The Bangko Sentral ng Pilipinas (BSP) will launch a real- estate price index as part of efforts to ensure the stability of the country’s real estate market.
In an e-mailed response to the reporters, central bank governor Amando M. Tetangco Jr. said the BSP will likely evaluate the “bubble component” of real-estate prices in the country, after the launch of the residential real-estate property index (RREPI).
“The [RREPI] tracks property prices. To be able to assess the state of the real-estate sector, we need another model to evaluate the bubble component of the [RREPI],” Tetangco said.
“That is the next part of the project,” he added.
Asset bubbles are usually formed with a surge high demand, followed by the shift of property prices increasingly upward due to this. Eventually, this asset bubble is likely to become a threat to the economy once speculators enter the market without a clear forecast of the future of the property sector, thus investing more in the sector. This will further drive up demand.
Once demand decreases or stagnates, demand will decrease this, resulting in a sharp drop in prices causing the bubble to “burst.” This causes instability in the economic stream.
Tetangco also said the RREPI will likely be made available and released to the public by June this year.
The RREPI is an initiative of the BSP, which aims to create a standard price index as an official guide for the price valuation of residential properties in the country.
The index is said to be a ‘function of several indicators’, including both from the supply and demand curve of the industry. In terms of supply, BSP officials earlier cited the cost of materials and business permits as some of the considerations, while, in terms of demand, they are gauging it through the number of applications of permits, among others.
The index is focused primarily on the residential sector but the BSP hopes to expand this to the commercial sector in the future.