Its about time the BSP has decided to develop this index to help better manage the flow of credit to the property market. It will be interesting to see how the index will be developed given that it is common local practice that property owners under declare the real value of the properties sold.
From BusinessWorld Philippines
February 20, 2014
Bangko Sentral readying property price index
THE BANGKO SENTRAL ng Pilipinas (BSP) is working on a residential real estate price index, which it wants to use as a means of responding preemptively to emerging threats.
Central bank Deputy Governor Diwa C. Guinigundo said the “surveillance tool” was being developed with the National Statistics Office.
“With the index, you are distilling everything in one indicator so that would mean a better monitoring of the real estate sector,” he added.
While monetary authorities currently monitor property prices, there is no index that allows them to track averages and compare these across time periods, locations and market segments. The central bank also relies on other indicators, such as price-to-earnings and price-to-income ratios, to assess the expansion of the real estate industry.
The residential real estate price index could be rolled out “this year,” Mr. Guinigundo said, noting that it will initially focus on residential prices and eventually “add commercial real estate prices…”.
David T. Leechiu, Jones Lang LaSalle country head, said: “Having the index is a welcome development. It gives more transparency because our investment climate is opaque.”
“It will serve as a guide and be a reference point for present and prospective investors. They will know whether the market is looking healthy or not and they will have better confidence in investing in the Philippines,” Mr. Leechiu added.
“Though there is no any sense of danger in the real estate market at present because there is no oversupply, we would need this index sooner than later because it would present more opportunities for the Philippines.”
Neighboring Singapore has a real estate index, which calculates price changes that take into account factors such as the property’s distance to a top school or a metro station.
The creation of a Philippine version is in line with the BSP’s move to improve its monitoring of banks’ real estate exposure. In 2012 the central bank, among others required banks to report not only their loans to the real estate sector but also their investments in debt and equity securities issued by real estate companies.
Banks’ real estate exposure amounted to P900.1 billion as of June last year, 6.82% higher than the P842.6 billion recorded as of March. This accounted for 21.7% of the banking system’s total loan portfolio of P4.2 trillion, the BSP said, exceeding the 20% cap.
The central bank stressed that this was not a cause for alarm as the breach was due to changes it made on the definition of banks’ real estate exposure. — ARRG