The central bank again downplayed concerns that a real estate bubble is forming in the financial system, stressing that there is clear demand for residential and commercial space, and banks’ exposure to the sector remains at comfortable level.
“No, there is no evident signs of a bubble in the real estate sector today,” Bangko Sentral ng Pilipinas (BSP) Governor Ama ndo Tetangco Jr. told reporters late Friday.
Tetangco said there continues to be strong demand for housing, mainly because of the favorable demographics in the country.
“You have a young and economically active population and because demographics are really a topic of society, it [won’t] just change overnight. The progress of the housing sector is expected to be sustainable,” he said.
The BSP chief also noted changes in people’s lifestyles, in which they now want to have a place to stay close to their workplaces, which creates additional demand for property.
In addition, he noted the burgeoning business process outsourcing (BPO) sector has created strong demand for commercial space.
“So all of these put together, we can say that the real estate sector is in a good position at this point,” he said.
Another important indicator of high demand, he said, is the exposure of banks to the sector, which stood at P1.55 trillion at the end of the first quarter 2016, up P280 billion from P1.27 trillion a year ago.
Real estate lending accounted for 20.7 percent of the banks’ total loan portfolio (TLP) during the period, compared with 19.4 percent a year ago.
“Even when one looks at the exposure of banks, the banks have been quite prudent in providing loans to real estate buyers as well as real estate developers,” he said.
The main reason for this, Tetangco suggested, is there has been a change in the business model of developers now compared with what they were doing at the time of the Asian financial crisis in 1997-1998.
“Now they build based on demand, whereas then they would build all the towers that are part of the development and try to sell the units on each of the towers. [Now] They build one tower first and then sell the units, and if they have sold enough they begin to build the second tower,” he said.
“So it is clear that the business model now is demand driven, and I think that makes for a healthier real estate sector,” he added.
Latest central bank data showed lending by big banks to the real estate sector grew in double-digit terms in the first half of the year, with most of the loans allocated to commercial purposes.
The loans universal and commercial banks released to the real estate sector amounted to P1.33 trillion as of end-June 2016, higher by 19.8 percent or P388.17 billion from P949.88 billion a year earlier.
Loans to the real estate sector accounted for 19.2 percent of the big banks’ P5.94-trillion total loan portfolio (TLP) including interbank loan receivables (IBL). Minus the IBL, loans to the sector accounted for 19.8 percent of P5.73 trillion in TLP.
“A surge in lending to property-related sectors stands out as an obvious area of concern. But lending to the property sector accounts for only 20 percent of total lending,” London-based research consultancy firm Capital Economics said.
“That said, we don’t think the Philippines is at imminent risk of a crisis,” it concluded.
About 24.6 percent or P279.46 billion of the total real estate loans (REL) consisted of residential loans, and 75.4 percent or P858.59 billion were commercial loans.