Developers need to contain costs

BackOct 31, 2006

Stiffer competition and rising expenses

Despite a better market situation after the political change in September, residential developers still face stiffer competition and rising management costs in 2007, according to Anuphong Asavabhokin, the chief executive of SET-listed Asian Property Development Plc (AP).

"A developer needs to boost more sales rather than to try to rise gross margins due to higher market competition," he said. "How to control costs will be the key to be considered next year."

An increase in management costs would derive from higher staff salaries and higher advertising costs. Developers have also had to add more sales staff for various sites due to more project locations.

Mr Anuphong said management costs ranged between 6% and 25%, while their average gross margin was 30%. Because of this, small developers that are unable to control costs may see net profits reduced to single digits.

Mr Anuphong said housing prices, which had not grown this year, would increase by 4-5% next year driven by rising costs.

In 2007, AP plans to stop developing detached houses and replace them with condominiums located near mass transit as higher oil prices have pushed up buyers' transport costs.

"Single-housing developments must be developed in very far locations, which does not match housing demand," he said. "There are abundant stocks of single houses as developers have bought land plots to develop such projects since 2004," he added.

He said the company had sold half of the units at its Life@Ratchada-Lat Phrao condominium during an unofficial launch earlier this month. The one-billion-baht project will have a total of 470 units priced at 1.5 million baht each.

By the end of the year, AP will open three townhouse projects worth a combined 2.75 billion baht. The Kaset-Navamin project, spanning 37 rai, will have 320 units starting at 3.49 million baht each. It has sold 50 units so far.

Meanwhile, the Srinakarin project would have 309 units priced at 3.69 million baht, and the Rama IX-Ramkhamhaeng site will comprise 297 units priced at 2.75 million baht.

Mr Anuphong said that consumer confidence had increased since the coup. The company's average sales rose to 200 million baht a week after Sept 19, from 100-150 million baht previously.

The company expected to realise seven billion baht in sales by the end of the year. So far, it had realised 6.5 billion baht, Mr Anuphong said.

AP plans to launch four housing projects worth a combined 3.5 billion baht in 2007. They include The Address Chidlom condominium and townhouse projects in the Krungthep-Kreeta, Lat Plakao and Wang Hin areas.

Currently, the company has a total of 22 projects with remaining sales value of 7.5 billion baht.

AP shares closed yesterday on the Stock Exchange of Thailand at 4.20 baht, down ten satang, in trade worth 51.4 million baht.

 

Source : Bangkok Post by KANANA KATHARANGSIPORN, Tuesday October 31, 2006