Property developers seen pivoting to horizontal, township projects

By Juliana Chloe A. Gonzales

THE construction industry is bracing for “immediate and pronounced” pricing pressure as a result of the fighting in the Middle East, leading them to concentrate on horizontal and township projects to better manage cost and logistics risks, according to Hearn & Hearn (HH) Consulting.

In its first-quarter building material market and price indices, HH noted that high fuel prices have pushed the cost of reinforcing steel to as much as P45 per kilogram, turning developers away from high-rise construction, where reinforcing steel is used more intensively.

Horizontal projects are deemed less risky because they allow construction companies to stop building when sales are slow or when material costs become unmanageable. In contrast, high-rise construction comes with a higher risk profile because developers are committed to completing buildings according to a timetable, regardless of cost behavior or sales performance.

“What we are seeing instead is a shift in developer behavior,” according to Daryl Calapre, HH associate director for Hearn & Hearn Consulting in an e-mail responding to queries from BusinessWorld on Thursday.

Cost pressures are becoming more of a factor after inflation spiked to 7.2% in April.

The Department of Economy, Planning, and Development (DEPDev) has estimated that if global oil prices hit $140 per barrel and remain elevated throughout September, inflation could average 4.5% to 4.8% for the year, including spikes from 6.3% to 7.3% over the short term.

“Uncertainty… is also causing developers to take a more cautious approach. Many are adopting a ‘wait-and-see’ stance before aggressively launching or expanding projects. The main concern is that prolonged geopolitical tensions could further increase fuel and material costs, which would place additional pressure on both developers and buyers,” HH said.

“Materials with high import and petrochemical dependency such as metals and paint are likely to experience the largest increases, while others may see moderate escalation.”

Construction material prices are projected to increase by 3.17% as raw material procurement costs rise. The segment’s exposure is both direct, through fuel and transportation, and indirect, through energy-intensive materials like steel, cement, and glass, it said.

Material cost to build mid-rise residential projects was estimated at P35,640 to P54,215 per square meter, while high-rise costs ranging between P43,640 and P78,465.

“The Metro Manila condominium market is still facing inventory surpluses in several segments, which means buyers today may actually have more room to negotiate better payment terms, discounts, and promotional arrangements with developers. So while affordability remains a challenge, market competition is also creating opportunities for buyers who are willing to wait and negotiate,” HH said.