Developers, bracing for a tough year, change tactics

Lumpini Ville Bangkae

Inventories of new homes will fall; emphasis to be on small projects with quick returns

Reduce inventories, manage operational costs and generate more cash flow are the key strategies being adopted by Thailand’s leading property developers as they brace themselves for a tough year ahead.

A survey by The Nation has shown that most property firms are beginning to restructure their businesses to cope with a year in which the national economy is expected to achieve only meager growth – if any at all – as the twin crises of global recession and local political turmoil take their toll.

Leading property firm Land and Houses is reducing its inventory of completed residences from a number sufficient to cover one and a half or two months to enough for just one month. This will save cash for the development of new residential projects, the company’s senior executive vice president Naporn Soonthornchitcharoen said.

“We don’t know what will happen with Thailand’s economy next year, especially the country’s political situation, which has a greater negative impact on the economy than the global recession. We have to manage our business risks by saving on operational costs and holding on to our cash by reducing our inventory,” he said.

Preuksa Real Estate’s president and chief executive Thongma Vijitpongpun said his company was similarly trying to hold on to its cash by reducing its inventory from a number sufficient for two or three months to enough for just one month. This will help the company to reduce its investment budget and generate cash.

Meanwhile, Preuksa is also speeding up its sales by launching marketing campaigns that challenge home-buyers to make a decision to buy.

“We will also downsize our investments next year by focusing strictly on our target customers, who have the purchasing power to buy, and sticking to locations where there is known to be strong demand rather than launching projects around the country,” he said.

demand for new residences in Bangkok and its suburbs will drop by 15 to 20 per centPreuksa Real Estate believes that demand for new residences in Bangkok and its suburbs will drop by 15 to 20 per cent, from about 50,000 units a year to only 40,000 in 2009. A fall of that scale will affect all property developers in the market, particularly small and medium-sized companies, which may have to suspend their business next year when the recession hits, Thongma said.

As a result, Preuksa is adopting a strict approach to launching new residential projects and plans to remain conscious of its cash flow.

Asian Property Development’s chief executive Anuphong Assavabhokhin said his company’s business strategy in 2009 would focus on existing residential projects and launching new projects only if they offered to generate “cash in” faster than “cash out”. That means the company will launch low-rise residential projects such as detached houses and townhouses, rather than condominiums.

Condominiums take between two and two and a half years from launch and pre-sale to completion and transfer of units to customers. Lowrise projects, on the other hand, take six to eight months from pre-sale to transfer. As a result, low-rise residential projects offer developers more flexibility in cash flow management.

“We have to prepare our business before we face the crisis in 2009 because we believe Thailand’s economy may fall when compared with this year,” he said.

Starting in about September, Asian Property Development has seen home-buyers delaying their decisions to buy new residences at what should have been a peak time for residential sales. Consequently, the company has revised its business plans for next year by focusing on cash management, Anuphong said.

LPN Development’s managing director Opas Sripayak said his company re-organised its business early in the current quarter by focusing on cost management and revising its new projects from large residences to small and medium-sized units.

“Normally, we develop condominium projects which take one and a half or two years from presale to transfer to our customers. We’ve decided to be strict with our cash flow by speeding up the sale of existing condominium projects. This will help us to reduce our inventory. We will also adjust our new projects from large size to small size, reducing construction time and speeding up delivery,” he said.

Lumpini View Bang Khae, launched last weekend, is LPN Development’s first pilot project for the new small-size condominium concept. It will have only 268 units with a collective market value of Bt800 million.

“We believe that our new concept will speed up sales and generate cash faster than large condominium projects,” Opas said.