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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