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Philippines Property Market Summary

Core Content

The Philippines property market is viewed as a promising investment opportunity, particularly in the residential, office, and retail segments. The report emphasizes the potential for strong growth due to a favorable demographic shift and a robust domestic economy. Analyst Rommel Rodrigo from Maybank ATR Kim Eng provides an in-depth analysis of the sector, highlighting the importance of developers with strong recurring income streams in the face of rising interest rates.

Main Points

Demographic Trends and Economic Growth

• The Philippines has a population of around 100 million with an average age of 22.5 years.
• The working-age population (15-59 years) is expected to surpass 60% of the total population, creating a demographic dividend.
• This shift will drive demand for residential, office, and retail properties.
• Structural reforms have led to increased per capita income and lower interest rates, enhancing housing affordability and boosting real estate demand.

Residential Market

• A significant housing backlog exists, with over 600,000 housing units needed annually since 2010.
• The majority of housing demand comes from the mid-income and high-end segments.
• Property developers are focusing on affordable and middle-income housing, with inventory concentrated in smaller units (25-35 sqm).
• The residential market is expected to maintain strong demand for the foreseeable future.

Office Market

• The BPO industry is a major driver of office space demand, especially in Metro Manila and provincial capitals.
• Office rents in the CBDs are relatively low compared to global peers, with a 5-year CAGR of 0.65% in Makati.
• Bonifacio Global City (BGC) offers lower rents and is becoming an important hub for the BPO sector.
• Vacancy rates remain low, supported by strong demand and limited new supply in some areas.

Retail Market

• Retail is a crucial component of mixed-use developments, with a growing focus on catering to the BPO workforce in Next Wave Cities.
• The penetration rate of modern retail groceries is forecast to increase, helping maintain low vacancy rates for retail properties.

Analyst's View and Top Picks

• The report recommends a BUY rating for all five property developers in the coverage universe.
• The top picks are:
  • Ayala Land Inc (ALI): Diversified developer with strong growth and earnings visibility.
  • Megaworld Corp (MEG): Largest office space developer with significant exposure to the BPO industry.
  • Robinsons Land Corp (RLC): Focused on expansion in the office, retail, and hotel segments.

Key Information

Financial Highlights

• Ayala Land Inc (ALI):
  • Target Price: PHP37.80 (+47% from current price)
  • Market Cap: PHP365.7B
  • Core FD P/E (2013F-2015F): 28.1 to 18.7
  • P/BV (2013F-2015F): 3.4 to 2.7
  • Net Dividend Yield: 1.1% to 1.4%
  • ROAE: 10.4% to 13.1%

Industry Outlook

• The Philippines is projected to benefit from the BPO industry's growth, which could account for 8% of GDP by 2016.
• The report highlights the importance of developers with recurring earnings to mitigate the impact of rising interest rates.
• The central bank has deemed real estate lending manageable, with residential loans accounting for 5% of total gross loans.

Market Trends

• Property developers are focusing on affordable and middle-income segments, which are the most in demand.
• The BPO industry is driving demand for office space in both traditional CBDs and provincial cities.
• Retail space is expected to continue growing as part of mixed-use developments, supported by increasing private consumption and BPO-related demand.

Summary Table

Conclusion

The Philippines property market is poised for continued growth, supported by demographic shifts, a strong BPO industry, and an improving economic environment. Developers with strong recurring earnings, such as Ayala Land Inc, Megaworld Corp, and Robinsons Land Corp, are highlighted as top picks due to their solid growth prospects and strong earnings visibility. The report also suggests that the current market conditions, particularly the valuation of Ayala Land, present an attractive opportunity for investors.