Guinigundo’s take on property boom

By RTD | Posted on July 15, 2012 | 12:01am
[ manilastandardtoday.com ]

Bangko Sentral Deputy Governor Diwa Guinigundo offers insights on the latest phenomenon sweeping Metro Manila, the property boom.

Guinigundo, in trying to make sense of all the construction activities happening simultaneously in town, assures the growth of the real estate sector is at a healthy pace, but cautions against the risks of widening vacancy rates.

He says reports from Colliers International Research point to increasing capital and rental values, driven by demand for office space from the offshoring and outsourcing industry and expatriate demand for luxury three-bedroom units amid limited supply, particularly in the Makati central business district.

“On the other hand, the supply of high-rise residential condominium units has continued to surge across Metro Manila, but most of these are in the middle-income segment and are broadly located outside the major business districts,” he says.

Guinigundo says that based on the number of licenses to sell issued by the Housing and Land Use Regulatory Board and the estimated demand for housing units for the period 2007-2010, the new supply of housing units are still not enough to satisfy the estimated housing demand in the country.

No asset price bubbles

“However, the rise in vacancy rates in certain market segments in the real estate sector necessitates close monitoring,” he warns.

The Bangko Sentral official in charge of monetary stability sector says that despite the recent rise in capital and rental values for office and luxury residential segments in Makati, “there appears to be no clear signs of an asset price bubble as the general upward shift in property sector indicators remained driven by fundamental factors such as the continued expansion of the O&O industry which fuels demand for office space and residential units.”

He notes that the capital and rental values of office space and residential units in Makati CBD remain below the peak levels reached in 2008. Meanwhile, the price-to-rent ratios for both the office and luxury residential segments have fallen below trend of late as rental values have grown faster than capital values, he adds.

“We note that there has been no dramatic increase in the prices of both office spaces and luxury residential units. However, rental values for the office segment went up due to continued strong demand from the O&O industry amid limited office space, particularly in the Makati CBD,” he says.

“Similarly, the upward trend of rental values for the luxury residential segment was due to limited availability of luxury three-bedroom units,” he adds.

Macroprudential measures

Guinigundo says Bangko Sentral has existing macroprudential regulations in the Philippines to protect the industry, such as the statutory limit of 20 percent on the share of real estate loans to banks’ total loan portfolio, maximum loan-to-value ratios for real estate collaterals, and statutory loan limits to single entities or large borrowers.

These measures, he says, have helped make the economy less prone to asset price escalations. The enforcement of the rent control law also helped limit the undue increase in real estate prices while the law on real estate investment trust has helped temper the boom in real estate activity.

He says banks remain compliant with the real estate loan exposure limit. “In spite of the continued strong growth of real estate loans, the combined universal, commercial, and thrift banks’ exposure to real estate loans reached only 15.2 percent of their total loan portfolio as of end-March 2012,” he says.

Contribution of real estate

“The BSP recognizes that the real estate sector is a key contributor to the economy, with the sector accounting for about 10.7 percent of the country’s real GDP in 2011. The sector, likewise, plays an important role in the economy with its forward and backward linkages with other sectors, particularly with the housing and construction sectors,” says Guinigundo.

“For this reason, the BSP continues to pay close attention to developments in the real estate sector, including price trends as well as the growth of credit to the sector, since the overall activity of the sector has broader implications for the banking system and the economy as a whole,” he adds.
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