the Philippine peso is on a two-week high and still at the P43 to a dollar level, after the Federal Reserve suggested that the United States central bank would taper monetary stimulus.
“I think [the declining trend of the indicators]is a positive correction which somehow would limit the risk of asset bubble formation,” Tetangco said.
The BSP governor added that if the said indicators were always on the high level, then there is a possibility that the sector is reaching bubble-like conditions.
An asset bubble is formed when the prices of specific asset classes are over-inflated because of excess demand for the asset as an investment vehicle.
Prices rise quickly over a short period of time, and are not supported by underlying demand for the product itself and can be aggravated by a supply shortage, or an over-expansion of the money supply.
Meanwhile, Tetangco also said that real estate developers still see that there is still fundamental support in the growth of the sector coming from real demand.
He said that many people now want to reside close to their work place, because it is more convenient in terms of transportation.
“So developers have actually calculated how much these people would spend and more or less use that as basis for coming out with the monthly amortization,” he said.