Variety helps spice up Supalai results

Prateep: Lifestyles may change in a poor economy but quality of life can still be high.

Prateep: Lifestyles may change in a poor economy but quality of life can still be high.

Product diversification gives firm an edge

Opinions vary on the impact that Thailand’s protracted political turmoil has had on the real estate industry, depending on which property company one asks. Ask Supalai Plc, which posted very good results in the first three quarters of this year, and you’ll hear that the fallout appears to have been minimal.

President Prateep Tangmatitham said political protests did not seem to bother buyers who have taken them in stride because housing is a very basic need.

His optimism is based on strong results with Supalai’s sales contracts in the first three quarters totalling 8.5 billion baht, a big jump from 3.6 billion in the same period last year. Of this total, 69% was for condominiums and the remainder from low-rise housing.

The results suggest that developers who do not diversify and solely undertake low-rise housing have been hurt the most. “Supalai is still able to maintain positive growth because we do both and condo projects are still selling well.”

Politics aside, the overall market situation has changed considerably in the second half with earlier worries about high oil and steel prices abating. Both are now at about half the record levels reached earlier this year. Concern about interest rates has also faded as central banks worldwide are slashing rates to keep struggling economies functioning.

The focus is now on global economic woes but Mr Prateep pointed out that the current crisis differs from the Asian meltdown of a decade ago. At its worst, interest rates were as high as 16% for large companies and up to 30% for others. Developers who had taken out offshore loans in US dollars were mauled when the baht was devalued. Today everyone, from bankers to builders to developers, is much more prudent.

“At that time most developers had to sell everything at a loss because not doing so meant less cash flow, but now it’s different,” said Mr Prateep.

Credit goes to the government for helping the property industry navigate difficult times by reducing taxes until March 28, 2009. The specific business tax was slashed from 3.3% to 0.11%, the transfer fee cut from 2% to 0.01%, and mortgage registration dropped from 1% to 0.01%. Finance Minister Suchart Thada-Thamrongvech also indicated this week that the breaks may even be extended. “This helps a lot; every developer gains more profit, more cash flow,” said Mr Prateep.

Even so, as markets dive worldwide, purchasing power will slide, especially in the US. “Exports will definitely decline and there will probably be fewer tourists in the year to come. I also think this will hurt the high-end housing market because the rich have investments in the stock market, and they are losing money so they will rethink or delay their decision to buy property. Maybe they will buy a smaller unit or not buy at all.”

Banks are now stricter with the middle class and offering lower mortgage loans.

“Instead of providing 95-100% housing loans to buyers, they are reducing this to 90% or even 85% depending on the situation,” said Mr Prateep. “This will lead to middle-income earners reducing their house sizes somewhat, probably by 10%. Instead of buying a three-million-baht house they might buy a smaller house costing 2.7 million.”

Supalai, which also has a hotel and villas plus a condo in Phuket, has also seen purchases by foreigners slide.

People have adjusted their lifestyles to suit the current situation with some couples deciding to have just one child. Some have chosen to buy a house before they do a car. Others now think it’s best not to buy a car at all and instead purchase a condo in the city centre and use public transport.

“People have adjusted the number of children they want, and they might have had a maid before but now they make do with a washing machine and buying take-away food. But people still enjoy life, they still have a good television set, a good stereo system, they enjoy outdoor life, going on holidays. Quality of life does not have to worsen as the change can be in lifestyle.”

While it prepares to launch six new low-rise projects by year-end, four in Bangkok and two in Phuket, Supalai plans more changes in 2009. It will remain diversified but condos will decline to 50-55% of its total with the remainder both townhouses and single houses.

Mr Prateep foresees less condominium supply next year because banks are much stricter with loans. “In order to get a construction loan you need to register a certain amount of sales in advance and for new developers this will be very difficult. So definitely there will be less supply.”

However the decreased supply is unlikely to lead to price reductions. “It depends on the project … but for a good project in a good location that is appropriately priced, the price might still rise somewhat.”

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About the author

Nina Suebsukcharoen Nina Suebsukcharoen
Nina Suebsukcharoen is a senior journalist with The Bangkok Post, Thailand's first English language newspaper and specialises in the property and real estate sector.
Other posts by Nina Suebsukcharoen ( 19 )
Website: http://www.bangkokpost.com/

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