The stock market has not been immune to the turmoil unleashed by the near collapse of the US financial system. Like their foreign counterparts, local firms could only watch helplessly as their share prices plummeted due to the massive sell-offs initiated by panicked investors.
With people suddenly finding their inner bears, not even positive earnings reports by the more fundamentally sound companies could lure investors back in.
Risk aversion has gripped the market so much that the property sector, one of the best performing industries on the bourse in 2007, has also been hit. As of Dec. 12, share prices of real estate companies have lost 59% of their value from the close of trading last year, trailing only mining and oil stocks, which shed 60%.
It is not helping the sector’s prospects that the economy is expected to slow down further this year as more negative news hurts investor sentiment.
Ricardo B. Tan, Jr., chief information officer of subdivision developer Vista Land & Lifescapes, Inc., noted that right now, fundamentals are not enough to keep share prices afloat.
"Investor sentiment will play a larger role than usual. Right now, even if things are going well and the outlook is promising for some companies, stock prices have continued to suffer primarily due to the negative mood among investors," he said.
In an e-mail, property analyst Ramon Jose E. Aguirre, research manager of Colliers International, said external appetite for local stocks would determine share prices.
"Share prices and the local bourse take their cue from financial markets abroad. As long as markets abroad face unprecedented volatility, there is no guarantee that share prices will go up," he said.
While most companies are sound, "that’s clearly not enough to erase bearish investor sentiment, at least for now."
Reprieve
But property firms had one less reason to worry about after the Securities and Exchange Commission heeded the request of four industry groups to postpone by three years to 2012 the enforcement of an accounting rule that bars developers from booking revenues until projects are completed.
In October, the Subdivision and Housing Developers Association, Organization of Socialized Housing Developers of the Philippines, National Real Estate Association and the Chamber of Real Estate Association warned the corporate regulator that the rule could trigger a stock meltdown.
Investors, they said, could lose confidence in the real estate business as they worry about low income or even losses during the construction of a project.
In a telephone interview, Ayala Land, Inc. Spokesman Alfonso Javier D. Reyes noted that since the rule only changes accounting procedures, it should not affect the way the business is conducted.
"It’s an accounting change but it does not really affect the fundamental value of a company... [The deferment] helps to some extent," he said.
The last thing the market needs now, he added, are more uncertainties but it would largely be a communication challenge.
Mr. Reyes noted that firms would have had to explain to investors wild variations in sales from ongoing projects.
Mr. Tan agreed, but noted that the accounting rule change would have affected condominium and vertical developers more since their projects take three to five years.
"It is a positive development overall since it removes a potential source of confusion in the market," he said.
But Prince Christian R. Cruz, a senior economist of the online research house Global Property Guide noted that while the deferment might help in the short run, "it could prompt suspicion on the figures being presented by local companies to foreign investors if we use different accounting rules."
Prospects
Mr. Tan said the high-end condominium segment would most likely be affected if economic conditions deteriorate next year.
He noted buyers who look at condominiums as an investment may postpone their purchase. "Also, much of the demand in this segment used to come from the US."
Mr. Aguirre thinks smaller developers could suffer more than seasoned ones since these are not backed by a strong brand, reputation and credit lines.
"High-end residential condominiums should be fine for [this year] as demand appears to be holding up... Big and established companies should find [this year] challenging, but not too much to handle," he said.
For his part, Mr. Reyes said the industry’s growth could come from the retail and mid-level market, where demand remains strong, and from outsourcing companies.
He added that Filipino workers abroad would continue to buy houses — a phenomenon that has fueled the industry’s recent boom — since remittances remain strong and bank financing is accessible.
The passage of a real estate investment trust (REIT) law would also help the industry, analysts said. Mr. Aguirre said REITs could be an alternative to stocks, and could allow investors to have a pool of assets without the tax bite.
"The pool of funds will be injected into the real estate industry. This in turn will spur economic activity and growth of the sector," he said.
"In times like these, it is important to continue looking for instruments that may work, or may give investors reasonable options for their money," he added.
Mr. Cruz said the law should address ownership and regulatory issues involving real estate investment trust funds.
"The devil is in the details... While the REIT may offset weaker demand, it must be ensured that its main beneficiaries are firms that complete their projects as scheduled," he pointed out.
Moreover, the law should prevent a situation where big developers are also the owners of big financial institutions. "So instead of a real estate investment trust company buying up a number of property from different developers, what you might get is big financial institutions buying from their sister real estate companies," he said.
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