Bangko Sentral on guard against possible price bubbles in real estate 

As a precautionary stance against a possible bubble in the property market, the Bangko Sentral ng Pilipinas is closely watching asset prices and how these would impact on loan portfolios of banks.

 

"We have an asset watch monitoring real estate exposure as well as in the stock market," Bangko Sentral Assistant Governor Ma. Cyd Tuaño-Amador told reporters in an interview over the weekend. 

 

"We are not yet alarmed but we are sufficiently on the lookout. We need to act quite responsibly," she added. 

 

According to property consultancy Colliers International, premium grade office rents increased by 7.6 percent year-on-year in 2012, while  rentals for luxury three -bedroom units rose by around 6 percent year-on-year. 

 

Noting the steep price increases are "not systemic," Amador said the central bank is seeing "pockets of concern" in the high-end residential and office segment. 

 

Office segment rates and high-end residential prices are going up, she said. 

 

Amador, however, said the central bank is looking at whether price increases in the residential sector were caused by "fundamental and structural reasons. 

 

"We need to see whether this was driven by demand for office spaces and high-end residences," she added, citing the influx of business process outsourcing firms and expatriates. 

 

"We are also looking at price-to-earnings ratio and land valuation across different areas," the central bank official said, citing the difficulty in detecting an asset price bubble. 

 

Price-to-earnings ratio measures an investor's willingness to pay for a company's future profitability. 

 

Amador said monetary authorities remain on their toes in case the situation calls for a policy adjustment. 

 

"We are constantly reviewing our macroprudential screws to see if the teeth of these measures still have their bite. We will tighten it as needed," she noted.  

 

Following the 1997 Asian Financial Crisis, the central bank put a 20 percent cap on real estate loans as a proportion of total loans.

 

Large credit exposures in the property sector resulted in defaults on debt obligations and set off a collapse in asset prices caused panic among lenders and spurred large withdrawals of credit  and prompted policy makers to jack up interest rates. — VS, GMA News