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No bubble yet, but why risk it

I guess BSP Gov. Amando “Say” Tetangco just got tired being asked all the time if there is a property bubble yet. Or maybe, he is starting to see danger signs and just wanted to be proactive. He is also very responsive to public sentiment and does what he can within the limits of the BSP Charter.

The recent BSP order for banks to change how they report their exposure to the property market made some people a little worried. They had been suspicious of a glut in the property market, particularly in the condominium segment, and the BSP order is being seen as a kind of admission that something is afoot.

But I want to believe that Gov. Say is just showing us why he is one of the world’s top central bank governors, rated to be even better than the US Fed’s Ben Bernanke. Our Gov. Say rated an “A”, same as the previous year, compared to Bernanke’s “B”, an improvement from the previous “C”.

Only five other governors rated an “A” out of 50 rated by Global Finance magazine. An “A” rating represents an “excellent performance” in areas of “inflation control, economic growth goals, currency stability and interest rate management,” the statement announcing the ratings explained.

“Every year, we assess the determination of central bankers to stand up to political interference and their efforts at influencing their government on such issues as spending and economic openness to foreign investment and financial services,” Global Finance publisher Joseph Giarraputo was quoted as saying in the same statement.

So I guess Gov. Say wants to be rated “A” again next year and he won’t let something like a property bubble frustrate that. The latest precautions will also give us an early warning system and make banks behave themselves when tempted to be liberal to a sector that caused untold miseries abroad.

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The previous rule excludes loans issued to individuals for property acquisitions or home construction, as well as to developers of socialized- and low-cost housing projects.

Now, according to the BSP chief, “For purposes of determining a bank’s exposure under the new rules, real estate activities shall refer to the construction and development of real estate projects as well as other ancillary services like buying and selling, rental and management of real estate properties.”

“The new guidelines provide a more comprehensive measure of a bank’s real estate exposure. It now includes loans as well as investments in debt and equity securities, the proceeds of which shall be used to finance real estate activities,” he said.

Tetangco said the ceiling on real estate loans will remain at 20 percent, but served notice that the BSP will adjust this when necessary. He said the BSP will “review the ceiling after we get the reports from the banks to see if there is a need to adjust.”

He also stressed the move was not taken because asset prices are heading to a bubble. “In terms of loans, it is comfortably below 20 percent. If I am not mistaken, it is more or less 14 percent the latest that I’ve seen,” he told Interaksyon, referring to banks’ exposure to the property market.

It is just as well that the BSP is being proactive. An Australian website, Global Property Guide, recently acknowledged a robust property market here. In a posting last week, it heralded a “Big property surge in the Philippines!”

It opened its report with the observation that “As always happens in countries enjoying economic growth and fundamental structural reform, house prices are rising sharply.” It then offered figures to back that this is happening here.

In the first quarter of 2012, Global Property Guide reports that “the average price of a luxury three-bedroom condominium in Makati CBD rose 4.8 percent to P114,000 ($2,727.53) per sq. m. (q-o-q), according to Colliers International, or by 10.68 percent during the year to Q1 2012 (7.34 percent when adjusted for inflation).”

It continued: “Average prices in other key areas of Metro Manila, namely Rockwell Center and Bonifacio Global City, rose by 11.4 percent during the year to P119,500 ($2,859.12) in Rockwell, and by 8.6 percent to P112,900 ($2,701.21) in Bonifacio Global City.

“High-end residential real estate prices are likely to rise by another 9.9 percent during the next 12 months, according to Colliers. Rockwell Center is predicted to have the highest growth with a 9.9 percent y-o-y increase. Makati CBD and Bonifacio Global City values are expected to rise by 8.2 percent and 5.9 percent, respectively.”

Global Property Guide also reported that “The highest rents are still in Rockwell Center, with condominium average rentals of P780 ($18.66) per sq. m. per month in Q1 2012, up 1.3 percent on the previous quarter. In Makati’s CBD, a 290-sq. m. unit rental averages P658 ($15.74) per sq. m. per month.”

The Guide reports: “Overseas Filipinos’ remittances are powering the low-end to mid-range residential property market. They are snapping up housing projects and mid-scale subdivisions in regions near Metro Manila such as Cavite, Batangas and Laguna Provinces, while the expansion of the upper residential market, including the luxury market, is due to increased housing demand from BPO employees and expatriates, according to the World Bank.”

Citing the Ayala experience, The Guide points out that OFWs account for around 17 percent to 18 percent of residential sales of Ayala Land. “In the next five years Ayala Land president Antonino Aquino expects to double this, by branching out to the affordable and low-end market segment.”

The Guide observes that “Ayala Land is a late entrant to this market, previously dominated by companies such as Vista Land and Lifescapes Inc. Around 55 percent of Vista Land’s reservation sales currently go to OFWs in Asia, Europe and Middle East, while US-based OFWs account for another five percent to 10 percent of sales.”

Ayala will have some catching up to do in the mid-market. When I last talked to Sen. Manny Villar, he told me of his plans to be, in his words, ‘the Jollibee of affordable property.” Apparently, his flagship Vista Land had been land banking in key regional capitals and around Mega Manila. It is a matter of time before they go full blast developing these for the middle income market.

As expected, Sen. Villar does not think there is a glut in the property sector just yet. The market, he said, is so large. But he warned, a developer must know what segment of the market to exploit. He sees more promise in the affordable property segment, specially in fast growing regional centers outside of Metro Manila.

I suppose Sen. Villar is “happy na rin” that P-Noy’s victory has caused a dramatic rise in business confidence so that he may quickly enhance his premier position in the property market. That must have made it easier for him to agree on a coalition of his Nationalista Party with P-Noy’s Liberals. The senator said he can’t wait to go back to running his business enterprises after his term expires next year.

So it is clear: no property bubble yet in the horizon but the BSP is just being cautious. Having said that, those intending to buy property must exercise due diligence. It is first of all still location, location, location.

Secondly, pick a good reputable developer. Anybody can put up a building. But not every development is a Rockwell or an Ayala Land development. The numbers speak for themselves. Appreciation of property prices are highest in the reputable developments… not in the also runs no matter how upscale their market positioning may be. The more hard sell the advertising, the more cautious you should be.


Rodolfo de Villa sent this one.

Husband and wife are waiting at the bus stop with their nine children. A blind man joins them after a few minutes.

When the bus arrives, they find it overloaded and only the wife and the nine kids are able to fit onto the bus. So the husband and the blind man decide to walk. 

After a while, the husband gets irritated by the ticking of the stick of the blind man as he taps it on the sidewalk, and says to him, “Why don’t you put a piece of rubber at the end of your stick? That ticking sound is driving me crazy.”

The blind man replies, “If you had put a rubber at the end of YOUR stick, we’d be riding the bus, so shut the hell up.”

Boo Chanco’s e-mail address is Follow him on Twitter @boochanco


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