Source : Business Times - 12 Aug 2008
Despite rising prices, Philippine builder says demand is not flagging
Megaworld Corp, the Philippine builder controlled by billionaire Andrew Tan, says that apartment sales will reach a record this year as the nation withstands a credit crisis that triggered a property slump in the US and UK.
‘The world may be ending in other parts but not in the Philippines,’ Kingson Sian, executive director of the country’s second-biggest builder by market value, said in an interview. ‘This isn’t 1997.’
Banks continue to lend and the eight million Filipinos abroad are sending home cash in record amounts, softening the blows of commodities prices at records and a weakening of global growth, he said.
Megaworld shares, which has lost 57 per cent this year, dropped 89 per cent in 1997 when the Asian financial crisis eroded the peso and raised borrowing costs, hurting property sales.
‘It’s been a tough environment but the market hasn’t dried up,’ says Jonathan Ravelas, a strategist at Manila-based Banco de Oro Unibank Inc, which manages about US$5.9 billion in trust assets. ‘Some home buyers are just delaying their purchases.’
Philippine consumer prices last month rose a faster-than-estimated 12.2 per cent and the central bank warned of more rate increases after raising borrowing costs twice since June. Yet Mr Sian said that demand isn’t flagging and Megaworld will probably proceed with its plan to start a record 17 projects this year.
The Manila-based company booked 11.3 billion pesos (S$358.9 million) worth of orders from January to May, 71 per cent more than a year ago.
Mr Sian forecast 24 billion pesos in record reservation sales this year, 26 per cent more than in 2007.
The company’s market value increased more than eightfold in the five years through 2007 as falling interest rates and record remittances from overseas Filipinos fuelled a building spree that included Megaworld transforming a block of warehouses into Eastwood City, an upscale residential and commercial development in the Manila suburb of Quezon City.
Projects such as Eastwood and Forbes Town Center in one of the Philippines’ most expensive residential district have made Megaworld the nation’s biggest builder of residential towers.
Still, investors shouldn’t be rushing into Megaworld and other builders because of accelerating and rising interest rates, says Olan Caperina, who helps manage about US$6.7 billion at BPI Asset Management Inc in Manila. ‘Property stocks are for those with strong stomachs for high volatility.’
While builders have raised prices by 5 per cent to 15 per cent this year and more increases may be forthcoming, Mr Sian says that the orders haven’t stopped.
That’s partly because of overseas Filipinos, who account for about 15 per cent of Megaworld’s home sales. Cash from Filipinos abroad hit a record 14.4 billion pesos last year, helping boost economic growth to 7.3 per cent, the fastest in 31 years.
The central bank forecasts remittances, which make up a 10th of the country’s economy, will reach US$16.45 billion this year.
Philippine banks are also ‘liquid’, and some have approached Megaworld about ‘taking on our receivables,’ Mr Sian said. ‘So they’re still willing to fund home purchases.’
Bank loans will probably grow 10 per cent this year, according to the central bank.
‘There is pressure on banks to increase their loan portfolio if they want to grow,’ said Jody Santiago, strategist at the Manila unit of UBS. ‘The high-yielding government instruments where banks used to place their funds aren’t there anymore.’
Megaworld’s apartments, priced from 500,000 pesos to 10 million pesos, allows it to sell to a broad income group, Mr Sian said. This ‘diversity’ allows Megaworld, which sells units in 40 projects, to sell to buyers scaling back planned purchases, he added.
Ayala Land Inc, the nation’s largest builder by market value, has a portfolio of 21 residential projects.
Most of Megaworld’s projects are ’strategically located’ in Manila, says Mr Santiago, who recommends buying the company’s shares. ‘Megaworld bought these properties when the market was at a bottom so it’s not faced with inventory constraints in Manila as its rivals,’ he said. — Bloomberg
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