Firms sell off plots to offset rising costs

small- and medium-sized developers have suspended condominium projects in the face of high construction costs and stricter scrutiny from the Bangkok Metropolitan Administration for EIA and construction licences.

With the cost of raw materials rising and construction licences getting tougher to obtain, small- and medium-sized developers are resorting to selling off land and condominium projects under development to stay afloat.

Developers facing a cash-flow problem are putting funds generated by such sales into other projects. The move is designed to help them reduce business risk and offset the spike in construction costs.

Some developers put off launching condominium projects in the first quarter as they remained undecided on factoring in the rise in costs while setting home prices. Others have changed their marketing strategy to launch pre-sales of units lot by lot so that they can keep revising prices in line with construction costs.

A number of small- and medium-sized developers have suspended condominium projects in the face of high construction costs and stricter scrutiny from the Bangkok Metropolitan Administration for Environmental Impact Assessment (EIA) and construction licences, LPN Development managing director Opas Sripayak said.

"We have seen construction work on city-condominium projects being suspended as developers wait for EIA licences from the Bangkok Metropolitan Administration. Some companies have sold off projects to other developers as they were unable to shoulder the high costs, which have risen 10 per cent to 20 per cent compared to last year," he said.

The Bangkok Metropolitan Administration is putting applications for EIA and construction licences through more rigorous scrutiny.

As a result, developers who did not apply for construction permissions under Article 39 (2) of the Building Control Act have been facing difficulty in getting their applications approved.

LPN Development has also found a way to offset rising costs by pricing and selling condominium units lot by lot, Opas said.

He said the company would raise prices 5 per cent to 10 per cent should demand pick up after pre-sales. But if the demand is stable or weak, LPN may consider lowering the prices, he said.

Meanwhile, a number of plots have also been put on the market. Grand Unity Development, a joint-venture of LPN Development, Univentures and Youwawong, bought undeveloped plots worth Bt500 million on Rama IV Road, Bangsui district and Vibhavadi-Rangsit Road from cash-strapped developers. The three plots have EIA and construction clearances, Opas said.

Last week, two listed developers, Prinsiri and MetroStar Property, announced sales of undeveloped land in inner Bangkok.

MetroStar Property chief executive Veera Burabhachaisri said the company has decided to sell 4 rai of land on Sathorn Road, opposite St Louis Hospital, to generate funds to develop two projects on Sukhumvit 66 and Ratchavipha Road. The developer is offering the land at a starting price of Bt550,000 per square wah.

MetroStar has a debt-to-equity ratio of 2.4:1. The company recorded sales of only Bt31.12 million and posted a net loss of Bt25.02 million in the first quarter.

Prinsiri sold two plots on Taksin and Krungthep-Kreeta Road to generate funds to develop existing projects, the company's vice president for finance Pornprom Vongpivat said.

The plots were sold to a listed developer for Bt100 million at a profit of Bt20 million.

"We didn't want to hold on to plots as they were adding to expenses and had less potential to be developed in the near term,'' Pornprom said.

The company also stopped sales and marketing of condominiums, pending EIA approval.

"We faced delays in unit transfers in the first quarter and higher expenses from advertising. This resulted in a net loss. But our financial problem is not very serious,'' he said.

Prinsiri reported a net loss of Bt24.08 million in the first quarter, compared with a profit of Bt20.4 million in the same period last year. Its full-year profit for last year was Bt78 million, down 82 per cent from Bt448 million in 2006.

Chaopraya Mahanakorn Comp-any has also delayed launching new residential projects in the first half as it is waiting for an EIA licence and wants to factor in the rise in construction costs before setting prices for new residential projects, the company's chief executive Wichian Padhayanun said.

The developer has decided to wait for EIA and construction licences before starting pre-sales of condominium and detached-housing projects, he said.

At a glance

-- MetroStar Property has decided to sell 4 rai of land on Sathorn Road to develop two projects on Sukhumvit 66 and Ratchavipha Road.

-- Prinsiri has sold two plots on Taksin and Krungthep-Kreeta Road to generate funds.

-- LPN Development has found a way to offset rising costs by pricing and selling condominium units lot by lot.