Averting the property bubble in the PhilippinesNovember 22, 2012 / By
I am often asked if there is a property bubble developing in the Philippine property sector, specifically in the residential condominium segment. The anxiety brought on by this question is allayed by the recent activity that has been seen in other mature markets, such as Singapore and Hong Kong, where the government has played an active role in curbing the excessive escalation of property prices.
In the Philippines, the Bangko Sentral ng Pilipinas recently ordered banks to provide additional details about their real-estate exposure, requiring them to provide details on: (1) the investments in debt and equity securities that fund property ventures and the loans given to property developers; and (2) the ancillary services relating to the construction and development of real estate projects such as the buying, selling, renting and managing of these real estate properties.
Some market players saw this move as a pre-emptive measure to curb any property bubble that might be developing as a result of the unprecedented amount of building seen in the country, especially in the high-rise condominium market. There are currently around 130,000 luxury-to-mid-end residential condominium units in Metro Manila, and over 1.2 times or some 150,000 units are expected to complete within the next five years.
In terms of asset performance, the bigger picture indicates a fairly moderate growth. The compound average annual growth rate of resale capital values between 2009 and 2012 has been 11%, in a sample of the existing luxury and high mid-end condominium developments in the Makati CBD and Bonifacio Global City. Additionally, the average sale prices of new developments have exhibited a similar trend during the same period.
The hard lessons learned during the 1997 Asian Financial Crisis have prompted local regulators and developers to promulgate measures to prevent a property bubble from developing. Further, the regulators are motivated to prevent further disruptions in the market (which are likely to be brought by a property bubble) as the economy is set to receive upgraded credit and investment ratings from reputable rating agencies.
The challenge today is for both the regulators and the key market players to work together in analysing the sector by ensuring that the market information they provide is transparent and reliable. Hence, we believe that a more in-depth study of the various factors affecting the growth in the high end residential segment should be conducted to accurately determine the situation and aid the regulators in prescribing a more targeted preventive measure to avert any property bubble from developing.
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