FINANCIAL services group Maybank ATR Kim Eng said it remains upbeat on the Philippine property sector following the central bank’s assurance that its revised credit risk rules are neutral for the sector, confirming there is no credit bubble forming in the real estate industry.
“We maintain our overweight view on the property space,” the group in a sector research report.
An overweight recommendation signifies that the stock or sector being recommended holds better value for money than others.
Maybank ATR Kim Eng said its latest view is based on recent pronouncements by Bangko Sentral ng Pilipilnas (BSP) Governor Amando Tetangco Jr. dispelling fears of a possible asset bubble forming.
“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,” Tetangco was quoted as saying.
Tetangco was also quoted saying that after requiring expanded monitoring of banks’ real estate exposure and real estate stress tests for banks “there is no plan to put in place more measures.”
“This confirms our view that last week’s revised credit risk rules are neutral for the property sector as it introduces no new regulations for property lending,” the brokerage house explained.
Tetangco’s latest statement should help alleviate concerns not only about a property bubble but also that the central bank is acting to slow property lending, which is confirmed by the revised credit risk rules, it added.
In October, the Monetary Board of the central bank revised the credit regulation framework, which includes provisions such as the central role of cash-flow analysis and ability to pay in determining creditworthiness, with collateral playing only a supporting role; clarification that the maximum collateral value of real estate is not the same as loan-to-value ratio limit (LTV), with the latter continuing to be determined by banks; support for micro and small enterprise borrowers; and a loan-loss methodology based on expected rather than incurred losses.
Meanwhile, Maybank ATR Kim Eng said its top picks in the Philippine property sector include: Ayala Land Inc. (ALI), SM Prime Holdings (SMPH), Megaworld Corp. (MEG) and Filinvest Land Inc. (FLI).
The group said ALI has brisk execution in residential sales and recurring income build-up while SMPH has leadership in retail and opportunistic stance on residential real estate.
On the other hand, it noted that MEG has top position in office space development and bigger land bank, while FLI’s price multiples have not yet caught up with more aggressive plans to build up its recurring revenue base.
“Share prices of these companies have only slightly recovered after the sell-off with the confusion on REM [real estate mortgage]collateral value and LTV ratio limit. We continue to view this as an opportunity to accumulate,” Maybank ATR Kim Eng concluded.