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Published on January 11, 2008

 Although the Treasury Department has announced increases in land valuations averaging 26.9 per cent across the country, the move will have little noticeable effect on residential prices. There is strong competition in the property market, and many developers are battling rising costs to maintain their margins and hold prices down.

Moreover, Property Perfect senior executive director Teerachon Manomaiphibul says the new land valuations will have a negligible affect on property developers, because they are still 20-30-per-cent lower than market prices.

At the end of last year, the Treasury Department announced land valuations for tax calculations between this year and 2011 had jumped an average of 26.9 per cent.

In Bangkok, the average valuation rose only 5.76 per cent. The highest was on Silom Road, where each square wah was given a value of Bt650,000, while the lowest was in Nong Chok district, where each square wah was worth only Bt260.

In setting the new valuations, the department took into account land use, the environment and economic conditions.

Average valuations in the South rose a sharp 85.79 per cent. In Songkhla's Hat Yai district, land was valued at Bt400,000 per square wah, while in Ranot district, by way of contrast, 1 square wah was declared to be worth only Bt15.

Valuations in the Northeast rose 22.97 per cent. One square wah in Khon Kaen's Muang district was given a value of Bt200,000, but on the other end of the scale, land in Sakon Nakhon's Song Dao district and Chaiyaphum's Phakdi Chumphol district was worth only Bt20 per square wah.

Land in the North increased in valuation 15.43 per cent on average. The highest valuation was in Chiang Mai's Muang district, where 1 square wah was declared to be worth Bt250,000. But in some parts of Chiang Mai's Doi Tao and Mae Chaem districts, valuations were as low as Bt10 per square wah.

In the Central region and along the Eastern Seaboard, land valuations rose an average of 11.71 per cent. The highest value, in Samut Prakan's Muang district, was Bt140,000 per square wah, while land in Kanchanaburi's Sangkhla Buri district was valued at only Bt10 per cent square wah.

The department reviews land valuations every four years. It evaluates 5.12 million plots in Bangkok and 3.32 million upcountry.

The new valuations, to be used for calculating tax over the next four years, will increase tax payments about 1 per cent over those of last year.

They will have no noticeable effect on home-buyers.

Agency For Real Estate Affairs president Sopon Pornchokchai says the new valuations do not reflect real market prices, which are generally higher than Treasury Department estimates.

However, the new valuations will affect calculations of transfer tax this year, making it a higher payment than last year.

"We think the new land valuations will effect property developers less than the rising costs of construction. This will be the main factor forcing developers to decide whether to increase their residential prices," he says.

Most property developers are expected to absorb the increased transfer tax payments for their customers, and so, unlike construction-cost increases, the new valuations will not be a factor like in the setting of housing prices, Teerachon says.

Construction costs began to increase last year, and by now the average rise is 5-10 per cent.

"We believe most property developers want to increase their prices, but they cannot do so immediately, because of strong competition in the market and the fact that home-buyers have reduced their budgets," he says.

The market trend is forcing property firms to adjust their business costs, especially operational costs, to maintain their gross margins. If they cannot reduce their business costs, they may be faced to accept lower gross margins than last year.

LPN Development managing director Opas Sripayak says high market competition is forcing the company to hold its residential prices, even though its construction and management costs are rising. The company is trying to maintain its gross margin by adjusting and developing its construction process to reduce costs.

"We speed up the construction process by completing a project within one year of presales. In that way, we cut our construction costs, especially our payments to workers on the projects, while creating economies of scale. As a result, we can maintain our gross margin, although our construction raw-material costs are rising," he says.

Preuksa Real Estate chief business officer Prasert Taedullayasatit says his company has tried to maintain its gross margin by reducing management and construction costs. It uses innovative construction processes like prefabrication and relies on information technology to manage its operational and management costs.

"We don't want to increase our residential prices when the property market has such strong competition. We're trying to maintain our net income after tax at 15 per cent, so we must manage our business model to reduce costs and maintain our margin," Prasert says.

Somluck Srimalee

 The Nation