The first nationwide residential real estate Price Index has been launched by ratings agency Fitch Ratings.
The Index is set to provide valuable information on the state of the property market, will be consistent with the overall strengthening of market and regulatory tools and frameworks, according to a statement from the company.
The broad-based residential Price Index, which was released by the Central Bank last month, will enhance the information available for policy-making, improve market transparency and should be positive for banks’ risk monitoring.
The initial data the was released showed brisk but not excessive property price growth, suggesting that robust real estate activity over the last few years has not led to significant overheating in the Philippine property market.
Loans for real estate purposes, which make up about 19 percent of total loans, have increased rapidly since 2010, raising questions around potential overheating in the property market. Property lending rose at an average of 22 percent per year from 2010 to 2013, well ahead of overall average loan growth of around 12 percent.
Real estate lending growth has slowed since then, following tighter regulations introduced in 2014, which include a real-estate stress test and 60 percent cap on property collateral values. However, real-estate lending growth remains high with an annualized increase of 17 percent for June 2014 to the end of 2015.
Fitch assessed that rated banks in the Philippines have mostly managed their property risks prudently amid rapid lending growth, with adequate risk controls and lending standards in place. Notably too, the increases in the Price Index- though a limited dataset thus far – does not appear untenable alongside continued strong economic growth. Real GDP in the Philippines expanded 5.8 percent in 2015 and Fitch said that it expects this to accelerate to above 6 percent this year. The Price Index for the National Capital Region around Manila increased 9.7 percent year-on-year during the first quarter of 2016, and rose 9.4 percent in areas outside Metro Manila.
Rising incomes amid sustained economic growth should continue to drive robust real estate activity and loan growth for the Philippines banking sector through the medium term, according to the firm.
Property prices are an important macro-prudential risk indicator, it said, and excessive price inflation can be a sign of speculative overheating, leading to elevated risks to bank asset quality and profitability. For now, this does not appear to be the case in the Philippines and asset quality remains benign amid what appears to be sustainable price appreciation. Residential and commercial real estate NPL ratios were 3.1 percent and 1.6 percent respectively at the end of last year.
Data for the Index was contributed by 93 of 109 universal, commercial and thrift banks in the Philippines and should capture a significant portion of the overall banking system, Fitch concluded.
Image supplied courtesy of Fitch Ratings.
