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By Likha C. Cuevas-Miel, Reporter
PROPERTY developers are about to raise
prices—if they haven’t already —to cope with costlier raw
materials, fuel and soon, labor, and prevent these from eating into
their margins.
On Thursday, Vista Land and Lifescapes Inc. said
the company may have to jack up prices in the “high
single-digits” to account for higher inflation.
Manuel Paolo A. Villar, Vista Land corporate
planning chief, said the company will adjust prices according to
“the economic environment of the (project) area.”
But these increases will be accompanied by
reengineering and specification changes in residential units so that
buyers will feel they got their money’s worth, he said.
Megaworld Corp. said it has already raised
prices to cover current development costs, but refused to say by how
much they were increased. John Hao, Megaworld investor relations
officer told The Manila Times that “price increases are done every
new project or tower launch.”
Filinvest Land Inc. (FLI) said the company also
adjusted its prices since the start of the year due to increasing
demand for the company’s products and climbing construction costs.
“However, we can only adjust at a
certain level since there is a certain affordability (for
buyers),” Anabelle D. Arceo, FLI investor relations officer said.
This way, the company can still maintain
its profit margin without hurting the buyer’s pockets. Last year,
the company’s gross profit growth had slowed from 56 percent to 53
percent due to expanding mix of price points for its developments.
Arceo said the company’s profit margin however remained flat at
these levels.
Negotiate with suppliers
Besides raising prices, Ayala Land Inc. (ALI)
said it is managing costs by consolidating its purchases. With
several construction developments in the pipeline, the company can
negotiate with its suppliers for raw materials to be sold below
market prices, Alfonso Reyes, ALI corporate spokesperson. said.
Seeing that cement prices are creeping up—at
P195 per 40-kilogram bag as of last count—ALI decided to lock in
its price through a 2-year supply contract, which will expire by the
end of this year, Reyes said.
The company however is selective about its
hedging. In the case of reinforcement steel bars, which eat up 11
percent to 14 percent of construction costs, ALI decided to go for
market prices, fearing the price spike may turn out too short-term.
“We are exploring the possibility (of locking
prices) for that but it’s a difficult environment and I guess
other developers are also facing the same situation,” Reyes said.
Other than hedging, the Philippines’ largest property developer is
shifting to cheaper imports from China.
Reyes said the level of price adjustments vary
depending on the type of development and buyer demand so it is
difficult to pin an average cost. For this year, ALI plans to
develop about 56,000 residential units under Community Innovations,
Avida and Ayala Land Premier, as well as several business process
outsourcing (BPO) office spaces.
Villar said it also helps that Vista Land has
economies of scale so it has enough leverage over its suppliers to
control costs. The firm’s strength is in the affordable and
low-cost housing and horizontal segments under flagship Camella
Homes.
“Material costs are not the only costs. There
is also the land cost. Obviously we have a land bank that mitigates
that impact, which is the benefit of having a large land bank. In an
inflationary environment, companies with large land bank obviously
have an advantage over companies with smaller land bank,” he said.
At present, the company has about 1,795.6
hectares of land for development, 81 percent of which are in Mega
Manila, which includes nearby provinces of Laguna, Batangas and
Cavite.
Adjusting the lot size
Property firms are also adjusting their
house-and-lot offerings on top of fiddling with their prices to
maintain buyer interest.
“What we do is we sell a house and lot –
let’s say the original price is P1.5 million but now its costs
P1.8 million due to inflation. If P1.5-million can buy you a
120-square meter house and lot, now it will only be 100 square
meters. It’s the same price for the same house albeit smaller in
area,” Arceo of FLI said.
For its part, Vista Land markets different
maturities apart from changes in lot size offerings.
“The other thing is borrowers can extend
the maturities up to 25 years. You could borrow longer or you can
decide to be a little more conservative in your purchase [so]
instead of buying a P2.5-million house you can [buy] P2-million for
the time being. We have over 15 price points [to choose from],”
Ricardo Tan, the company’s chief finance officer, said.
Locking in rates
Rising home financing interest rates —as a
result of rising inflation —has yet to deter buyers since there
are several options laid out to them, Tan said.
Reyes of ALI said that buyers are also locking
in home mortgage rates in the event that bank loan interest rates
have bottomed out. He said that bank financing for the company’s
developments have gone up from 22 percent during the third quarter
last year to 31 percent so far this year -- proof that buyers are
scrambling to get good borrowing rates.
In just a few months, the inflation rate jumped
threefold to 8.3 percent largely due to skyrocketing fuel and food
prices. Some analysts said inflation could easily hit 9 percent.
Rising prices of commodities have been
integrated into companies’ strategic plans but the sudden spike
may have been overlooked, a corporate planning officer told the
Times.
“We’re still at the first quarter and
let’s see after the first semester is over,” Reyes said.
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