By Ann R. R. Gregorio, Reporter

Tetangco pops bubble talk

Posted on November 27, 2013

THE BANGKO Sentral ng Pilipinas (BSP) chief has ruled out the possible emergence of real estate and credit bubbles in the country.

"Risks are always there. That’s why we continuously monitor potential stress points in the economy with respect to possible emergence of bubbles. In the case of the Philippines, the increase in credit as well as the increase in real estate prices are based on a structural story of the economy," BSP Governor Amando M. Tetangco, Jr. told reporters in an interview last Monday.

Mr. Tetangco said this in reaction to a article saying the Philippines’ growth is "driven by a credit bubble" and that the country has "an inflating property bubble."

The article, "Here’s Why the Philippines’ Economic Miracle is Really a Bubble in Disguise" by Jesse Colombo, published Nov. 21 on, stated that the country is "part of the overall emerging markets bubble that has been inflating since 2009," after China rolled out a stimulus program to address the effects of the global financial crisis.

In particular, Mr. Colombo said the central bank’s record low overnight borrowing and lending rates of 3.5% and 5.5%, respectively, have fueled asset and credit bubbles in the country.

"On the asset prices, particularly real estate, there is demand. That’s based on fundamental demand," Mr. Tetangco said, citing discussions with property developers.

"Aside from the reporting of banks that we get, we have intensified the monitoring, and at the same time, we have been talking to developers, and they ... said the increase in real estate activity is due to the existence of demand," he said.

"Property developers don’t build if they don’t think there’s demand. They have changed their business model. Pre-Asian crisis, if they are building a four-tower development, they build at the same time. Now, it’s one tower at a time," he explained.

Mr. Tetangco also cited the change in people’s lifestyle for the rising demand in the real estate sector.

"Those that reside outside Manila want to be closer to work. They want a place in the city where they can stay during the week," he said.

"With that, they save on gas, toll, and experience greater convenience. This factor is fueling the demand. A change in the lifestyle of Filipinos as well as the improving purchasing power of Filipinos," he elaborated.

Having said that, the BSP still continues to monitor activities in property development, Mr. Tetangco added.

Regarding credit, Mr. Tetangco said: "The increase in credit intensity as measured by debt-to-GDP (gross domestic product) reflects the financial deepening of the economy."

"That happens when the economy goes into capital-intensive activities. Funding for productive activities is needed, so demand for credit will also tend to increase," he said, noting that the country’s credit-to-GDP ratios is one of the lowest in the region.

The Philippines’ debt-to-GDP ratio as of the first half is 49.5%, down from 50.6% in the same period last year. The government aims to bring this down to 48% this year from last year’s 51.5%.