Small players forced to sell units to big firms

BackJan 30, 2008

Small and medium-scale property developers have been forced to sell their projects to large developers as they faced difficulties obtaining financial support for construction, according to Visanu Suchatlumpong, vice-president of the listed developer Asian Property Development Plc (AP).

''Financial institutions did not approve project loans as they considered their [smaller developers'] branding was not strong and their products might not be sellable,'' he said.

''Some of them did not meet financial institutions' conditions that required them to have sales of at least 40% [of units].''

Mr Visanu said another reason was an inability to manage costs and expenses, a core skill of the property business. Some new developers were small and planned to develop only small projects but they had insufficient staff or budgets to do marketing.

''Many of them [small and medium-sized developers] tried to sell projects to larger or more professional developers that have stronger credit standing [to seek pre-financing support] and better management,'' he said. ''AP was also approached but we considered the location first.''

Among the eight new projects it launched last year, AP bought one from a new developer and launched it under its Life brand. Mr Visanu said AP needed to ensure that the location was right for any development it started. If it was a condominium, for example, it should be located along the current mass-transit routes.

Mr Visanu also said that tougher environmental impact assessment (EIA) rules would cause the cost of condominium developments to rise by 3-5% and reduce developers' gross margins by one or two percentage points, along with net profit.

AP this year will launch 13 new projects worth a combined 14.25 billion baht: six townhouse developments worth 3.87 billion baht, five condominiums worth 8.38 billion, and two single-housing estates worth two billion baht.

It aims to achieve 15 billion baht in presales and revenue growth of 15% in 2008. Last year it had 15.67 billion baht in presales, up by 94% from 2006.

AP estimated its 2007 revenue would be between seven billion and 7.5 billion baht, up at least 18% year-on-year. In the first nine months of last year, AP's consolidated net profit was 500.58 million baht, down from 1.1 billion in the same period a year earlier. It will report its full-year results next month.

AP shares closed yesterday on the SET at 5.45 baht, up five satang, in trade worth 9.56 million baht.

 

Source: Bangkok Post by Kanana Katharangsiporn
Wednesday January 30, 2008