Vol. XXI, No. 216 [ Business World Online ]
Wednesday, June 4, 2008 | MANILA, PHILIPPINES
REAL ESTATE developers do not expect a moratorium on land conversions to affect operations but analysts say this could lead to higher land values and turn off investor interest in the sector.
President Gloria Macapagal Arroyo last week ordered a two-year ban on the conversion of farm lands to real estate use, citing the need to shore up local rice production.
Developers told BusinessWorld the moratorium would not hamper ongoing developments, and added they were more concerned about the rising cost of construction materials.
"We will not be affected because 85% of our land bank is mostly in Metro Manila and the rest were already converted to residential," Vista Land & Lifescapes President and Chief Executive Jing Serrano said.
Vista Land, which has a land bank of 1,980 hectares, offers low-cost up to high-end residential projects under four brands: Brittany Corp., Crown Asia, C&P Homes, and Communities Philippines.
Ms. Serrano noted that before they pursue a development, the company always made sure that the land had been given Department of Agrarian Reform clearance.
Robinsons Land Corp. President and Chief Operating Officer Frederick D. Go agreed. "Most of the property we’re developing are near the highways so we don’t see any problem with the moratorium," he said.
"We’re also doing most of the projects through joint ventures in which we make it a point that the landowner has already taken care of the conversion," he added.
Developers, however, could become more selective as there would be fewer lands to choose from, Mr. Go said.
Francis V. Ceballos, chief operating officer of Landco Pacific Corp. that specializes in resort development, said "The order will crimp [land] supply within the two years and will make converted lands more expensive..."
Mr. Ceballos, whose company has about 1,500 hectares of land under joint ventures, said the ban would modify the way developers look for land as well as innovate and create new products.
"It’s part of one of those environmental factors in which we have little control over but make retooling product offerings to meet buyers’ demand while making a decent profit [a necessity]," he said.
For her part, Filinvest Land, Inc. investor relations head Annabelle D. Arceo said the order would likely narrow the playing field, adding "it’s negative for developers who have lesser land banks."
Jones Lang LaSalle-Leechiu property expert Claro Cordero said the ban would make new developers rethink their entry into the sector.
"It discourages the entry of small-time players because unlike major property developers, they don’t have extensive landbanking, [thus] making it hard for them to look for developable lands," he said.
Prospective investors would be limited, he added. "Who would want agricultural lands? If I’m an investor, I’ll put my money in lands that could be converted to more superior land use.’
"These agricultural lands become non-performing assets of developing banks and rural banks so if these are not disposed, it would limit the flow of funds [for the banks] and in turn, investor confidence will erode," Mr. Cordero said.
"The end goal for this to produce more rice is definitely to increase capacity but then again we should bear in mind if these lands are properly serviced by the irrigation services of the government."
Colliers International’s Ryan Isip, meanwhile, said "property prices will increase and converted lands will become more expensive."
Actual concerns
Developers said surging prices of construction materials such as cement and steel was the more pressing concern.
"The challenge is that raw materials are directly hitting our bottomlines. Engaging contractors has become costly because their bidding price for the service has increased by 30 to 50%," said Landco’s Mr. Ceballos.
"In the past two months, there was a sharp increase in cement and that’s where we felt a very immediate impact. This is a big bite off our margins," he added.
Based on the Department of Trade and Industry’s latest price monitoring, cement prices are now at P185 per 40-kilogram bag from April’s P175.
Vista Land’s Ms. Serrano, meanwhile, said the company was more concerned about the effect of inflation.
"Moving forward, we have started to increase the prices of housing packages to anticipate the rise in construction prices. [The increase in products is] about 3% to 5% just enough to cover [our] costs."
As of this writing, the Chamber of Real Estate and Builders Association (CREBA) has asked a Quezon City Regional Trial Court to order a review of the moratorium.
The petition also requests that a temporary restraining order and/or a writ of preliminary injunction be issued.
The ban, said CREBA, is a "classic case of two competing rights that collide: the rights of ownership over private agricultural lands versus the government’s right to infringe on it."
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