"Development costs have risen by 5-6 per cent, but new construction technology and efficient financial management help maintain costs," president Thongma Vijit-pongpun said in an interview last week.

Preuksa's gross profit margin is now 33 per cent, which is comparable to companies that target high-income buyers. The margin is relatively high considering that Preuksa's clients are mostly lower- to middle-income earners who can afford town houses and single houses, of which the average price is Bt1.2 million compared to the market average of Bt3 million.

Making this possible is the company's strategy to handle construction activities on its own, rather than awarding the job to contractors as many other companies do. It has also secured long-term raw material supply contracts to keep costs down.

As a result of low construction costs, its sale price is generally 10-20 per cent lower than other developers. Assisted by its own prefabricated factory to produce ready-made fences and piles, Preuksa also spends a shorter time to complete a house - from 11 months in 2004 to 4.5 months at present - allowing the company to realise revenue faster than others.

With 29 projects in hand, the company has invested Bt30 million in SAP software to manage financial, asset and cost accounting, production operations and materials, personnel, plants and archived documents.

"With these applications, we know which project is selling how many houses and how much money it has, and know which project needs a new injection," said Prasert Taedullayasatit, executive vice president. "The bottom line is we have all the structures that support our mass-scale development. It would be difficult for anybody to compete with us if they decided to enter into the mass market."

Due to declining purchasing power, Preuksa has focused more on town-house development, which is expected to generate 63 per cent of revenue this year, compared to 55 per cent last year. The rest comes from single houses. This year, though many others are suffering from slow sales due to political and economic uncertainties, Preuksa expects a brisk sales increase.

Preuksa transferred 6,135 units last year. This year, the number is expected to exceed 7,000 units. At an average price of Bt1.2 million, that is valued at about Bt8.4 billion.

In the first quarter, Preuksa reaped Bt369 million in net profit. It is due to announce second-quarter results on August 15. As of Friday, its share price was Bt6.

"There is huge demand for housing units priced between Bt700,000 and Bt800,000. This is the market for those who are looking for their first houses. If they do not buy, they have to rent.

"It's different in the market with price tags of Bt4 million-Bt5 million upward. Those who can afford the prices mostly stay with their parents, and they can delay decisions when the factors are not right. That's why the market is affected," Thongma said.

Another strategy that Preuksa uses to manage costs is that it is selling houses before starting construction, while many competitors spend a great deal in offering complete houses. Impressing investors is also the company's decision to rent its office, not to build its own building.

Thongma does not believe that a huge land bank would give the company a competitive edge, as its focus is to develop town houses that are mostly located in suburban areas. "Land prices in the areas have rarely increased. Accumulating the land would only incur a big interest burden."

Without a huge land bank and with its quick construction period, the company's debt-to-equity ratio is only 0.49:1, down sharply from 1.4:1 at the beginning of 2005.

Thongma also pays a great deal of attention to research and development, with help from three or four outside companies. Their mission is to know the insights of consumer behaviour, primarily what are the priorities when they decide to buy a house. In the townhouse segment, pricing is what buyers are concerned about the most. Price is ranked third or fourth in the single-house segment, as buyers pay more attention to the community environment and the project's image.

The results are applied to product development to match clients' preferences. Thongma recalled a survey that showed potential buyers complain about the small living rooms. Preuksa redesigned the houses for a bigger living room, and sales immediately tripled.

"There are about 15 elements that concern buyers. We have to focus on some of them. We can't offer them all, as prices would then skyrocket," Thongma said.

With a degree in engineering, Thongma also realised the need to make use of engineering designs to control costs. For example, what to do to extend space by 10 per cent, without raising the development cost.

Obviously, these concerns would be applied with the condominium development that the company plans to enter into, and all new projects that are to be open in the future to build up a larger business base amid difficulties.

Thongma expects 2007 to be another tough year, as oil prices and interest rates will be high, while political instability could remain.

Achara Deboonme

The Nation