Philippine authorities suddenly become “cognizant” of internal bubbles.
From the Bloomberg,
The Philippines’s move to enhance oversight of real-estate lending this year will help curb speculation and improve its ability to prevent a property bubble from forming, the central bank said.
The regulator ordered banks to provide more details on their real-estate exposure in August, including reporting investments in stocks and bonds that fund property ventures and loans to developers of low-cost homes. Closer monitoring will encourage banks “to exercise more self-restraint,” Deputy Governor Nestor Espenilla said in a phone interview Sept. 7.
“It’s a preemptive move,” Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said in an interview the same day in his office. “We don’t see at this point signs of strains in the market but we don’t want to wait for that. That’s the trick with asset bubble; when you see it, that means it has formed and you’re too late.”
The country joins Asian nations including China and Singapore seeking to temper soaring property prices and avoid the economic fallout created by the bursting of the U.S. subprime bubble and real-estate crashes from Spain to Ireland. Philippine bank loans and investments in the property sector surged to a record in March, central bank data show, and rising prices have spurred Ayala Land Inc. (ALI) and other developers to build more homes.
More signs of blowing bubbles. Again from the same article…
The number of condominium units built in the Philippines rose 48 percent to 33,000 last year as construction of 50,000 units started, Colliers said in its report. The PSE Property Index (PPROP), which tracks developers including Ayala Land and SM Development Corp. (SMDC), has risen 36 percent this year, surpassing the 19 percent increase in the Hang Seng Property Index. (HSP)
Philippine banks’ loans and investments in the property sector rose to a record at the end of March to 538.1 billion pesos, 21 percent higher than a year earlier and 3.8 percent more than the previous quarter, central bank data show. Real estate made up 15.2 percent of lenders’ total loans in the first quarter, rising from 14.5 percent a quarter earlier, according to the central bank.
25,000 Homes
Ayala Land, the nation’s biggest developer, plans to start construction of a record 25,000 homes this year, 20 percent more than last year, Chief Executive Officer Jaime Augusto Zobel de Ayala said in an interview in March. It boosted 2012 spending to 47 billion pesos from an earlier budget of 37 billion pesos, Ayala Land said in a report posted on its website last month.
The central bank’s latest moves “are credit positive for Philippine banks with substantial real estate lending because they will prompt the banks to tighten credit controls,” Moody’s said on Aug. 30.
This despite current regulatory measures…
Bangko Sentral currently caps banks’ real-estate exposure at 20 percent of total lending, with some exclusions. With the additional information now required from lenders, the central bank will decide if its policy needs to be reviewed, Espenilla said.
The central bank said Aug. 23 it will expand reporting of real-estate exposure to include real-estate projects and “ancillary services like buying and selling, rental and management of real estate properties.” The scope is broader than the previous ruling, which limited real-estate activities to the acquisition, construction and improvement of property, it said.
Who decides and what makes of a bubble? Or how will bubbles be defined? The definition of bubbles essentially shapes the path of regulation.
Will bubbles be based at specified price levels? Designated number of units available or being constructed? Amount of lending? Shadow banking?
Yes there have been regulatory caps, but as I have been pointing out (I am partly being validated by these, see some past articles here, here and here) nobody really knows where money will flow into. Nobody really knows how proceeds of loans will be allocated or spent. All statistics bruited by the political agencies are presumptions of the strict compliance. They ignore human action.
There is such a thing called regulatory arbitrage.
A good example is the stock market crash of Bangladesh in 2011. Money borrowed for supposed industrial uses has been diverted to the stock market which led to a stock market bubble. The ensuing crash came about as government tightened money.
Yet how will regulators “prevent the bubble”? Supply side caps? Demand side caps? Financial caps?
All these talks about curtailing bubbles again represents authorities superficially dealing with symptoms. In reality, they are pretentious actions. They are intended to paint the imagery of the politics of “do something” in the assumption that they “know” or fully comprehend the situation.
Really?
Bubbles serve to bloat statistical economic growth. This gives media mileage and approval ratings for the incumbent authority. They also enrich the political as well as the politically favored economic class whom are usually the first recipients of easy money policies.
So why they should political authorities curb a bubble? Should they kill the goose that lays their golden eggs?
Why do governments pursue easy money policies anyway?
Let me give the stereotyped political economic answer, because they want to achieve “permanent quasi-booms” by inducing statistical economic growth via demand management policies channeled through debt acquisition and the socialization of investments (deficit spending). In short, DEMAND MANAGEMENT POLICIES are in reality BUBBLE POLICIES.
Let me quote Henry Hazlitt again. The Inflation Crisis and How to Resolve It (p.121)
In sum, if we directly lower the interest rate, we encourage more borrowing and therefore encourage an increase in the money-and credit supply. If we begin by increasing the money-and-credit supply, we thereby lower the interest rate. So one begets the other: lower interest rates bring about inflation, and inflation brings about lower interest rates
So political authorities ease policies which generate internal bubbles and then blame the private sector from which they call for more restrictions on civil liberties. Nice. A great set up for totalitarianism.
I previously quoted Nassim Taleb’s caustic attack on intellectuals
Intellectuals and academics (except for Hayekians) tend to treat the rest of the population as total idiots. So it is very hard for them to swallow the statement that, statistically, an intellectual is as much, much more likely to be the total idiot.
Let me add that defining bubble in itself will become a political issue. Developers, construction industry, property owners, banks, financial industry (e.g. stock market, mutual funds, pension and insurance and etc…) and OFWs the among many specific interests groups who benefit from the current bubble will compete to influence decisions of policymakers.
Politicians, as noted above, will also prefer to see bubbles in order to push on their political agenda (example near record high stock market backed by high approval ratings facilitates national credit rating upgrades that lends to increased government spending and more debt based accumulation by political favorites)
Of course, no politicians will admit to this directly. They channel these mostly through their expert allies who intimidate the public with technical ‘spending and welfare economics ’ gobbledygook.
Yes F. A. Hayek was right.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design
Spurious knowledge of containing bubbles presented as self-righteous omniscience.
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