MASS-housing builder 8990 Holdings Inc. will focus on its strength on horizontal development aimed at the working class rather than on sources of the firm’s recurring income, its executives said.
Mariano Martinez, the company’s chairman, said it takes time for the company to increase its recurring income as some of its developments have a shopping-mall component.
“We may not able to see it in 2018 but certainly in 2019, or in 2020, we’ll see more recurring income,” Martinez said. “But in terms of total participation, it will be mostly takeouts from our housing residential units rather than our commercial forays.”
Many investors look at a property developers’ recurring income as increasing such revenue stream can shield it from the cyclical business nature of the property sector. As a general rule, there will be five years of increase in sales as a result of developments and then five years of downturn.
8990 Holdings Chairman Emeritus Luis Yu explained the company looks at its recurring income in a different way.
“To clarify the idea of recurring income, the company would buy land, build a mall and rent it out; that’s recurring income,” Yu said. “In our case, what we do is we build a house, sell it to the buyer at a good price—that’s our income. But we give it to them at CTS [contract to sell] 25 years to pay.”
“The amortization for us is the recurring income. So the mall, the business malls, these are just complimentary to the business,” Yu added. “For us, the primary recurring income is the CTS to the buyers and that’s 25 years to pay.”
He explained the low-cost housing business is protected from the property cycle.
“We understand that people are protecting themselves from the cycle, but since we’re low cost at the low end of the market, if you look at the history, that has never been affected by the property bubble,” Yu said.
The company said it will still have a banner year since most of its sales are expected to happen by end of the year. 8990 Holdings expects to put a brake on the slowdown of profits during the first three quarters of the year.
The company blamed the profit decline from lower sales due to the slow release of licenses from government agencies, among others.
For next year, however, the company is looking at launching five projects that will be in different parts of the country, but mainly involves horizontal housing developments.
Image credits: Nonoy Lacza