Banks in general have not relaxed their credit requirements as far as extending real-estate loans to individuals, according to BDO Capital and Investment Corp. president Eduardo Francisco. On the contrary, he said that the significant increase in real-estate loans over the past few years was backed by the actual rise in the number of creditworthy individual borrowers.
Francisco’s comments come in the wake of a proposed directive from the Bangko Sentral ng Pilipinas (BSP) aimed at limiting banks’ exposure to the real estate market.
According to Francisco, banks have kept their credit standards unchanged and have not become overaggressive in lending. He added that the significant increase in real-estate loans over the past few years was backed by the rise in the number of creditworthy individual borrowers, mostly driven by strong job creation in the continually expanding BPO industry.
However, Francisco said it might be prudent for the BSP to watch over lending activities by non-bank entities, including real estate developers, as banks do not have a monopoly on extending housing loans to individual borrowers.
Bubble in the Making
BSP governor Amando Tetangco Jr. acknowledged as valid the observations that supply of real properties in the high-income market could now be exceeding demand, which is widely regarded as one of the telltale signs of an impending property bubble. In addition, property curbs implemented in neighboring economies, such as Hong Kong, China and Singapore, could be pushing speculative demand in the Philippines.
Tetangco, however, said that overall market supply remains below total demand as evidenced by the huge backlog in housing units, estimated at more than 3 million units, for the low-income segment.
According to a report released by the BSP recently, Philippine banks have manageable levels of exposure to the real estate sector. Outstanding real-estate loans from thrift and universal and commercial banks amounted to Php703.2 billion as of the end of 2012, comprising 17.9 percent of the banks’ total loan portfolios, which the BSP said was within prudent levels. The BSP likewise reported that of the outstanding real estate loans, only 3.7 percent were nonperforming.
Under existing regulations, banks in the country are required to limit their real-estate exposure, defined as loans extended by banks to commercial property developers, to 20 percent of their total loan portfolio.
Tougher Rules Abroad
China, Singapore and Hong Kong have all implemented tough regulations in the wake of risks of asset price bubbles. These regulations ranged from higher or extra stamp duties for foreign buyers to limiting the number of houses individuals could purchase.
Reports also indicated that the risks of a bubble are partly a result of the stimulus packages implemented in the United States, the Eurozone, and Japan in the aftermath of the global financial crisis. Some of this cash found its way in emerging economies in form of investments in real estate. As real-estate regulations become tighter in advanced economies, speculative demand is finding its way to other locations where regulations are more relaxed. The BSP says that this is the reason the Philippines should seriously consider adjusting its regulations.