Major Philippine developers pursue growth despite industry strains

The top four property developers in the Philippines are leading their sector out of a post-pandemic hangover, according to S&P Global Ratings.

The entities are pivoting to more high-end projects where demand has been resilient. While the firms' leverage is higher than pre-pandemic, their presales are expanding. The investment positioning for growth should prove constructive, the credit rating firm said.

This is according to a S&P report titled "Top Philippine Developers Pursue Growth Despite Industry Strains."

The top four property developers are Ayala Land Inc., Megaworld Corp., Robinsons Land Corp. and SM Prime Holdings Inc. Together, they account for 60 percent of the market capitalization of the sector and the total revenue among listed real estate companies in Philippines.

These four were selected based on a sole criterion: that their market capitalization exceeds $1 billion.

"The capital expenditure of the top four has largely reverted to pre-pandemic levels, with their spending shifting to investment properties and land acquisitions, from residential development," said S&P Global Ratings credit analyst Fiona Chen.

"The rapid rebound in capital expenditure underscores the top four's focus on growth over a five to 10-year horizon. Even in a period of economic uncertainty, they have prioritized expansion, counting on the country's broad-based economic growth, as well as a significant runway for property growth," said Chen.

The real estate sector is a cornerstone of Philippines' economy, contributing about 11 percent of the gross domestic product and comprising about 17 percent of the total market capitalization of companies traded on the Philippine Stock Exchange.

The top four Philippine developers will ramp up premium residential projects over the next one to two years to offset the slowdown in mass market. Capital expenditure returned to pre-pandemic levels, but with a gradual shift in weight from residential projects toward investment properties and land acquisitions, reflecting a growth stance.

Leverage remains higher than the pre-pandemic level.  “We do not expect material deleveraging over the next one to two years as the top four continue investing for growth,” S&P said.

The top four developers are all subsidiaries of large, diversified groups and will benefit from broad funding access, including bank loans, bonds, capital recycling from REIT platforms and sizable recurring income.