(Bloomberg) -- Philippine developers
are on a tear.
The capital Manila is in the grip of
a building boom, led by developers such as Megaworld Corp. and Ayala Land Inc.,
that will add a record number of apartments over the next two years. It also
threatens to lead to a glut that will weigh on returns for investors. An estimated 55,000 residential
units will come onto the market in Metro Manila this year, slowing growth in
lease rates, according to broker CBRE Group Inc. Spending by property companies
will rise 18 percent to more than 300 billion pesos ($6.8 billion) in 2015 from
last year, according to broker Savills Plc.
Philippine developers have been on a
building spree as the nation’s biggest economic boom since the 1950s and rising
remittances from Filipinos working abroad spur home purchases. The market may
need more time to absorb the expected record supply of new units, according to
Macquarie Group Ltd.
“Some developers may have to slow
down in starting new projects because there is a risk of overbuilding,” said RJ
Aguirre, an analyst at Macquarie in Manila. “If developers don’t slow down and
sales won’t move, we will see a build-up in inventory and receivables that will
hurt earnings.”
As inventories increase, investors
may find themselves holding assets that are yielding less, said Romeo Arahan, a
Manila-based analyst with broker Colliers International UK Plc. Rental yields will be 3 percent to 4
percent in 2015, said Antton Nordberg, research manager with KMC MAG Group
Inc., the local associate of Savills. Yields have averaged more than 5 percent
since 2011, he said.
Spending
Frenzy
Construction will begin this year on
130,000 condominiums across the Philippine capital, KMC MAG said.
The capital region includes 17
cities and municipalities spread across about 640 square kilometers (247 square
miles) sandwiched between Manila Bay to the west, and Laguna Lake and the San
Mateo Mountains to the east.
Prices of Metro Manila residential
condominiums rose 5 percent to 110,000 pesos to 180,000 pesos per square meter
last year from a year earlier, according to Colliers. They may rise as much as
6 percent this year, the broker estimates.
Ayala Land, which developed the Philippines’ main business district of Makati, will spend a record 100 billion pesos this year. Robinsons Land Inc. is boosting capital spending by 20 percent in the current fiscal year to 17 billion pesos, while SM Prime Holdings Inc.’s 2015 budget is 70 billion pesos, 17 percent higher than last year.
Overseas
Remittances
The number of residential units
already on the market is equivalent to about two years of sales, said Aguirre
at Macquarie. He maintains an overweight rating on developers because he said
they can delay new projects to rein in the supply. Aguirre prefers residential
builders that are cutting or have cut inventory, and those with a relatively
higher share of income from office and retail rents.
Megaworld, which is spending 230
billion pesos in the next four years to build townships across the country,
hasn’t seen a demand slowdown, said Senior Vice President Jericho Go. “At least 70 percent of our projects
are sold within the first year of pre-selling and that’s still the norm for us;
there hasn’t been a change,” Go said. The 10 million Filipinos working
overseas, many of whom can now afford more expensive homes, are underpinning
demand, Go said. More than half of the money they send home goes to real
estate-related spending, he said.
Shares
Rally
Remittances climbed 5.8 percent to a
record $24.3 billion last year. The Philippine economy expanded 6.1 percent in
2014, the fastest pace in Southeast Asia. The government is targeting as much
as 8 percent growth this year for the country once known as the sick man of
Asia.
Megaworld and SM Prime are among the
10 biggest gainers on the benchmark Philippine Stock Exchange Index this year.
Megaworld has rallied 20 percent, while SM Prime has gained 16 percent.
The shares, which have outperformed
the 8 percent advance on the benchmark, may gain at least 5 percent in the next
12 months, according to the average of as many as 11 analysts’ price targets
compiled by Bloomberg from brokerages that include JPMorgan Chase & Co. and
UBS AG.
The Manila metropolitan region is
home to 22 million people and the population is forecast to rise to 30 million
by 2025, making it the world’s largest urban area after Tokyo and Jakarta,
according to forecasts by Belleville, Illinois-based Demographia. “Developers are spreading outside
Metro Manila where they see a growing potential,” Colliers’s Arahan said.
Property
Measures
Policy makers last year introduced
measures to curb parts of the property market amid concerns prices were rising
too fast. They ordered banks to cap the collateral value of real estate
mortgages at 60 percent. Lenders were tested to determine if they have enough
buffers against an asset price crash.
The central bank has held its
benchmark interest rate at 4 percent since raising it by 25 basis points each
in September and July last year. Bangko Sentral ng Pilipinas said Thursday its
current monetary policy stance is “appropriate.” Growth in areas outside of Manila
will be important for developers as they rush to construct more apartments,
said Lexter Azurin, research head at Unicapital Securities Inc. in the capital.
“Record-high inventory levels for
residential property in Metro Manila may be a cause for concern if developers
won’t see growth drivers elsewhere,” Azurin said. “Major developers are
expanding projects outside Metro Manila into other cities which are also
beneficiaries of strong growth backed by remittances and earnings from
outsourcing firms.”
To contact the reporters on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net; Ian Sayson in Manila at isayson@bloomberg.net
To contact the editors responsible
for this story: Lars Klemming at lklemming@bloomberg.net; Michael
Patterson at mpatterson10@bloomberg.net Andreea Papuc, Dick Schumacher
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