Megaworld expects record sales despite high inflation

ABS-CBN News

Posted at Jun 21 2008 09:46 AM | Updated as of Jun 21 2008 05:46 PM

by JUM BALEA
abs-cbnNEWS.com

Megaworld Corp., the Philippines' second-largest property developer, is bucking the downtrend most companies are heading towards as they face a challenging business environment.

While some companies are postponing expansion plans and realigning strategies to cope with the twin impact of high inflation and interest rates, Megaworld is launching 17 new projects this year as it expects sales to reach all time highs.

"We remain optimistic about our prospects for the coming year. However, we will continue to exercise prudence in managing our resources," said company chairman and president Andrew Tan.

Megaworld expects to rake in revenues of P26 billion from this year's planned projects, which will be located in its major township developments across Metro Manila.

Megaworld's fortune is hinged on two things: One, it is in the business where investors would like to park and safely grow their money. And two, the overseas Filipino workers from Asia and Middle East are compensating for the slack in US-based homebuyers.

Hedge against inflation

Megaworld's product mix cuts across luxury to mid-priced residential properties, with commercial and office spaces integrated in some. It has been through the industry's worst and best times.

"Drawing from the lessons of the Asian financial crisis [in the late nineties], we are confident that we will weather the current crisis," Tan told reporters Friday, noting that real estate remains a good hedge against runaway inflation.

Megaworld executive director Kingson Sian added that the company's strong sales during the first five months of 2008 demonstrate the market's favorable view that property ownership is still the best way to preserve investment value.

"How do you protect the value of your money? You put it on a property rather than, say, a car whose value depreciates over time," Sian noted.

A home is usually a Filipino's biggest investment in his lifetime.

Record sales

Based on the company's experience, the runaway inflation that has crimped the spending capacity of consumers has not slackened Philippine-based investors' appetite for real estate.

Megaworld has hiked prices by as much as 20 percent to recover mounting construction costs, mainly due to high prices of steel. But even an across-the-board increase in prices of its residential units, he said, did not affect buyers.

The company said total reservation sales from January to May 2008 rose 70 percent year-on-year

Megaworld has earmarked P12 billion for capital expenditures this year. It has so far launched three condominium projects with total sales value of about P9 billion. These include One Central in Makati city, Parkside Villas at Newport City in Pasay City and Morgan Executive Suites at McKinley Hill in Taguig City.

During the first quarter of 2008, Megaworld recorded a profit of P1.01 billion. It said it was right on track to meet its full-year net profit target of P3.8 billion, the highest in its 19-year history.

The company is banking on its middle-income residential and business process outsourcing projects to drive the growth.

More buyers from Asia than US

Investments from overseas buyers continue to account for Megaworld's impressive business prospects.

Direct overseas sales, which accounted for roughly 10 percent of total residential sales, grew by 158 percent.

Sian said the company's profitability has not been affected by the slowdown in the economy of the United States, perceived to be the largest market for the Philippine property sector.

Fortunately for Megaworld, US-based investors contribute only a minimal portion of the company's total sales from overseas.

He attributed the hefty growth in overseas sales to strong demand from the Middle East and Asia, which accounted for 25 percent and 38 percent, respectively, of the total.

"The appetite of overseas Filipinos for real estate is still increasing and this will continue to drive growth of the company," he said.

Affordable homes and loans

Since 2005, the Philippines has enjoyed an unprecedented property boom largely fueled by robust dollar remittances from over eight million Filipinos working overseas. A number of them are in the US.

But after the subprime mortgage and credit crisis erupted in the world's largest economy, coupled with expectations of a possible recession, fears that the local housing market would cool down became persistent.

Unlike in the US where subprime crisis was the result of excessive lending to borrowers, including those with low credit standing, home loans in the Philippines were based on affordability because house purchases were made for their use and not as speculative investments.

Also encouraging Filipino consumers to buy homes are the easy and affordable financing schemes banks are offering, Sian said.

Unlike in the 1997 financial crisis, when banks were "stuck" with non-performing loans and real properties, Sian said banks today are healthier and highly liquid.

"Banks can readily step in and lend because they are less worried about defaults. They are stronger and healthier," he said.