AP chief says slowdown fears overblown

BackAug 20, 2007

While economic sluggishness and poor consumer confidence are taking a toll on the property sector, Asian Property Plc's chief executive says that fears of a sharp downturn are overblown.

"I do not feel that the market has reached the oversupply stage as the trend toward urbanisation is still very strong and will continue to remain so," Anuphong Asavabhokin said in an interview.

"There is still a future for the property sector in Thailand as we are not in a similar stage to where we were in 1997. Today we have the mass-transit system, which is a big selling point."

Mr Anuphong says that demand for new housing units will likely continue for some time as more than 40% of Thailand's population is below the age of 30. Convenience would be the key to success, he added.

"The younger generation today is looking for convenience as much as they are looking for their own space," he says, adding that the higher cost of transport to and from the suburbs had ended the suburban house dream that many young people grew up with.

Citing Kasikorn Research figures, he says transport costs have reached anywhere between 13% and 20% of an average person's income. This is relatively high, giving rise to demand for more housing near mass-transit lines.

AP is active in all segments of the residential property market including single houses, condominiums and townhouses. Mr Anuphong says the single housing market is most vulnerable as some companies that built houses have not been able to sell them, particularly at the high end above 10 million baht.

The townhouse market is also struggling, although townhouses within the city are still selling well. Supply is slowing, however, due to the decline of available land for large projects.

"It's going to be a pretty rough time for the singe-house market, while middle-and low-end buyers are shifting to condominiums that are closer to the city," he says.

AP's second-quarter earnings fell 59% year-on-year and 38% quarter-on-quarter to 98 million baht. The reasons included lower revenue recognition, thinner gross margins, higher sales expenses, and an increase in the effective tax rate.

The company's revenue dropped 20% year-on-year and 1% quarter-on-quarter to 1.4 billion baht. Gross margins narrowed to 30.8% from 32.2% in the first quarter due to higher contributions from the low-margin Baan Klang Muang Srinakarin project.

Despite all this, AP is expected to show strong earnings going forward driven by sizable transfers from the Baan Klang Muang Siam-Pathumwan condominium. It will bring in two billion baht in the second half this year with a relatively high gross margin of 35%.

Mr Anuphong says that despite the pessimism in the market, his firm along with Land & Houses Plc and Sansiri Plc were the only companies with bookings for new units in excess of 10 billion baht in the first half. In the condo market, he believes middle-market units close to mass transit, and high-end condos, are the only ones likely to see strong sales. He splits the market into five categories:

- Ultra-luxury at 150,000 baht per square metre or more in prime locations.

- High-end (80,000 to 100,000 baht per sq m). This segment is holding steady limited supply, so new upcoming projects are being snapped up.

- Upper-middle projects within walking distance of mass-transit lines and costing 60,000 to 70,000 baht per sq m. Demand is very strong and all new projects are being sold.

- Lower-middle at 40,000 to 60,000 baht per sq m, touted as "near" mass transit but in some cases kilometres away or near uncompleted lines.

- The lower market where buyers in nearby inexpensive apartments are looking for their own places, with prices around one million baht per unit.

 

Source: Bangkokpost by Umesh Pandey
Monday August 20, 2007