I was recently invited by the Bangko Sentral ng Pilipinas (BSP) to participate as one of the panel members in its latest Environmental Scanning Exercise (ESE) meeting – a periodic dialogue between the private and public sectors to monitor significant price movements in the equities market and the real estate sector – to shed light on the pressing issue of whether traces of a property bubble can already be seen in the Philippine property market.

The BSP, for its part, has taken considerable measures to initiate the move to monitor the real estate exposure of the banking sector through: 1) implementing loan-to-value ratio caps for residential real estate; 2) identifying ceilings on real estate loans; and 3) implementing tighter monitoring of the exposure of the banking sector on the real estate sector. Despite these measures, the need to clearly understand the nature of a property bubble has intensified because of the continued growth of the economy, which encourages the expectation of better returns and higher prices in the near term.

The detection of a real estate bubble is as controversial as the topic itself. A review of recent literature covering the topic revealed that detection is as challenging as halting the impact of a burst bubble. The absence of a consistently increasing trend of capital values would mean looking at the fundamental factors that caused the upward expectation or estimate of future property values – or simply the expectation or behaviour of the investor.

Often, the fundamental factors are said to be affected by too much positive expectation in the market and in the general economy. The positive expectation of the investor towards the future value (appreciation) of the property/investment due to the stable growth of the economy, for example, causes an increase in the value of property. However, the question remains. Have property prices grown at an unmanageable rate over the past few years?

From 2009 to the first half of 2013, the Compound Annual Growth Rate (CAGR) of inflation-adjusted selling prices of preselling luxury residential condominium developments is estimated at around 8%, while the CAGR of capital values of existing high-mid/luxury residential condominium developments is estimated at around 3% within Metro Manila. In addition, the steady growth of remittances from overseas Filipinos coupled with the phenomenal growth of the offshoring & outsourcing industry has led to the growth of demand for residential accommodation.

As in the case for other markets, the detection of property bubbles in the Philippine property market remains a challenge for both the regulators and the market players themselves. As the economy gears up for sustained growth in the medium-term, the bigger challenge is to simulate an environment where market participants are guided by the right policy mix that will aid in the prevention of any looming property bubble and at the same time promote the long-term growth of the property market.

Subscribe

Login

Notify of

new follow-up comments new replies to my comments

Label

Name*

Email*

Website

Company

Δ

Label

Name*

Email*

Website

Δ

0 Comments

Inline Feedbacks

View all comments