Ayala Land, the Philippines’ biggest builder, said annual profit may increase by as much as 20 percent in the next decade as faster economic growth and rising incomes boost office, shop and housing demand.
“More people are really buying earlier in their life,” president Bobby Dy, 51, said in an interview in Makati City on Tuesday. “People are now able to buy a condominium for the same price as amortizing a car.”
Rising remittances from the nation’s 10.5 million citizens living abroad, an outsourcing industry that’s expected to employ 1.3 million by 2016 and interest rates that have been kept at record low for almost two years until July have driven demand for home purchases. Ayala Land’s second-quarter profit rose 25 percent to 3.59 billion pesos ($82 million), the highest ever for a three-month period.
The Philippine economy grew 6.4 percent in the second quarter, among the fastest in Asia, and is poised to be among the world’s five-fastest expanding until 2016, according to economists surveyed by Bloomberg News. The Southeast Asian nation is set to enter a “demographic sweet spot” starting 2015 when a large portion of the population becomes employed, President Benigno Aquino said in February.
‘Biggest share’
Dy’s 20 percent profit forecast is slower than the average annual 31 percent increase in the past four years. Net income increased 30 percent to a record 11.74 billion pesos in 2013, beating a 10 billion-peso target a year ahead of a five-year plan. Profit may rise to 14.3 billion pesos this year, according to the median estimate of 14 analysts.
“Ayala Land has a good lock on the market for middle to higher-income residential market,” Rommel Rodrigo, a Manila- based analyst at Maybank ATR Kim Eng, said by phone. The company has “the biggest share and is the preferred developer by home buyers in this segment because of its track record of quality and price appreciation.”
Ayala Land shares rose 0.5 percent to 33.60 pesos as of 10:09 a.m in Manila, compared with a 0.3 percent decline in the benchmark Philippine Stock Exchange Index.
A decade ago, people 25 to 34 years old, who were buying Ayala-built houses selling for at least 2 million pesos accounted for only 5 percent of the brand. This age bracket now accounts for as much as 30 percent of buyers, Dy said.
Demographic dividend
The Philippines may reap a “demographic dividend” as more of its people join the labor force, according to brokerages including Maybank ATR Kim Eng.
The demographic dividend happens when most of a country’s population is in the 15-to-64 working-age range. This increases productivity if supported by policies that promote health, family, labor and financial and human capital.
Developers including Ayala Land will be vulnerable to economic growth and interest rate moves, said James Lago, head of research at PCCI Securities Brokers.
“Ayala Land is moving on the assumption that the market won’t hit a bad patch or an economic shocker moving forward,” Lago said. “Once things aren’t rosy and mortgage payments change earnings could slowdown for property developers.”
More foreigners have also been buying residential properties since last year when rating companies upgraded the Philippines to investment-grade status, he said.
Ayala Land is boosting investments in shopping malls, offices and hotels to increase what it calls its recurring revenue to half of income or at par with home and lot sales, Dy said.
Makati City
The developer is building 350,000 square meters of office space to increase its current portfolio by 60 percent, and 304,000 square meters of retail space to boost its holdings by a fifth, according to the company.
Ayala Land said last month it will spend an additional 65 billion pesos to upgrade Makati City, doubling a record 60 billion-peso plan for the nation’s main business district. It is considered Ayala Land’s crown jewel even as the company is building several growth centers elsewhere.
Land values in the Makati business district rose 3.6 percent in the second quarter from the previous three months to an average 366,425 pesos per square meter and are forecast to increase 8.4 percent this year, broker Colliers International said in a report last month. Demand for office properties in the Philippines continues to grow, with average rental rates expected to rise about 14 percent in the second half from a year earlier, broker Jones Lang LaSalle said in August.
Land portfolio
Increasing its land portfolio is a priority for Ayala, with about a third of this year’s 70 billion-peso budget to be spent buying land, Dy said.
The company will take a look at the government’s plan for the 35,000-hectare Clark Green City metropolis project in Pampanga province and decide whether to bid for some of the land. The company also may consider bidding for contracts to reclaim 600 hectares of land from Manila Bay, Dy said.
“We will take a look at any land of a significant size,” Dy said. Ayala Land has a presence in 30 out of 40 “growth areas” it identified across the Philippines, and it wants to be present in the rest in five years, he said.
Source: The Jakarta Globe
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