Developers feel pinch of rising interest rates, high inflation

PROPERTY developers are already feeling the impact of the high cost of borrowing, a top official of a listed company said.

In a recent media briefing, David Rafael, chief executive officer of AboitizLand Inc., said the high-interest rate environment has been a serious challenge faced by property developers in the past months.

“Housing loans are hovering around the nine to 9.5 percent range and this has led to a slowdown in sales as prospective buyers opt to take a wait-and-see approach before making any final purchase decision. This has also led to an increase in forfeitures as buyers who have completed their equity payments are turned down by banks for taking out loans because their stated income a few years back is now inadequate to service the higher debt service caused by the increase in interest rates,” said Rafael, during Aboitiz Equity Ventures (AEV) third quarter media briefing held virtually.

The Bangko Sentral ng Pilipinas (BSP) raised key interest rates last Sept. 22, 2022, for the fifth time this year to tame inflation amid a struggling peso. It increased its overnight borrowing rate by 50 bps to 4.25 percent. The move followed the Federal Reserve’s then 75-bp hike.

Recently, on Nov. 2, the Federal Reserve raised interest rates by three quarters of a percentage point again. In a Nov. 4 report, BSP Gov. Felipe Medalla said the second 75-basis-point hike would be effective after the rate-setting meeting scheduled on Nov. 17.

Besides the wait-and-see stance of buyers now, the increase in interest rates coupled with the uncertainties related to the supply chain because of continuing geopolitical tensions as well as the volatility of oil prices, managing construction costs, according to Rafael, has also become even more challenging for all developers.

Moreover, the level of competition among other developers has gotten more intense, particularly in payment terms. He said equity payment periods are extended to as long as 60 months in an effort to lower monthly amortizations so as to maintain sales volume.

Rafael said that “for a small player like AboitizLand, this is quite difficult to keep up with. But despite this, I believe that the Philippine property sector will weather this storm.”

“This industry has faced similar if not more severe challenges in the past. The current situation is just like the past—temporary and would pass and we will once again see a rebound in the property sector,” he said.

Earnings

AboitizLand Inc. and its subsidiaries and Lima Land, Inc., reported a consolidated net income of P1.7 billion in the first nine months of 2022, 167 percent higher than the P646 million recorded in the same period in 2021.

AboitizLand contributed P3.8 billion in revenues for the first nine months of 2022, 30 percent higher than revenue contributions in the same period in 2021.

The residential business segment had the largest contribution to overall revenue at 57 percent while the commercial and industrial segments contributed 43 percent. The residential business had a significant increase in its revenue contribution year-on-year due to increased house construction activity, significant site development completion, and strong sales with spot cash payments. (KOC)