PHL builders to deliver strong results in 2025

Listed Philippine construction companies are expected to deliver strong results in 2025 — an election year — driven by increased state infrastructure spending, analysts said.

“[Construction companies] are set for growth due to the country’s favorable demographics, as well as preparations for the May 2025 midterm elections especially before the election ban,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said.

He said infrastructure projects are expected to be expedited before the Commission on Elections (Comelec) enforces a public works ban before the May 2025 elections.

He added that the expected rate cuts by the US Federal Reserve are expected to increase demand for loans from property developers and construction companies.

“Increased government infrastructure spending would benefit construction companies that are part of the supply chain of the various infrastructure projects around the country,” Mr. Ricafort said.

State infrastructure spending rose 2.52% in October from a year earlier, according to data from the Department of Budget and Management.

“Overall, the profitability outlook for 2025 appears cautiously optimistic, contingent on favorable economic policies and the execution of planned projects,” Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc., said in a Viber message.

He said the profitability of construction and infrastructure companies in 2025 depend on factors such as government infrastructure spending, private sector projects and macroeconomic conditions.

“The Philippine government’s ongoing infrastructure development through different initiatives can stimulate demand for construction services,” he added.

But the growth of the sector is expected to be underpinned by raw material costs including steel and cement, which are influenced by global markets and foreign exchange volatility.

Megawide Construction Corp. returned to profit in the third quarter, posting an attributable net income of P142.7 million from a net loss of P29.85 million a year earlier. Revenue rose 10.9% to P5 billion.

EEI Corp. had an attributable net loss of P31.75 million in the third quarter from an attributable net income of P406 million a year earlier as gross revenue fell 27.8% to P3.14 billion.

Phinma Corp., which has a construction material unit, posted an attributable net income of P144.86 million in the third quarter, 75.1% lower than a year earlier, even as revenue rose 0.5% to P6.61 billion. Gross expense increased by 2.4% to P5.5 billion.

Source: Business World

Banks’ real estate exposure sinks to 5-year low

The exposure of Philippine banks and trust entities to the property sector continued to decline at the end of September, hitting a five-year low, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Banks’ real estate exposure ratio dropped to 19.55% at end-September from 19.92% at end-June and from 20.55% at the end of September in 2023.

This was also the lowest real estate exposure ratio recorded in five years or since the 19.5% as of September 2019.

The BSP monitors lenders’ exposure to the real estate industry as part of its mandate to maintain financial stability.

Investments and loans extended by Philippine banks and trust departments to the real estate sector inched up by 2% to P3.22 trillion as of September from P3.16 trillion a year ago.

BSP data showed real estate loans rose by 7.9% to P2.84 trillion as of end-September from P2.64 trillion a year ago.

Residential real estate loans jumped by an annual 8.1% to P1.07 trillion, while commercial real estate loans climbed by 7.8% to P1.78 trillion.

Past due real estate loans stood at P148.157 billion, higher by 10% from P134.828 billion a year prior.

Broken down, past due residential real estate loans rose by 10.1% to P104.967 billion, while past due commercial real estate loans went up by 9.4% to P43.189 billion.

Meanwhile, gross nonperforming real estate loans went up by 7.1% to P111.554 billion as of the third quarter from P104.138 billion a year ago.

This brought the gross nonperforming real estate loan ratio to 3.92% at end-September, slightly lower than 3.95% a year earlier.

On the other hand, real estate investments fell by 15.5% to P376.406 billion as of end-September from P445.666 billion in the same period a year ago.

This, as debt securities dropped by 14.6% year on year to P246.041 billion, while equity securities fell by 17.2% to P130.365 billion.

Joey Roi H. Bondoc, director and head of research at Colliers Philippines, said the slowing real estate exposure seen at end-September is due to the developers’ “lukewarm appetite” for new projects.

“They’re not launching a lot of new projects. Whether it’s for office or for residential, there’s really a tepid appetite at this point for new developments,” he said.

Over the next three years, Colliers expects about 400,000 to 450,000 square meters (sq.m.) of new office space to be added to the Philippine market.

“That is much smaller, in fact, less than half of 1 million square meters of new office space from 2017 to 2019,” Mr. Bondoc said.

“If you look at launches in the first nine months of this year, they are down by about 50-60% compared to the same period in 2023,” he added.

Mr. Bondoc said developers are opting to prioritize their existing inventory.

“We don’t see a lot of expansion because they are waiting for their remaining current inventory to be taken up, to be absorbed.”

For example, he noted there is 2.6 million sq.m. of vacant office space that will take five years to be absorbed by the market.

“In the residential market in Metro Manila, it will take more than five years. Meaning, that’s about 70 months that you need for the remaining unsold condominium inventory which covers pre-selling and ready for occupancy to be absorbed by the market.”

“It’s really ranging between that period, five to about six years, whether you look at office or residential. They’re waiting for this remaining inventory to be taken up or absorbed by the market.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also noted the higher vacancy rates amid the ban on Philippine Offshore Gaming Operators (POGOs).

During his State of the Nation Address in July, President Ferdinand R. Marcos, Jr. ordered a complete ban on all offshore gaming operations, citing links to illegal activities such as money laundering and human trafficking.

The Philippine Amusement and Gaming Corp. earlier this month said that only 17 POGOs remain in operation from a total of 298 licensed POGOs in 2019.

“Right now, why are we seeing a lot of vacated office space and unabsorbed condominiums in Metro Manila? POGO exodus,” Mr. Bondoc said, adding that POGOs had previously driven demand for office and condominiums.

Moving forward, Mr. Bondoc said that banks’ real estate exposure is seen to ease further in the next three to five years.

“We will likely see less completion resulting from these less launches that we’re seeing in the market right now, especially in Metro Manila,” he said.

On the other hand, the central bank’s rate-cutting cycle could offset this outlook.

“Hopefully, further cuts from the central bank up to this month spill over to next year and result in lower mortgage rates. Hopefully that provides a much-needed impetus,” Mr. Bondoc said.

“Although, will it substantially stoke the market? I don’t think so. We’ve yet to see as to how big the impact will be on mortgage rates by these interest rate cuts,” he added.

The central bank began its easing cycle in August this year with a 25-bp cut and again delivered another 25-bp reduction in October.

BSP Governor Eli M. Remolona, Jr. has also signaled further rate cuts next year in the 100-bp ballpark.

“Further cuts in local policy rates would be a positive offsetting factor for the real estate sector that could lead to some pickup in demand for real estate loans by both developers and buyers, but with some lag effects,” Mr. Ricafort added.

In 2020, the central bank raised the real estate loan limit of banks to 25% of their total loan portfolio from 20% previously to help free up additional liquidity as a relief measure during the coronavirus pandemic.

Source: Business World

PHL mortgage rates seen steady until mid-2025

Mortgage rates in the Philippine residential sector are expected to remain unchanged until mid-2025 despite the recent rate cut, according to Colliers Philippines.

“We’ll probably see the full effect by mid-2025, and hopefully that results in lower mortgage rates because the average mortgage rate right now is only about 8.3%,” Joey Roi Bondoc, director for research at Colliers Philippines, told reporters a day before the policy meeting of the Bangko Sentral ng Pilipinas (BSP) on Oct. 16.

“That’s still pretty high, and that has been resulting in lower take-up of residential units, especially in Metro Manila,” he added.

The Monetary Board on Oct. 16 cut benchmark interest rates by 25 basis points (bps), as expected, since price pressures remain manageable. This brought its policy rate to 6%.

BSP Governor Eli M. Remolona, Jr. said another 25-bp cut to benchmark rates could be made at the December 19 meeting.

Lower mortgage rates will stimulate the market, increasing the demand for residential units, Mr. Bondoc noted.

He added that the mid-income segment is mostly affected by higher mortgage rates.

“If you look at pre-pandemic, at the time, we were looking at the take-up in the preselling condominium sector of 55,000-58,000 units. Now we’re good at what? 15,000, 20,000 units in a single year,” he said.

Mr. Bondoc said that Philippine offshore gaming operators (POGOs) were once a crucial factor in the demand for condominiums in Metro Manila.

“Because if you’re an OFW (overseas Filipino worker), the most attractive price point is the P2.5 (million) to P7 (million). So that’s affordable to lower mid-income. Given that mortgage rates are still elevated, some OFWs are still not keen on acquiring residential units,” he said.

Due to the elevated mortgage rates, OFWs are wary in terms of buying residential units despite increasing remittances, Mr. Bondoc added.

Meanwhile, economist Bernardo M. Villegas said the Philippines continues to be one of the fastest-growing economies in the Association of Southeast Asian Nations region despite global uncertainties.

“With a projected growth rate of over 6% in the coming years, we are poised to lead in economic resilience and transformation,” he said during a forum.

Mr. Villegas noted that the current administration’s efforts have established a “solid foundation” for inclusive growth, with advancements in infrastructure, investments, and the digital economy set to propel our progress further.

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Source: Business World