Big Thai developers getting bigger

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Big Thai developers getting bigger 
Bangkok Post: 25 Apr 2010
Big developers getting bigger

The giants of the industry have several distinct advantages over their smaller competitors

In the residential market, the country's top eight developers have seen their collective share expand to 49% in 2009, from 34% in 2008, even as the overall residential market contracted last year by as much as 10%, said Prateep Tangmatitham, the president of Supalai Plc.

The sharp contraction amid a widespread recession brought the total number of residential units sold in 2009 to 59,085, from 65,653 the previous year. The reduction spread to new launches as well, with the total in 2009 dropping to 57,604 units from 67,791.

Mr Prateep said that both global economic turbulence and local political problems dragged down the market.

The strengthening of the top eight developers reflects the fact that small developers had difficulty getting loans from increasingly wary banks. As a result, Mr Prateep believes, there will likely be fewer small developers in the future.

"Anyone can build with their own money, but it will be more difficult to get a loan from a bank for a project. Banks require a certain percentage of sales before they release the money," he said.

The giants of the industry have several advantages over their smaller competitors, with one being that they continuously improve their products and services. They are also better able to handle risk because if one project does not do well its poor performance can be offset by sales at as many as 30 or 40 others.

Aside from this, big developers enjoy an economy of scale because they are able to buy building materials at a lower price than small developers, which means they are able to sell better quality residences at lower prices. "Brand awareness is also rising. Buyers are increasingly opting for prestigious brands which they feel offer much better after-sales services compared to the smaller ones," said Mr Prateep.

Another major change in 2009 was that the large developers were becoming more integrated.

"Every large developer is building many types of residential product, including single detached houses, condominiums, semi-detached houses and townhouses," said Mr Prateep.

In fact, Supalai has been doing this for two decades and has diversified to various cities around Thailand including Phuket, Hat Yai, Khon Kaen and Chiang Mai.

The company is also studying the possibility of building houses in Vietnam but is not going to launch anything in a hurry. "Vietnam is close to Thailand and we don't want to go too far," says Mr Prateep. "We are looking for a country with rapid growth that also has a big enough city to ensure a large demand for housing."

Helping Supalai with its adventurous future plans was a robust performance in 2009, with contracted sales totaling 12.2 billion baht. This is an increase of 31% year-on-year.

Total revenue was 9.7 billion baht, up 55% year-on-year, while net profit rose 132% to 2.5 billion baht.

"We have a land bank and ongoing projects worth 33.8 billion baht to sustain growth," added Mr Prateep.

Supalai plans to launch 15 new projects in Thailand this year in Bangkok, Khon Kaen, Chiang Mai and Phuket.

While the plan is to keep the split between condominiums and single houses at 50:50, Mr Prateep expects that the ratio will tilt to 60:40 in favour of condominiums because they are in greater demand. "A condominium is easier to rent out and easier to sell as well."

Mr Prateep said the company's current strategy was to expand into the low and upper-middle income condominium market with Board of Investment-promoted condominiums priced under one million baht per unit. These will be located in Sukhumvit Soi 107, with the launch likely in the third quarter of this year.

Supalai also has a housing project under the BoI scheme priced at a maximum 1.2 million baht per unit. This will be in Pathum Thani and will most likely be townhouses.

Despite current political problems, Mr Prateep expects prices and values of property to rise over the next couple of years, mainly because the cost push from raw land rises every year as plots in key locations become more scarce.

Construction costs also increase every year for both materials and labour. The price of the former rises when oil prices jump, while labour cost tracks the inflation rate.

Demand too increases every year, such as from newly married couples, singles who want to move out of their parents' homes and people who want to upgrade their living standard by moving into a new house or who want a second home in the city centre.

Mr Prateep does not think political problems have as big an impact on residential development as on areas such as industrial investment, office demand and hotel occupancy.

http://www.bangkokpost.com/life/property/36616/big-developers-getting-bigger