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By Melissa Luz T. Lopez
Senior Reporter

Bank exposure to property rises in 2016

Posted on March 14, 2017

BANKS raised their exposure to the property sector in 2016, according to preliminary data the Bangko Sentral ng Pilipinas (BSP) released on Monday that bared double-digit increases in loans and real estate investments that were nevertheless deemed “manageable.”

Banks in the Philippines recorded P1.812 trillion in total real estate exposure, nearly a fifth more than the P1.516 trillion held in 2015, central bank data show.

The increase was led by an 18.6% jump in property loans handed out by universal, commercial, and thrift banks to P1.549 trillion from the P1.307 trillion extended a year ago.

Broken down, home loans accounted for a third of the total at P529.904 billion, up by 18.8% from the previous year’s tally. Lending for commercial property climbed 18.4% to P1.019 trillion.

Real estate credit accounted for 20.77% of the banks’ total loan portfolio, slightly higher than the 20.4% share posted in 2015, according to BSP data.

However, the share of soured property debts dropped to 1.86% from 2.08% previously, showing improving asset quality despite an aggressive lending pickup.

One economist said the jump in property loans was not alarming for the local banking system.

“A 20% expansion in loans to real estate is manageable as long as the total loan book of banks is growing at a similar pace,” said Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands.

Total loans by Philippine banks increased 16.6% to P7.612 trillion in 2016 from P6.527 trillion the year prior, according to central bank data.

At the same time, Mr. Neri said “[t]he rising global and local interest rate environment since late 2016 should temper asset price appreciation and is likely to take the economy farther from an asset bubble.”

A bubble forms due to perceived rising demand in housing units -- but which is fueled primarily by speculation -- that drives developers to build more, and is said to “burst” as demand stagnates, which then leads to an abrupt drop in property prices.

Housing prices rose by a modest 2.2% in 2016’s third quarter, the slowest pace seen in over a year, according to results of the BSP’s residential real estate price index.

BSP officials have said the Philippines is far from a bubble, with actual demand -- not speculation -- driving prices upward.

Joey Roi H. Bondoc, research manager at property firm Colliers International, said increased lending comes with an upbeat real estate market that is marked by a “continuously rising” demand for both residential and commercial properties.

“Strong pre-leasing already indicates strong demand for BPO (business process outsourcing) office projects and this is backed by the continuously growing BPO sector and an emerging segment: offshore gaming,” Mr. Bondoc said in a telephone interview, while noting that manufacturers from other Asian countries are also setting up shop in industrial hubs here.

He added that increased investments from Japan and China secured by President Rodrigo R. Duterte last year should fuel a faster take-up in industrial space this year.

Mr. Bondoc also said that the residential segment has a “very healthy” 7-10% vacancy rate within Metro Manila. Demand for homes continues to rise, particularly for luxury living space.

Banks also had more appetite for securities issued by real estate firms. Placements in property-related investment instruments totaled P263.107 billion, 25.5% more than 2015’s P209.702 billion.

Broken down, investments in shares of real estate companies grew by 31.7% year-on-year to P104.285 billion, while funds placed in debt papers issued by property firms rose 21.7% annually to P158.823 billion.

The central bank has been closely monitoring the property market since the 1997 Asian financial and the 2008 global economic crises, as mortgage delinquencies sparked a global recession following a correction in housing prices.