Tuesday, April 08, 2008 [ manilatimes.net ]
SPECIAL REPORT
By Likha C. Cuevas-Miel Reporter
WITH the Federal Reserve conceding that the US is amid a recession, a growing number of local property firms that had gambled their fortunes on the Filipino-American market are rushing out the door.
Last week, the Philippines’ largest real estate developer made a bold admission: the pot of gold in the US is no more.
In a briefing, Ayala Land Inc. (ALI) said it is shifting its focus away from the world’s biggest economy to other markets like Europe and the Middle East, the latter playing host to a huge concentration of overseas Filipino workers (OFW).
ALI said residential sales of its high-end development under Ayala Land Premiere have slowed down, leading to flat growth in the first two months this year. Rex Mendoza, ALI senior vice president, since this is marketed mainly to US-based Filipinos.
At present, about 60 percent of sales come from the US. But the company has yet to see any spike in the percentage of cancellations, Mendoza said, adding this normally stands at 10 percent.
Other property companies are not as explicit in their confession about their US quandary, but the number of those setting their sights elsewhere is rising.
Take the case of Eton Properties Philippines Inc., a relative newcomer to the local real estate scene. It was the first to announce its move away from the once-rich grounds of buyers with high disposable incomes.
The real estate unit of airline and tobacco tycoon Lucio Tan entered the low- to middle-income segment and temporarily held off selling to Filipino-Americans due to the weakening US market.
Danilo Ignacio, Eton Properties president, said the company stopped its road shows in the US and instead moved its marketing campaign to Singapore, Dubai, Europe and Australia.
Ignacio said the absence of the US market is unlikely to sorely affect the firm’s revenues since only 20 percent of sales emanate from abroad.
He also said other firms that have large exposures to the US market are hurting from the rising cancellations of from 20 to 50 percent by Fil-Am buyers.
Not taking things sitting down
J. Erwin Balita, SB Equities Inc. research manager, told The Manila Times this shift would be good for the firms and the whole industry. “At least they are responding to the changes,” he said, adding ALI’s recent admission is a sign the company is not taking things sitting down.
“However, based on [their] sales for the first two months, property firms are still resilient and apparently [the US slowdown] hasn’t affected the industry yet,” he said.
Filinvest Land Inc. recently announced that sales take up for the end-February period were up by 24 percent from a year ago even though half of its sales were made to overseas Filipinos.
This positive turnout may be due to its minimal exposure to the US at about 1.7 percent. Most of its customers abroad come from Europe with 36 percent of total overseas sales, followed by Asia ex-Philippines at 31 percent, and the Middle East at 28 percent.
Kerwin Tan, Robinsons Land Corp. (RLC) vice president for operations, said the company is “not yet affected by the recession since our marketing to the US is not as aggressive as those [of] other companies.”
He said RLC’s sales take up was still “on track” during the first two months vis-à-vis its full-year double-digit growth goal, with lower cancellations year-on-year.
The Gokongwei-led company’s exposure to the US market stands at 10 percent of total sales, Tan said.
The executive said RLC is maintaining its focus on Europe, especially the United Kingdom and Italy, even as it explores other areas like Japan for sales growth.
The company’s recent partnership with JP Morgan is proof of its aggressive plan to sell to overseas Filipinos, Tan said, adding RLC is cooking up more innovative ways to entice buyers.
Softening in high-end vertical segment
Vista Land and Lifescapes Inc. also reported higher sales take up during the first two months, announcing that the sluggish US economy will have a “minimal” impact on its books.
Ricardo Tan, the company’s senior vice president for finance, said that even if overseas Filipinos make up 60 percent of its market, its exposure to the US stands at below 10 percent.
He however acknowledged a “softening” in the high-end vertical segment of the business, which is the preferred investment of the Fil-Am market since units are located within the central business districts.
Given this, Vista Land will “adjust” accordingly, Tan said, without saying how it intends to position itself. For many years, the company’s strength had been its “affordable” or housing segment.
ALI is also looking at the lower end of the market. Mendoza said the company has shifted to selling the lower-priced Avida and Community Innovations Inc. (CII) developments to its overseas Filipino clients.
In addition, the company would market its middle-income units to US-based buyers looking for cheaper investments.
In contrast, Megaworld Corp. said it has opted to stay put and concentrate its marketing efforts on the local front where it finds its strength. “If you can sell it here, why go there? We have to focus here,” Kingson Sian, Megaworld executive director, said.
The executive said its exposure to the US stands at 4 percent, with direct sales to overseas Filipinos at 10 percent. Because of this long-standing sales strategy, the company’s first quarter sales “had been better” compared with last year. “In fact our US sales are higher year on year (probably) due to our more saleable products,” he said.
Bigger worry: rising inflation
Even as they veer away from the US market, companies however would have something else to worry about: rising inflation.
Balita said this could spur higher cost of borrowing due to the up tick in interest rates, which in turn would dampen demand for new homes.
Back home, the 6.4 percent inflation rate last month may spur tighter monetary policy from the Bangko Sentral ng Pilipinas (See related story page B1). With the March inflation doubling from last year, the BSP has broken away from the loosening tack pursued by its US counterpart, the Federal Reserve, as local monetary authorities cited inflationary pressures coming from costlier oil, food and other commodities.
Balita said higher inflation could still be offset by OFW remittances. This means the industry would just have to wait and see.
To date, sales to the domestic market have yet to show signs of letting up, as tax perks issued by the government has propped up real estate development especially in the low-income segment.
At end-December, the real estate exposure of thrift banks, which usually lend to the low-income market, reached P84.4 billion, three percent up from the end-September level and 11.0 percent higher than in December 2006. BSP data showed that incremental exposure came from real estate loans, with housing loans rising for 19 consecutive quarters.
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