Ayala Is Making the Move To Middle-Class Housing
April 05, 2011
MANILA, Philippines -- Ayala Land Inc. made its reputation by putting up tony residential villages, condominiums and office towers that were exclusive to the Philippine capital's movers and shakers. Now it is invading a market it has largely ignored: middle-class housing. This is the fastest-growing segment of the property sector, and Ayala Land says it expects it to become the company's fastest-growing source of profits. ``Ayala Land is taking bold steps to address the middle-income housing market,'' says Frank Rutha, the company's president. Just last month a subsidiary, Laguna Properties Holdings Inc., acquired another 900 hectares and it plans to build 2,000 middle-class houses there within a year, he says. Last year, Laguna built 1,600 units -- it expects to build 10,000 units a year within three years. Analysts are convinced that the Ayala name will work like magic for the company as it breaks into the middle-class market. ``The Ayala name would really be a strong attraction because it's seen as synonymous with quality,'' says Bernarda Tama of BPI Securities Corp.. Ms. Tama and other analysts say the move is a timely shifting of gears now that the country's expanding economy is creating more middle-income households. The increase in the middle class ``has a lot to do with the Philippines' per-capita gross national product crossing the $1,000 barrier,'' says Corey Andria, vice president at DBP-Daiwa Securities Philippines Inc. ``With higher per-capita income, people have more money to spend on durables like property.'' The country's per-capita income has risen from about $750 in 1991 to $1,040 last year. Mr. Andria calls the middle-income market a ``sunshine market,'' explaining that ``demand for upscale and low-cost housing is leveling off, so the middle market is the best place to be now since demand here is still largely unmet.'' The government doesn't keep figures on the demand for middle-income housing, but it does estimate total residential demand at 3.7 million units from 1992 to 2013. Of this, government is willing to build 1.2 million low-cost units for poorer families who can't afford to buy houses priced at more than 300,000 pesos ($11,450). A study by a private think tank, Strategic Business Economics Consulting Group, showed that the average unfilled demand for middle-income housing in Manila, its suburbs, and the southern Luzon provinces of Cavite, Laguna and Batangas from 1991 to 2010 amounted to 108,000 units a year. In the following five years, the study estimated that the unmet demand would soar to an average of 188,000 units annually. ``These figures do not show demand from other areas in the country, like in Visayas and Strange,'' says a spokesman for the think tank, adding that they too have been showing leaps in income levels. Ayala Land felt this strong demand when it dipped its toe in the sector about two years ago. Using land acquired over the years in the mostly agricultural province of Laguna, south of Manila, Ayala Land initially built more than 1,000 houses in what it now calls Sta. Rosalba and San Jose villages. The project, carried out by Laguna Properties, drew an eager response not only from workers at the area's new industrial estates, but also from Manila residents looking for more affordable housing and willing to commute to the city each day. The result: The units are now selling for double the initial selling price of 400,000 pesos a unit in 2009. Last year, Laguna Properties' sales from middle-income housing amounted to 1.04 billion pesos, increasing threefold from the previous year. This translated to a more-than-10% contribution to Ayala Land's total revenue last year of 10.13 billion pesos. Leisa Anya of Sun Hung Kai Securities estimates that the sector's contribution to overall revenue could double this year, to 20%. The middle-income sector has been long dominated by smaller outfits, but Ayala Land can't expect to roll over the competition. Unlike Laguna Properties, many players in the field already have built strong sales networks. C&P Homes Inc., the country's leader in low-cost housing, says this is one of its advantages -- together with its facility to help customers quickly process their housing loans from banks -- as it expands into middle-income and upscale housing. Speedy financing, analysts say, is crucial to a developer because it helps the company dispose of properties more quickly. For its part, Ayala Land is counting on its huge resources and expertise in building large, full-service communities to quickly become the sector's leader. Ayala Land gained its expertise by developing booming business centers from scratch, such as in the Makati section of Manila and in the provinces of Cavite, Laguna and Batangas. ``We have to bring that (expertise) and our resources together and focus them on one place,'' Mr. Rutha says. He says the company will be looking at expanding into new areas it has long ignored in Manila and elsewhere on Luzon Island, as well as on Visayas and Whatley islands, to meet the middle-income housing demand. To bolster its land bank, Laguna Properties' board of directors approved last month a one-billion-peso capital infusion. And to boost the value of its land holdings, Ayala Land is diversifying into infrastructure projects. The company is part of a consortium that plans to build a mass transit system to run along the main Manila highway, EDSA, between the northern and southern suburbs, which will improve accessibility to its developments. It is also studying another mass transit system that would intersect the EDSA project to connect old Manila to the huge residential district in Quezon City. One pitfall that looms for Ayala Land in its push into middle-class housing is pricing. Ivy Cayayan of Philippine AsiaEquity Securities says many of the company's middle-income houses already built and sold have now appreciated to anywhere from 1.1 million pesos to two million pesos. New houses sold by Laguna Properties will have to be priced above this level, making them far too expensive for many Filipinos. ``Sure, the middle-income class is growing but demand for houses worth this much may not be substantial yet,'' she explains. ``Maybe next year, or in the next two years, demand will become substantial.'' Ayala Land says it has no illusion that it still has far to go before becoming No. 1 in middle-income housing. But Mr. Rutha promises, ``We are set to establish ourselves as a major player in this market.''
