Cebu Landmasters Inc. (CLI) is making a strong push to address the housing backlog in the Philippines through a sustainability-linked bond offering aimed at financing the development of affordable housing projects across the Visayas and Mindanao.

Recognizing the growing need for affordable homes, CLI has set an ambitious goal to build 16,000 units by 2028. According to CLI’s chief operating officer Jose Franco Soberano and chief financial officer Grant Cheng, this target comes with real accountability.

“We intend to build 16,000 affordable housing units by 2028. And that is a real economic condition, which means that not hitting those targets will result in our coupon rate getting stepped up,” Cheng stated.

The company remains committed to delivering homes within an accessible price range despite economic challenges. “The challenge now is that costs are rising, so fewer affordable units are available in the city. Thankfully, in Visayas and Mindanao, where we operate we can still maintain affordability,” Soberano explained.

CLI recently launched a housing project in General Santos, demonstrating its ability to maintain affordability. “We’re still able to launch units priced between 2.5 to 3.5 million pesos,” Soberano noted.

Sustainability-linked bonds and their roles

Sustainability-linked bonds (SLBs) are a type of bond instrument where the financial and/or structural characteristics (like coupon rate or maturity) can vary depending on whether the issuer achieves predefined sustainability/environmental, social and governance (ESG) objectives.

CLI is the second real estate company in the Philippines to list for sustainability-linked bonds but the first to do so for affordable housing.

As part of its financing strategy, CLI has introduced a sustainability-linked bond tied to affordable housing targets. CFO Grant Cheng highlighted how the bond incentivizes the company’s commitment.

“For this particular bond issue, the key performance indicator (KPI) is the number of affordable housing units delivered,” Cheng said. If CLI fails to meet its interim target of 8,500 units by 2027, the bond’s interest rate will increase by 7.5 basis points.

Cheng emphasized the meaningful impact of this approach, “This one, you have a bond offering that has a sustainability target attached to it. And it makes it very meaningful.”

Initially, it was Cheng who pushed for the application of sustainability-linked bonds. “Just to give a little bit of a background, we weren’t even sure if we should apply for it because there were extra regulatory hurdles to overcome, as well as costs because we needed to hire another auditor to essentially confirm our numbers because we cannot self-report the number of houses we’re building. We actually have an international firm that comes in and verifies the number of houses we built,” explains Cheng.

The company’s focus on sustainability extends beyond environmental considerations to include social impact. “We focused on the ‘S’ part of ESG — social — because we wanted to expand what it means to be sustainable. Under the UN Sustainable Development Goals, affordable housing is critical,” he explained.

Addressing the Philippines’ housing backlog

The urgency of CLI’s mission is underscored by the country’s severe housing deficit. “There is over a 6.5 million housing backlog in the Philippines, right? It’s probably rising by the day if you look at the government statistics,” Cheng pointed out.

Despite their ambitious plans, CLI acknowledges the challenges posed by rising construction costs. “The steel costs have gone down by around 40 percent since the supply chain disruption in 2022-2023, but labor costs have gone up, so overall costs are still higher,” Cheng said.

However, CLI remains optimistic about the opportunity for growth. “The fact that we’re committing 16,000 until 2029… just tells you how much more growth and how much more we need as a country,” Cheng added.

By linking its bond issuance to affordable housing targets, Cebu Landmasters is not only securing funding for its projects but also reinforcing its commitment to making homeownership attainable for more Filipinos. As the company continues to navigate economic pressures, its focus on sustainable and affordable housing remains a crucial part of its growth strategy.