II.

Research Design and Methodology

A. Research Design

In examining the general environment of the chosen company, the strategists

derive its information from various news websites, blogs, previous strategic
management papers about the real estate industry, and reports from trusted real
property consultants.
 Leechiu Property Consultants
 Rappler
 Department of Trade and Industry
 The Manila Times
 Global Property Guide

Government websites such as the Bangko Sentral ng Pilipinas (BSP),

Philippine Statistic Authority (PSA) and Philippine Retirement Authority (PRA) were
also entered into for the required projections.

B. Methodology
 Use of rank sum in EFE Matrix

C. Major assumptions

The discussion in this paper was limited only to DMCI Homes, the real estate
arm of DMCI Holdings. Due to time constraint, information presented were exhausted
only up to what is available online through researching.

IV. External Analysis

A. General Environment

1. Economic developments

Low interest rates projected

The Bangko Sentral ng Pilipinas (BSP) left its benchmark interest rate at a
record low as it forecasts inflation will remain inside the target band this year and
in 2019. While a rising inflation rate is noticeable as of 2018 due to higher taxes on
fuel, and other commodity items, a weak peso, and firmer global oil prices, the
latest forecasts continue to show inflation remaining within the inflation target in
2018 and moderating further in 2019.

As of July 2018, the inflation rate was recorded to be at 5.7% which is the
highest inflation rate for the past 5 years. While the quoted lending rates of
commercial banks averages from 4.6% to 7.01% as of August 2018.

Relevance: The lower the mortgage rate, the lower the down payment and interest
a buyer of property must pay.

Continued growth of the BPO sector

 Business Process Outsourcing (BPO), as defined by the Philippines
Department of Trade and Industry, is the delegation of service-type business
processed to a third-party service provider. BPO in the Philippines is becoming a
key developing industry, primarily due to the relatively low cost of living, and a
workforce which composed mainly of young and educated Filipinos with good
spoken English language skills. In fact, majority of research studies have placed
the Philippines as the No. 1 trending country as the top destination for outsourcing.

In an article from Rappler, the number of BPO employees is seen to

increase from 1.3 million to 1.7 million this year and the coming years. Annual
growth, however, is forecasted to slow down to 9% until 2022 due to its larger
scale, sluggish industry growth globally, and security headwinds in the Philippines.

Relevance: BPO sector makes a new breed for condominium dwellers. With their
growing number and their need to live near their workplace, there is definitely
a housing backlog that needs to be addressed and demand for dormitories will
rise.

Increasing intensity of competition among the industry's numerous players

The Philippines real estate market has been penetrated with high
investments arising from the presence of both international and domestic players
in the market. According to the National QuickStat conducted by the Philippine
Statistics Authority (PSA), there have been 4,826 establishments engaged in real
estate activities as of 2015.

From the report of Pinnacle Real Estate Consulting Services whose main
business is to manage property assets, it was stated that the residential market
remains the most competitive among the real estate segments in the country.

DMCI primarily targets those who belong to the middle income socio-
economic group and for the same market category, the company has several
direct competitors with varying market strengths including Avida Land, Megaworld
Corporation and SM Development Corporation.

Relevance:

Possible manpower shortages

With the government’s BBB program, the real-estate industry may face
another challenge, this time on the possible manpower shortages. The secretary of
Public Works said the government is getting on a massive hiring program –
especially for technical people – that will be called “Jobs, Jobs, Jobs”. It was
revealed that the JJJ will cover Filipino professionals in the country and abroad,
and recognized that the government would be competing with private employers,
including salary rates, to get the required number of skilled people to improve the
implementing agencies’ absorptive capacity.
 “And with Digong’s [Duterte’s] Build, Build, Build program, the scarcity of
labor will be even more felt,” former 8990 president Januario Jesus Gregorio B.
Atencio said.

Relevance: Slow labor productivity, coupled with increased demand for manpower,
may impact a property developer with real estate projects suffering delays in
turnover.

OFW remittances continue to boost the real estate sector

The Philippines is one of the world’s largest remittance recipients, with

10.5 million Philippine Overseas Foreign Workers (OFWs) living and working in
210 countries and territories worldwide. In 2017, total cash remittances reached a
record high of US$28.06 billion (or about 8.7% of GDP), up by 4.3% from a year
earlier. It is estimated that 60% of these remittances go directly or indirectly to the
real estate sector, according to the World Bank.

These OFW remittances power the low-end to mid-range residential

property market, housing projects and mid-scale subdivisions in regions near
Metro Manila, such as Cavite, Batangas, and Laguna Provinces.If these
remittances continue to become more resilient, DMCI Homes would not stop to
hire more overseas agents and launch road shows in foreign countries like Japan
to attract international clients to opt for DMCI Homes. For overseas market, DMCI
also have a website for this. To widen the scope of their consumer segment from
middle income to the low-cost ones, DMCI Homes can use the opportunity of
strong inflows from OFW remittances.

Relevance: Overseas Filipino Workers have been widely acknowledged as a major

contributor to the Philippine economy. Remittances not only fuel consumer
spending but also investments in real estate. OFWs and their families in the
country are buying real estate not only for their primary residence but also as
an investment.

2. Political, legal, governmental aspects

Continued promotion of the Philippines as a retirement haven for foreigners

by the PRA

On 05 May 2011, the Philippine Retirement Authority (PRA) introduced

different options or packages as promotion for foreign retirees and former Filipinos
who would like to make the Philippines their retirement destination. In an article
from Philippine Daily Inquirer, PRA plans to increase the number of foreign retirees
in the country to 80,000 by 2020 through various incentives.

According to records of PRA, at least 27,000 foreign retirees from 107

countries have chosen to live in the Philippines through this promotion in 2017.
These retirees have registered with the agency to avail of tax perks when they buy
real estate in the country.
 Relevance: This ongoing promotion of PRA add-up to the market of DMCI Homes
it can cater. It can develop more properties that will provide for the needs of
these retirees.

3. Socio-cultural, demographic trends, lifestyle changes

Growing population with favorable demographics and a large base of more

financially empowered young professionals

One of the demand drivers in the real estate industry is the population
growth. Based on the Leechiu Property Consultants published ‘Insights on the
Philippine Real Estate Market’, the urban population growth is projected to rise to
56.3% by 2030 and 66% by 2050.

The population in the Philippines is expected to reach around 107,190,081

by 31 December 2018, according to the latest estimate of the Commission on
Population (PopCom). On average, the Philippine population increased by 1.72
percent annually during the period 2010 to 2015. In addition, 63.4% of the
population as of Aug 2015 are ages 15 to 64 years old.

Relevance: This means that the demand for housing also continuously rises for
DMCI Homes. This is an opportunity for expansion or new construction.

Increasing demand for condominiums & in-city developments

Nowadays, owning a condominium unit is convenient and inexpensive

housing option that’s why there’s more homebuyers prefer to live in Manila Condo
and move from single detached family dwelling towards the comforts of
condominium ownership. The maintenance expense is lower for a starter. All
condominium homeowners aside from their cheaper running cost, they are also
entitled to utilize all amenities and facilities in the complex such as fitness gym,
swimming pools, basketball courts, tennis courts, functions rooms, children’s
center and others. The monthly fees are inclusive of amenities and facilities.

Colliers Philippines, global real estate services company in its top 10

predictions for 2018, said the government’s aggressive infrastructure push would
further drive the demand for residential projects in major urban areas in Luzon,
Visayas and Mindanao. “The improvement of road networks and expansion of
airports should further unlock land values in these areas, making them more
feasible for residential projects,” the global real estate services company said.

Relevance: The increasing demand for condominiums and in-city developments is

an opportunity for DMCI to maintain the competitive position in the market and
to construct additional residential projects.

Real Estate Property as a long-term investment for yield/inheritance

 The best long-term investment a person can choose is buying a home,
majority of the adults agreed with this. In addition, it is not riskier than investing
your money to a stock market. The real estate market experiences an up-and-
down cycle periodically and despite of this, it still incurs growth per annum.
According to research by the Global Property Guide, gross rental yields before
taxes and other expenses in Metro Manila remain good, ranging from 7.01% on
the very smallest condominium units of 45 sq. m. to 7.16% on 80 sq. m.
condominiums in high-end areas.It could be a good point if DMCI Homes continue
to realize strong capital growth.

According to the Philippine Statistics Authority, residential building

construction exhibited an increase of 35.5% amounting to Php64.4 billion from
Php41.6 billion during the same quarter of 2017 and most of these constructions
are located in the National Capital Region.

Residential Building Construction in the Philippines 2018

Type of First Quarter 2018 Fourth Quarter 2017

Construction (January - March) (October – December)

TOTAL
Number 36,002 33,445

Floor Area (sq.m.) 8,569,328 7,742,007

Value (PHP '000) 101,729,310 81,698,269

Residential
Number 25,362 23,693

Floor Area (sq.m.) 5,081,222 3,858,423

Value (PHP '000) 64,438,566 41,583,446

Non-Residential
Number 5,587 4,903

Floor Area (sq.m.) 3,376,501 3,732,844

Value (PHP '000) 31,098,918 34,712,720

Addition
Number 1,293 1,149

Floor Area (sq.m.) 111,605 150,740

Value (PHP '000) 1,044,518 1,181,951

Alteration and
Repair
Number 3,760 3,700
Value (PHP '000) 5,147,308 4,220,152

Table 2 shows that residential constructions are greater than non-

residential and other construction activities. This is due to the Filipinos perception
of a house as a necessity as his culture dictates and the preference of most
Filipinos to own a house where they would raise their families

Relevance:

4. Environmental aspects

Heightened risk of flooding due to climate change

 Based on projection of PAGASA as of 2011, heavy daily rainfall will
continue to become more frequent, as extreme rainfall is projected to increase in
Luzon and Visayas in 2020 and 2050. This poses a threat to the current occupants
and to the existing projects itself of the DMCI Homes when not handled properly.

Relevance: Real estate properties in areas affected by extreme weather and sea
level rise are losing value relative to less exposed properties. Although prices
are not likely to depreciate due to the flooding, buyers might become more
hesitant and anxious in buying properties in certain locations.

The Big One

A big earthquake may strike the Philippines once the West Valley Fault
moves. The west valley fault traverses various parts of Metro Manila and
surrounding provinces. This includes Quezon City, Taguig, Pasig, Cavite,
Muntinlupa and Laguna as identified by PhiVolcS. Most of the projects of DMCI
Homes from high-rise condominiums to subdivisions -- new projects, under
construction, ready for occupancy -- are at these places. This big earthquake that
will definitely come poses threat to DMCI Homes in the form of future losses.

Relevance:

Land prices will be skyrocketing over the next five or six years

According to Isidro A. Consunji, chairman of construction firm DMCI

Holdings Inc., land prices will be skyrocketing over the next five or six years, and
that prices already went up some five times in about six years in places like Pasig,
Mandaluyong, Mall of Asia (MOA) in Pasay and Bonifacio Global City (BGC).
“That’s good if you are selling land. But if it’s your raw material, then you will
have problems because I think the price increase is too high,” Consunji said.

In an article from Global Property Guide, it was also stated that land prices
are projected to continue rising in the medium term with the following as basis.

Relevance: The continuous land appreciation drives real estate appreciation too. In
other words, the prices of real estate properties will also rise when the land
prices tend to do so since land is the main raw material for property
developers.
 Response: DMCI Homes only ventures in building residential homes. So to
maximize its investments in land without adversely affecting its profitability, it
draws on the its strengths and weaknesses to offer attractive, even lower
prices, and produce value for home buyers. It also ensures good property
location and on time project location. As a result, it is able to offset the amount
by which land continuously appreciates.

C. Summary and Conclusion

EFE MATRIX

Opportunities to DMCI Homes and their response

O1 - Low interest rates projected

O2 - Continued promotion of the Philippines as a retirement haven for foreigners

by the PRA

O3 - Growing population with favorable demographics and a large base of more

financially empowered young professionals

O4 - Continued growth of the BPO sector

O5 - Increasing demand for condominiums & in-city developments

O6 - Real Estate Property as a long-term investment for yield/inheritance

O7 - OFW remittances continue to boost the real estate sector

O8 - Proposed decentralization of the government

Threats to DMCI Homes and their response

T1 - Increasing intensity of competition among the industry's numerous players

T2 - Heightened risk of flooding due to climate change

Rating - DMCI Homes head of engineering, said that the floodwaters did not enter
any of the buildings and common areas of East Raya Gardens since the project has an
elevation of about three meters from the street level (Mercedes Ave.). Even the lower
ground floors of the buildings are higher than the street level by 0.40 meters. The
perimeter walls also prevented the entry of floodwaters in the other parts of the project.
DMCI Homes is determined to continue improvements on new designs in piping and
drainage to further mitigate flooding within their residential developments.

T3 - The Big One Earthquake

T4 - Land prices will be skyrocketing over the next five or six years
Rating - DMCI Homes only ventures in building residential homes. So, to maximize its
investments in land without adversely affecting its profitability, it draws on the its
strengths and weaknesses to offer attractive, even lower prices, and produce value for
home buyers. It also ensures good property location and on time project location. As a
result, it is able to offset the amount by which land continuously appreciates.

T5 - Possible manpower shortages