It’s all a question of cash flow

Land & Houses' senior executive vice president Naporn Soonthornchitcharoen

Land & Houses' senior executive vice president Naporn Soonthornchitcharoen

The real imponderable is the home political front, not the outside world

Senior executives from nine property companies have been sharing their views on how to survive in today’s twin crises - the global economic downturn and the country’s political turmoil. Today, we start with the views of Naporn Soonthornchitcharoen, senior executive vice president of Thailand’s leading property firm, Land & Houses.

What has been your reaction since the looming global recession and political turmoil began to take effect on the property market?

We have to be conscious about our investment and business expansion by finding a balance between cash-in and cash-out, before deciding to launch our new residential projects this year.

We are more concerned about the country’s political turmoil than global recession because we cannot estimate what will happen with the country’s political direction, although now we have a new government led by the Democrat Party.

We don’t know if the opposition parties will act anything like the People’s Alliance for Democracy, especially with action like closing international airports. That had a most negative impact on both foreign tourism and investors considering putting their money into Thailand.

If the country’s politics continue to be separated into two divisions, we don’t know what will happen should we decide to expand our investments.

We saw demand for residential projects fall significantly since October, when home-buyers became concerned about the twin effects of the global downturn and local political uncertainty on both Thailand’s economy and the level of their earnings.

If the new government cannot solve the country’s political problems, we cannot estimate what will happen to the economy and the property market in the next year.

However, we don’t fear a global recession hitting Thailand’s economy, because our financial situation is more healthy now than during the financial crisis Thailand faced in 1997.

In my view, today’s private sector has gained stronger financial returns because most firms retain strict control of their financial results by keeping their debt-to-equity lower than 1:1. That’s better than during the 1997 crisis, when most of the private sector had a debt-to-equity ratio higher than 2:1.

“We still intend to expand investment this year, but it will be lower than last year’s level”For the property market, although demand for residential projects has dropped since last year, we believe demand in this year will be from committed buyers. As a result, our projects will get positive feedback from home-buyers when we offer ready-to-occupy residences - detached houses, townhouses and condominiums.

Do you plan to expand investments this year?

We still intend to expand investment this year, but it will be lower than last year’s level. We have set aside an investment budget for land purchase worth Bt3 billion - lower than last year’s Bt5 billion.

We will also launch 12 new residential projects worth Bt12 billion, replacing our existing residential projects that will have been sold out and closing projects remaining from last year.

However, we will reduce our inventory from an average two or three months to one or one-and-a-half months, helping to manage cash flow and match purchasing power.

We believe that demand for residential properties this year will be real demand. This means home-buyers will be concerned about the quality of a house, its location and community. Most want to buy a ready-to-occupy home than to find it through newspaper advertisements. Because they are afraid to buy residences on paper, many don’t bother to make a purchase.

Customers who buy residences this year will be confident with their future earnings and have saved enough to buy a residence. As a result, we will continue to expand our investments, supported by the real demand in the market.

However, new projects offered this year will be different from last year in that they will be launched phase by phase and will be smaller, averaging 200 units on land between 60 and 70 rai per project. That will make them easy to sell, enabling us to close projects faster than with large projects.

We are also redesigning our projects to match the customers’ life styles, which changing to modern contemporary styles.

What do you think about this year’s property market?

We believe the property market will continue to shrink from mid-2008 and as a result the register of new residences will be 5-10 per cent lower than last year.

However, demand for residential projects this year will be real demand rather than speculation. Home-buyers during this time will be financially strong and confident about their future earnings. As a result this is a good time for property developers who build ready-to-occupy residences rather than made-to-order.

Meanwhile, residential prices will be 5 to 10 per cent lower because raw materials for construction, especially steel, have dropped in price by more than half , and interest rates have also fallen. This means better times for home-buyers looking for property this year.

Do you have any suggestions for developers and home-buyers at this time?

Property developers must manage their cash by developing residential projects that generate faster income, especially low-rise residential, rather than condominiums. By nature, condominium projects take time - between two and three years - to generate income for developers, compared with low-rise projects that take only six or eight months after a project is launched.

In our view, demand for residential projects priced at between Bt3 million and Bt5 million continue to have real demand.

Meanwhile, home-buyers have to study projects before deciding to buy, especially the developer’s track record - how many projects they are developing now, their cash flow, and their management. We also suggest buyers choose ready-to-occupy residences rather than purchase off-the-plan because the paper contract will have more risk than ready-to-occupy in this time of looming recession.

About the author

Somluck Srimalee Somluck Srimalee
Somluck Srimalee is a journalist with The Nation, Bangkok's independent English language newspaper and specialises in the property and real estate sectors.
Other posts by Somluck Srimalee ( 34 )

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