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Property stable despite weak peso

Published on Thursday, 18 July 2013 00:00
Written by ALBERT CASTRO
Malaya Business News Online - Philippine Business News | Online News Philippines
The prospects of property developers remain stable for the rest of the year despite a depreciating peso that stirs fear of a rise in interest rates.
Online brokerage firm Colfinancial.com however said the depreciation of the Peso have minimal impact of developers that have foreign currency-denominated debts.
“A number of property developers have dollar loans but majority (of the loans are)  still in pesos. Among the companies that have dollar debts are Ayala Land, Megaworld, and Vista Land and Lifescape, Inc. Ayala Land’s dollar debt accounts for 10 percent of total debts while that of Vista Land and Megaworld account for 40.3 percent and 44 percent,  (respectively) of total debts,” it said.
Colfinancial.com,  however,  noted that while the dollar loans of Megaworld and Vista Land seem high as a percentage to  total loans, those loans  were never “converted” into peso.
The said dollar debts have matching dollar assets which are in turn used as collateral to borrow peso debts. Therefore, Megaworld and Vista Land do not face currency risk for Megaworld and Vista Land in terms of principal payments, Colfinancia.com said.
“The currency risk is more on the interest payments but the impact on income should be minimal,” it added.
The brokerage firm also noted that on Ayala Land’s end, its dollar loans are “hedged or matched with foreign assets (as well as ) inflows from its hotels and resorts which earn in dollars.”
Colfinancial.com  said that despite the expected tapering off of the monetary stimulus by the US government seen to stoke interest rate increases, the local lending setting will continue to enjoy a relatively low interest rate environment.
“Given our expectations that rates will remain low, demand for properties should remain buoyant despite interest rates bottoming out,” Colfinancial.com said.
The brokerage firm noted that global bond yields have risen in the past few weeks after Fed chairman Ben Bernanke announced that the Fed might taper off bond purchases starting later this year.
“The money pumped by the Fed found its way into emerging market assets, bringing bond yield to record lows. The end of this quantitative easing could mean that interest rates have (bottomed out), raising concerns that higher rates would impede the growth of the property sector,” Colfinancial.com said.
“Nevertheless, we believe that a sharp and sustained increase in bond yields, and effectively interest rates, is highly unlikely. Aside from benign inflation, ample liquidity and strong balance sheet of banks, additional liquidity that would result from the removal of access to SDAs (special deposit accounts) of investment management accounts (IMA) by the BSP effective November (beginning with a 30 percent reduction in July) should keep interest rates from further increasing. Out of the P1.9 trillion parked in SDAs, around P1.4 trillion is estimated to come from IMA,”it added.
Lender Metropolitan Bank and Trust Co., (Metrobank) recently said that it sees the peso settling at P41.50 by the end of the year as the economy grows by 7 percent for the whole period amidst a tame inflation environment and interest pressure remaining low.
The bank’s research said the local economy will be supported by “solid consumption spending and favorable outlook for the real estate and tourism sub-sectors.”
The inflation is seen to hit an average of  3 percent on soft global commodity prices and adequate domestic supply, while the interest rates will be supported by the liquidity coming from the unwinding of SDA funds.
“The Philippines’ relatively strong economic fundamentals and favorable international liquidity position should continue to provide support for the peso. The local currency is expected to end the year relatively stable at P41.50,” it said.
Metrobank, however, said the global economic growth remains uneven, with “increasingly different developments in both the advanced and emerging economies.”
“While the Eurozone crisis seemed to have eased in recent months, the region continues to grapple with record-high unemployment rate. Furthermore, political instability in Portugal and renewed concerns over Greece act as strains to the region that looks on track to crawl out of a recession,” it said.

“China’s economic growth has lost momentum, with robust domestic demand unable to offset the drag from increasing credit constraint, reduced export, and an appreciating currency,” it added.
The US economy, Metrobank noted, is gaining steady but traction with the country posting positive economic indicators like improving confidence, home and vehicle sales, and employment rate.
“The pace of activity in emerging economies (however) remains on a fundamentally stronger trajectory,” it said.
Metrobank said the prospects of the global economy remains “largely” hinged on the solid performances of emerging economies.
“And while optimism is starting to spring for a much-hoped for US economic recovery, there is still concern over the sustainability of the recent positive economic developments,” it said.
“The Eurozone, meanwhile, is still struggling, with the small glimpses of the silver lining at risk of again disappearing amid new strains. These stresses serve as a reminder of the region’s fragility and how the debt crisis (which already showed signs of cooling) can easily be reawakened,” it added.
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