To fortify banks and steer the sector away from a property bubble, the BSP have announced and implemented three policies
The Bangko Sentral ng Pilipinas (BSP) made several announcements in the last quarter of 2014 that they will be implementing new policies for the financial sector. Some of these policies will roll out in 2015 while others have already been put into action. The reforms are not only meant to secure banks but will also boost their competitiveness as the economies of Southeast Asian countries begin integration this year.
Aside from fortifying banks, these policies are also expected to help cool or prevent the Philippine property market from overheating. Among the concerns in the real estate industry, the most polarizing of which is whether or not a property bubble exists, and whether or not said bubble will pop anytime soon. Despite reports that most property buyers are end-users, BSP still deems it fit to stay ahead of things and steer the financial and real estate sector of the country away from any potential threats.
The latest in their string of policies is that they will be mandating banks to cap loan values of real estate collaterals to 60%. It’s a significant amount considering that in the past, banks can put a loan value of up to 80 - 90%, depending on the property’s class. The cap will also be implemented across the board or for properties of all asset classes. To put it simply, for those looking to mortgage a property worth P1M, the bank will give you a loan of P600,000, instead of P800,000 – P900,000.
The central bank also raised the required capital for banks to ensure that they are protected and are ready to meet demands of clients for the changes to come. Universal banks with more than 100 branches are now required to reach a minimum of P20 B, and commercial banks with over 100 branches are required to reach a minimum of P15 B. Likewise, thrift banks, rural banks, and cooperative banks, also have additional minimum capital to reach. Should the real estate industry begin to show signs of an impending collapse, banks will be prepared for the blow.
The BSP also announced that it will be releasing a property pricing index this year. The price index will give us a bigger and more detailed picture of real estate prices. It should also steer us clear from overpricing. The index is yet to be released and implemented but the move may be timely, as Metro Manila recently experienced property prices surging last year. For instance, Makati and Taguig are two cities with rapidly rising property values. Property prices in these cities even breached the 1997 peak. The figures prompted concerns that the real estate industry in the country may unknowingly be setting itself up for a financial crisis similar to that of the Asian Financial Crisis in 1997 and the Global Financial Crisis in 2008.
Much like the real estate stress tests that they implemented in July 2014, these new policies from BSP are not to be taken as a sign of an existing property bubble. Their stance on the property bubble issue remains the same, and, to date, the BSP has not voiced out any “bubble” concerns regarding the soaring property prices. On December, BSP Amando Tetangco is even quoted on a CNBC report saying “At this point in time, we don’t see any clear evidence of an asset bubble in the economy.”
While the good news outweigh the bad as we ring in 2015, it is important to remain aware of the new changes in the country and the real estate industry. Being cautiously optimistic in case of unwanted repercussions of the transforming real estate scene, the BSP has remained cool yet proactive in preparing and securing our financial sector while doing the same for the real estate industry.
BSP Image from Flickr/Jun Acullador