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Published on September 7, 2007

With high competition in the domestic market, Thai property firms are looking to foreign markets to drive their sales, balance their local business risks and maintain their growth.

Vietnam and India, which both have strong demand for residential projects, are the new markets attracting the most interest.

Preuksa Real Estate is planning to spend up to Bt400 million to develop residential projects in Vietnam and India. PrinVentures also plans to invest up to Bt1 billion in a residential project in Vietnam this year.

Preuksa CEO Thongma Vijitpongpun says the company must find new markets to maintain its business growth. In Thailand, the property market has high competition, and the demand for residences has eased, stabilising growth. In Vietnam and India on the other hand, there is both strong demand and aggressive growth.

The company is considering launching projects in the Indian cities of Bombay and Bangalore, while in Vietnam it is looking at Ho Chi Minh City. There is strong demand for new housing in those cities, he says.

Preuksa's research indicates India has strong demand for up to 20 million residential units per year, while in Vietnam there is demand for 8 million a year.

Preuksa believes it has the technology to build reasonably priced homes to meet customer demands in both countries. However, the price of residential properties in Vietnam and India is up to 100-per-cent higher than in Thailand, and this represents a challenge for Thai developers wishing to enter those markets, Thongma says.

PrinVentures, a joint venture of Prinsiri and Univentures, is thinking of investing in residential developments in Vietnam.

Prinsiri executive vice president Chaiwat Kovitchindachai says Vietnam has potential for growth and offers the joint venture room for business expansion.

"We have a good business partner, Amata, which has been developing industrial estates in Vietnam for 12 years. As a result, we believe our property business will succeed," Chaiwat says.

Central Pattana is also interested in expanding into Vietnam, because purchasing power in that country is rising, following strong growth in its gross domestic product.

Land and Houses (L&H) is one Thai developer that has already tried foreign markets, and its failure may serve as a lesson to others. Two or three years before the 1997 financial crisis, L&H invested in property developments in Indonesia and the Philippines.

L&H chief executive Anant Asavabhokin says that in retrospect, the main difficulty in developing residential projects abroad is learning first which kinds of residences match the local cultures, traditions and lifestyles.

L&H relied upon its construction excellence for expanding into Indonesia and the Philippines. Two or three years later, it suspended business in both countries after failing to develop projects that matched the local cultures and traditions, Anant says.

Amata senior vice president Viboon Kromadit warns that property companies thinking of expanding into foreign markets must study both the property laws and local demand in the host countries before deciding to invest.

Amata, which has been operating industrial estates in Vietnam for 12 years, took its time before investing and accepted that its first step should be finding a local partner to help create a strong venture, Viboon says.

Preuksa's Thongma said his company had been considering foreign ventures for more than two years.

"When we want to maintain growth, we must expand our investments. But in Thailand, there is high competition in the market, and [the level of] purchasing power indicates growth stability, so we must go abroad," he said, adding that Preuksa was now studying the kinds of products that matched customer demand in both India and Vietnam and learning the property laws of both countries before deciding to move.

Preuksa's studies suggest that in India, those interested in investing in property must spend up to US$10 million (Bt343 million) and develop projects covering up to 50,000 square metres or develop as much as 8 hectares of land within five years of making the investment.

In Vietnam, land developers must lease land under a 50-year contract from the government.

"We know that when we expand our investments into foreign markets, we face risks. But we also know what level of risk we can accept. That's why we will start with a small residential project. If we fail, we'll be able to absorb the loss," Thongma says.

Meanwhile, Property Perfect senior vice president Teerachon Manomaiphibul says his company has no plans to invest in foreign markets yet but acknowledges that the potential exists in foreign countries for those property firms ready to expand.

"If property firms decide to expand into foreign markets, they should be concerned about the business risks and learn how to operate in an environment that has different demands and different laws. If a company is ready to face those risks, then foreign markets offer the potential for expanding operations to balance business cycles in the domestic market," Teerachon says.

Somluck Srimalee

 The Nation