Property Firms Crunch Into Bitter Pill

Property firms will experience hard times in the last quarter of 2008 as homebuyers may holdup their resolution to invest in residential projects opening in the third quarter, as per a research by Asia Plus Securities.

Asia Plus Securities senior executive director Therdsak Thaveeteeratham said financial consequences in the third quarter of property firms programmed in the stock exchange will be well again compared to the same period in 2007. Though, the third quarter act will be lower than the second quarter in 2008 as homebuyers are holding up their resolution to purchase residential projects, worried about their upcoming earnings once the global economic calamity hits Thailand's financial system.

As per the research by Asia Plus Securities, 6 out of 12 property firms will declare lower net profits of about 12 %- 62 % in the third quarter of 2008 compared to the second quarter of 2008. Preuksa Real Estate will keep its net profit in the third quarter similar to that of the second quarter of 2008.

"We predict that their net earnings in the third quarter will be poorer than the second quarter as nearly all recorded presales in the third quarter of 2008 is lower than the second quarter of 2008. For the time being, demand for residential projects has decreased considerably, even though the government may choose to extend its tax incentive time limit for property from March 28, 2009 to March 28, 2010," he said.

He further declared that 31 property firms had confirmed presales of Bt28.12 billion in the second quarter of 2008, a decrease from Bt30 billion in the first quarter of 2008.

The company also predicts that their presales in the third quarter will be approximately Bt25.8 billion, an 8% fall from the second quarter of 2008. That reveals the government tax incentive was not sufficient to encourage home purchasers if they were worried about their upcoming earnings. This will affect economic consequences in the third quarter of 2008 and may have an effect on the last quarter of 2008 when the country's ongoing political insecurity and the global economic hold back start to hit the Thai financial system.

Developers Move Concentration to Smaller Projects

Property companies have modified their policies and will build up smaller residential projects to accelerate their sales in the last quarter of 2008 until 2009 for the reason of the pessimistic impact of the country's political chaos and worldwide economy slump.

Preuksa Real Estate chief executive Thongma Vijitpongpun said the company will modify its business plan to start on small residential projects with 100150 units.

"We want to boost our sales and cut down the construction procedure to produce more cash flow, which will help us build up other projects. This appears to be a better alternative than developing large scale projects," he said. He said the company's presales might be lesser than the predictable target of Bt20 billion for 2008, as the first nine months got presales of only Bt14 billion.

Because of the political inconsistency in the country, home purchasers have postponed their resolution to get residences in the third quarter of 2008. The global economic recession has also influenced their poise and the trend is likely to carry on until 2009. Consequently, Preuksa has had to modify its business policy and shift focus to build up small sized projects, he said.

Land and Houses senior executive vice president Naporn Soonthornchitcharoen said his company would go on with the launch of 15 residential projects of value Bt12 billion in the 2009 although build in areas situated near to mass transit. It will build up small projects to increase sales and sustain cash flow, he said.

Thai developers have understood that cash flow is the mean to exist in the financial calamity. To sustain enough liquidity, they will have to regulate construction dealings, and make them shorter and quicker.

"Our business policy will concentrate on reducing inventory and launching small projects in the final quarter of 2008 and in 2009, which will help us increase sales and produce more cash," he said.

Property Developers Shift Towards Small Thai Islands to Deal with Privacy Demand

Property development in Phuket is intensifying to another four small close by islands for the reason of the demand for isolation.

Investments worth approximately 20 billion baht are at present in progress. They take in the huge Indian corporation Tata Group which is developing Taj Exotica Resort and Spa. The 100-room hotel and 19 villas are likely to be ready by the end of 2009.

Thai Prime Minister Samak's nephew Dilokpol Sundaravej and a Canadian partner are building a project on Koh Raet northeast of Phuket and on Koh Maphrao a British investor has begun developing The Village which comprises of 62 villas.

A group of local Phuket investors are looking for foreign investors for the growth of a hotel and villas on Koh Mai Thon, southeast of Phuket.

"It's a tendency in the direction of private islands," said Risinee Sarikaputra, head of research at property consultant Colliers International Thailand.

"World famous personalities, Hollywood stars and people in the particularly high-end segment love seclusion and choose buying into a resort on a concealed island where no one can get in the way with them. This is the reason why a lot of property developers are shifting their interest towards the small islands," she added.

The tendency has by now materialized on small islands in the Gulf of Thailand, together with Koh Kood close to Koh Chang where Six Sense opened Soneva Kiri resort. On Koh Tao close to Samui an international fund is ready to initiate a project and fresh hotel developments are in progress on Koh Phangan.

In Phuket, there are no less than 17 residential projects under way with a entirety of 969 units worth above 20 billion baht which will be concluded in the coming few years.

Land prices on Phuket's west coast having good sea views increased by 30 to 40% every year although there is no accessibility of such plots of land for upcoming development.

The movement in Phuket also point to demand for projects incorporated with hotels and directed by the same group that manages the hotel and the leasing of property.

Phuket tourism is looking forward to an additional increase when two new marinas are built making a sum of five with a total of 800 cruiser berths.

Property Projects on Track

Two property developers, Major Development Plc (MJD) and Ananda Development Co Ltd, have been persistent that their joint ventures with the top insurance firms AIG and Prudential are protected from the global financial crisis as the finances were raised in Asia.

MJD president Suriyon Poolvoralaks said his company's subordinate MJAI Development Co had been created by a joint venture between MJD and AIG Global Real Estate Investment (Asia) in the beginning of 2008.

He said finances were raised by AIG in Asia for supplying in the real estate market in Asia, together with Thailand. MJAI has by now invested in Royce Private Residences as its initial Thai residential project and more investments may go behind, he said.

The 3 billion baht Royce Private Residences, consisting of 165 units on a three-rai site on Soi Sukhumvit 31, has been funded by Tisco Bank and the supplier Seafco started piling work on the site in September 2008.

Mr Suriyon said the project was going as per agenda and a replicate room and sales office should be open by October 2008.

He added that the AIG fund was "very optimistic" regarding the Thailand market and was eager to invest more, even though it had by now finished its investment in Royce at the beginning of the project.

Ananda Development Co chief executive Chanond Ruangkritya said its subordinates Ananda Development One Co Ltd (Ananda One) and Ananda Development Two Co Ltd (Ananda Two) were combined ventures with TMW Asia Property Fund I operated by Primerica Real Estate Investors, the real estate investment advisory business of Prudential Financial Inc. "despite the fact that they are move down from US-based Prudential, TMW's funds are raised from investors in Asia. The majority are pension and oil funds," he said.

"Prudential is very conformist and not in the business of guaranteeing collateralized liability compulsions (CDOs), which caused the global credit crisis and the predicament for Lehman Brothers."