ALI expects margins to be under pressure

Property giant Ayala Land Inc. (ALI) expects margins to be under pressure this year due to higher costs of construction materials, escalating fuel prices and inflation, according to a top company official.

ALI president Jaime Ayala, however, is confident that the continued strong demand for the company’s projects will cushion the impact.

Ayala noted that prices of steel have already doubled and cement costs have gone up by 25 percent since the start of the year which he said could result in a margin squeeze. Steel accounts for about 10 percent of ALI’s construction costs.

“There will be a lot of compression on margins. So we’re really working on the other costs and whatever we can do. These are challenging times for the property sector,” he said.

Ayala said the company has locked in long-term three-year contracts with its cement suppliers, making it safe from price hikes.

He said despite rising inflation and the global economic slowdown, sales of the company remain strong and ALI continues to be in “investment mode.”

“We haven’t seen any significant slowdown in sales. Take-up has been very good. We have 100 ongoing projects and we’re going forward because we believe that there are still so many bright opportunities in the property sector,” Ayala said.

Ayala also pointed out that the company has no problem securing funding for its projects given its strong balance sheet.

ALI has earmarked P24.3 billion for its capital expenditures this year, 60 percent higher than in 2007. The bulk of the allotted money will go to the development of 5,600 new residential units from new projects and additional phases in existing projects.

About 30 percent will be channeled to the expansion of its business process outsourcing space, significantly higher than the 12 percent a year earlier. The balance will be used to fund the redevelopment of the Ayala Center and Greenbelt, and beef up its landbanking activities with focus on acquiring key sites in the Mega Manila area and other geographies with attractive and fast-growing economies.

Ayala likewise disclosed that Bonifacio Global City continues to be the battleground for property developers given new developments in the former military camp. For one, Federal Land Inc., the property unit of the Metrobank Group of Companies of taipan George S.K. Ty, is building a hotel under the brand Grand Hyatt.

The Metrobank Group owns a 10.4-hectare property in Bonifacio Global City which it plans to develop into a high-end mixed-use township with residential, commercial, retail, office building and hotel components.