Bloomberg News

Rizal Bank Buys Philippine Developers Shares on Rate Outlook

February 15, 2012

(Adds valuations in sixth paragraph.)

Feb. 14 (Bloomberg) -- The Philippines’s fourth-biggest lender is buying shares of the nation’s real-estate developers as the central bank may lower interest rates further to boost economic growth.

“The current interest-rate environment is quite favorable for the property sector,” Rico Gomez, who helps manage $1.53 billion at Manila-based Rizal Commercial Banking Corp., said in a phone interview yesterday. “As long as overall market sentiment doesn’t deteriorate, we will see further gains.”

Gomez has reduced his holdings of Philippine energy and consumer stocks to buy property shares, he said, declining to identify specific companies. Gomez’s RCB Tiger Equity Fund had a 30 percent three-year return, compared with 21 percent for its peers, according to data compiled by Bloomberg.

The Philippine Property Index, comprising 15 of the largest developers, has rallied 17 percent this year as the Bangko Sentral ng Pilipinas trimmed overnight rates and signaled further monetary easing later in 2012. It’s the best start to a year since the gauge jumped 25 percent in the same period in 2005. The benchmark Philippine Stock Exchange Index has gained 9.6 percent.

The central bank reduced the overnight borrowing rate to 4.25 percent from 4.5 percent on Jan. 19 after two increases in 2011. The authority still has monetary “policy space” for further easing as the inflation outlook remains favorable, Governor Amando Tetangco said last week. Yields on Philippine 10-year bonds reached a record low 5.08 percent on Feb. 9 on expectations the bank will trim rates when it meets on March 1.

Rate Cut

Stocks in the property index trade at 18.1 times estimated earnings, the highest since November. Shares in the benchmark stock index are valued at 14.7 times, while the MSCI Emerging Markets Financial Index, which includes property companies in developing nations, trades at 10.6 times.

“If the central bank cuts rates further, property stocks can replicate the return in 2009,” Gomez said. The property- stock index surged 73 percent in 2009, the sharpest annual gain based on data going back to 1995, as the benchmark overnight interest rate was lowered to 4 percent from 5.5 percent at the end of 2008.

The property index is less than 150 points away from the 1,874.27 peak it reached in July 2007.

Inflation Target

Inflation will be within the government’s target of 3 percent to 5 percent in 2012, the National Economic and Development Authority said Feb. 10. Price growth eased to a 13- month low of 3.9 percent in January.

The gap between inflation and interest rates may encourage investors to put money into real estate, according to Gomez. “With the low real interest rate, there are investors who will invest in real assets as they seek ways of protecting their money,” he said.

Investors should favor developers that hold a “significant” land bank over those with sizeable portfolios of condominiums because of the possibility of an “oversupply” in residential towers, Gomez said.

Property prices increased in parts of Metro Manila last year even as borrowing costs rose. Land values in Makati and Ortigas, two major commercial and business districts in the capital, rose at least 2.8 percent in the third quarter from a year ago, the Philippine Daily Inquirer reported on Feb. 9, citing central bank data.

“There are limited signs of an asset-price bubble thus far, although some segments of the residential property sector could be at risk of an oversupply going forward,” the Inquirer said, citing the central bank report. Still, land values in Manila are about 65 percent of the level reached in 1997, before the Asian financial crisis, the report said.

--Editors: Matthew Oakley, Allen Wan

To contact the reporter on this story: Ian Sayson in Manila at

To contact the editor responsible for this story: Darren Boey at

China's Killer Profits
blog comments powered by Disqus