Property prices are (still) behaving well

Are you hunting for property in this time of the COVID-19 pandemic? Or are you a developer worried about a credit boom?

You can rest assured that property prices are still broadly in line with market fundamentals and within historical range as asset price pressure remains manageable.

This is largely due to the massive P2.2 trillion released into the financial system as part of COVID-19 response measures, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Benjamin Diokno said monetary authorities continue to be vigilant in preserving financial system stability as the global health crisis rages on.

“The likelihood of asset price inflation due to a credit boom is also reduced by weak economic activity and banks’ risk aversion as these tend to dampen asset price movements and lending activity, respectively,” Diokno said.

In the real estate market, Diokno said the central bank has sharpened some of its macro prudential tools to monitor and contain the potential buildup of risk arising from banks’ exposure to the property sector.


These tools include the cap on loan to value ratio, limits on real estate loans, monitoring of banks’ real estate exposures, and the real estate stress test limit.

Asset price bubbles occur when the prices of stocks, bonds, property or commodities rise quickly without underlying fundamentals such as increased demand.

Latest data from the BSP showed the Residential Real Estate Price Index (RREPI) contracted by 4.2 percent to 132.2 in the first quarter of the year from 138 in the same quarter last year, primarily driven by the fall in prices of condominium units and duplexes.

The nationwide house prices in the first quarter were also 1.6 percent lower than the 134.4 booked in the fourth quarter of last year due to the lower prices of duplexes, townhouses, and single detached or attached houses, which more than offset the higher prices of condominium units.

“Nationwide house prices contracted due to the subdued demand for residential prices amid the pandemic,” the BSP said.

The price of condominium units fell for the third straight quarter, shrinking by 10.7 percent to 163.2 in the first quarter of the year from 182.7 in the same quarter last year, while the price of duplex housing units plunged by 20.7 percent to 132.6 from 167.3.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the decline in property prices is a healthy correction amid the reduced demand for residential real estate particularly condo units after a boom in the Philippine offshore gaming operators (POGOs) prior to the COVID-19 pandemic.

The RREPI, launched in the first quarter of 2016, is used as an indicator for assessing the real estate and credit market conditions in the country.


As credit activity remained muted due to the emergence of new COVID-19 variants, loans released by big banks contracted for the sixth straight month, shrinking at a slower pace of four percent in May from five percent in April.

Outstanding loans of universal and commercial banks amounted to P9.01 trillion in end May this year from P9.39 trillion in end May last year.

However, loans released by big banks to the real estate sector continued to increase, rising by 3.9 percent to P1.78 trillion and accounting for 19.8 percent of the total loan disbursements as of end May this year.

The exposure of Philippine banks in the volatile real estate sector increased to a record 21.55 percent last year from 19.84 percent in 2019 but stayed well within the higher cap set by the BSP to cushion the impact of the pandemic.

This after investments and loans extended to the property sector went up by 5.5 percent to P2.62 trillion in 2020 from P2.48 trillion in 2019.

The real estate exposure of Philippine banks last year was the highest on record from a peak of 21.04 percent in end March 2017. It would be recalled the BSP Monetary Board raised the real estate loan limit of big banks to 25 from 20 percent in August last year to free up P1.2 trillion for lending.

Data showed lending to property developers went up by six percent to P2.29 trillion in end 2020 from P2.16 trillion in end 2019, while their real estate investments in debt and equity securities fell by 10.8 percent to P332.569 billion from P320.09 billion.

Due to the impact of the pandemic, the gross non-performing real estate loans of Philippine banks inched up slightly to P105.358 billion from P37.32 billion, translating to a ratio of 4.6 percent in 2020 from 1.72 percent in 2019.

“By economic activities, the increased NPL levels of loans for real estate activities and for household consumption mainly contributed to the growth of the banking system’s NPLs,” the BSP said.


But banks’ exposure to the property sector remains manageable, thanks to prudential measures including the real estate limit.

These measures also included the heightened surveillance of banks’ real estate and project finance exposures, and the real estate stress test (REST) thresholds for universal and commercial banks as well as thrift banks.

The latest REST results indicated that the stressed capital adequacy ratio (CAR) and common equity tier 1 (CET1) ratio of the universal and commercial banks remained above the minimum requirements of the BSP.