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Summary of Philippines Property Sector Analysis

Core Content

The Philippines property sector is currently in a growth phase, supported by a strong economy, low interest rates, a healthy banking system, and a large, young population. The sector is expected to continue its growth trajectory due to sustained demand for housing, office, retail, and industrial spaces. The growth is not limited to Metro Manila, as developers are increasingly expanding into provincial areas, which is helping to extend the property cycle.

Main Points

• Economic Drivers: The property market benefits from strong economic growth, low interest rates, and a robust banking system. These factors are contributing to a growing demand for real estate.
• Housing Demand: The housing backlog remains high, driven by doubled-up households, population growth, and the need for replacement housing. However, housing affordability has improved due to rising per-capita income and lower interest rates.
• Residential Development: While residential development is growing steadily, the growth rate is expected to stabilize rather than accelerate. The sector is transitioning to a model where recurring income from sales is becoming more prominent.
• Office Segment Growth: The office segment is experiencing significant growth, with an expected doubling of GLA by 2018. Developers are focusing on both Metro Manila and provincial areas, especially the Visayas region, to meet the increasing demand.
• Retail Expansion: Retail is also expanding, with developers focusing on both Metro Manila and provincial areas. The entry of international retailers is expected to boost demand for upscale retail spaces.
• Provincial Expansion: Provincial areas are becoming more attractive for developers, with a notable increase in licenses to sell (LTS) outside Metro Manila. This trend is expected to continue, contributing to the sector's growth.
• Market Share and Ratings: Companies such as Ayala Land Inc. (ALI), Filinvest Land Inc. (FLI), Megaworld Corp. (MEG), and Vistaland And Lifescapes Inc. (VLL) are rated BUY due to their strong growth potential and market positions. Robinsons Land Corp. (RLC) and SM Prime Holdings Inc. (SMPH) are rated HOLD as they have reached their target prices.

Key Information

• Earnings Growth: The property universe has shown an average earnings growth of 20.8% over the past five years, with an estimated average growth of 17.6% for 2014-2017.
• Sales Take-Up: Sales take-up is expected to grow modestly, with a CAGR of 6% for total sales take-up and 13.8% for residential revenues to reach PHP230 billion by 2018.
• Office GLA Growth: Office space is projected to grow significantly, with ALI expected to increase its GLA by 154% to 1.4m sqm by 2018, while MEG and FLI are also expanding their office portfolios.
• Retail GLA Growth: Retail space is expanding, with SMPH leading the way. ALI is also aggressively expanding its retail portfolio, and provincial retail developments are expected to grow at a faster rate.
• Regional Trends: The Southern Tagalog Region (STR) and Northern Tagalog Region (NTR) are key areas for both residential and commercial development due to their high GDP per capita and population. Mindanao regions have shown the fastest growth in recent years.
• Financial Health: Developers have strong balance sheets, enabling them to sustain capital expenditures and continue their growth strategies.
• Central Bank Role: The central bank is playing a crucial role in balancing growth and managing property asset inflation through macroprudential measures.

Analyst

• Name: Rommel Rodrigo
• Contact: (63) 28498839
• Email: rommel_rodrigo@maybank-atrke.com

Companies Covered

Growth Drivers

• Economic Conditions: Strong economic growth, low interest rates, and a healthy banking system are key factors supporting the property sector.
• Population Growth: A population of around 100 million with an average age of 23 years is driving demand for housing and commercial spaces.
• Industry Growth: The BPO industry, retail, and tourism are contributing to the growth of recurring revenues in the sector.
• Provincial Expansion: Developers are expanding into provincial areas, which is helping to spread growth and extend the property cycle.
• Central Bank Measures: The central bank is implementing macroprudential measures to control property asset inflation and promote sustainable growth.

Conclusion

The Philippines property sector is in a growth phase, with strong support from economic and demographic factors. Developers are expanding into provincial areas, and the office and retail segments are showing significant growth potential. The sector is expected to continue its upward trend, with companies like ALI, FLI, and MEG leading the charge. However, the growth in residential sales is expected to stabilize, and companies like RLC and SMPH may reach their target prices and be rated HOLD.