June 23, 2015

S&P sees property bubble risks easing

Quoting the director for financial institution of Standard & Poor’s (S&P), BusinessWorld today reported that the debt watcher and rating firm sees the risks of a property bubble in the country to be easing. This is in light of the various measures put in place by the central bank to avoid any overexposure of banks to the real estate sector. While property prices are still rising, the S&P officer took note that the various measures of the central bank has moderated the flow of credit into the real estate sector and as such this should also have a moderating effect on asset prices.

Our take: In addition to the impact of the central bank-initiated measures, property developers have also been calibrating their project launches and are now focusing on inventory management. This has led to a tempered but sustainable growth in reservation sales. While this may temper overall earnings growth, this can potentially be offset by geographical expansion (outside of Metro Manila which has been the previous growth driver) into other growth regions where demand is still strong and rising.

Furthermore, companies like Ayala Land Inc, Megaworld Corp, Robinsons Land Corp, Filinvest Land Inc and SM Prime Holdings Inc, have also been putting greater focus on growing their leasing assets. This move should put them into a better position in taking advantage of the sustained growth in the BPO and retail sectors. The IT-Business Process Association of the Philippines has recently said it is still on track to grow its revenues and employment by 15% and 20%, respectively, this year and this should continue to spur demand for leasing space and lessen the risk of higher vacancy rates in BPO office buildings.

Finally, the diversification into leisure, hospitality and resorts operation by property developers also jibes with government’s thrust of attracting high-yield tourists notwithstanding the reduction in tourist arrivals targets (see item below). – WealthSec