SM Prime prepares for property ‘bubble’

Property giant SM Prime Holdings Inc., the country’s biggest property developer, is wary of rapidly rising property prices and prospective property oversupply, which could create a bubble especially in Metro Manila.

Jeffrey Lim, who will become president and chief executive of SM Prime starting Oct. 1, Tuesday said at the Philippines Investment Conference organized by CFA Society Philippines that while developers would often report good sales, it would be good to prepare for the eventual reversal of the property upswing.

“Given the activities that you see around, especially in Metro Manila, you wonder: Is there an oversupply? Is there a possibility of a bubble?” Lim replied when asked during a CEO panel what kept him awake at night.

The possibility of the property cycle turning less favorable is what is always top-of-mind for SM Prime, now a leading property developer in the Philippines and Southeast Asia.

“One way to manage (such risk) is to make sure that we have a strong balance sheet in terms of debt service ratio, in terms of inventory levels, in terms of receivables management,” Lim said. “In the end, once the problems arise, we have to make sure that we deliver the products and services that we have committed to our consumers.”

Rising property prices were also a key concern for SM Prime, Lim said.  He noted that land values have become “too prohibitive” in certain areas, noting the record-high P500,000-a-square meter deal in BGC. Even cities like Zamboanga and Tuguegarao, he noted, were now hitting “never heard before” land values exceeding P25,000 a sqm.

If land values would continue to surge, Lim said it would be difficult for property developers to expand.

“That’s why in our case, we try to find growth in certain areas outside Metro Manila, where you become the first mover,” Lim said.

Contributing to the rise of property prices was the current moratorium on the conversion of certain areas to commercial use, even in areas that have become highly urbanized, Lim said.  As such, he said this would be a challenge to property developers.

In the case of Metro Manila, Lim said the metropolis was now “almost overbought” except in areas like Caloocan, which was begging for big property developers to come in and put up quality commercial centers.

Lim said SM Prime would have to turn to provincial areas to build new malls. In Metro Manila, he said the strategy would be to expand leasable space in its mature malls, like the new developments in Mall of Asia, which will soon have new attractions like a football field and a galleon museum.

Finally, another key concern for SM Prime over the near term would be an uptick in interest rates, which, in turn, could dampen demand for affordable housing. Doris Dumlao-Abadilla