Developers, builders urged to look abroad

Construction companies and property developers have been advised to expand their businesses abroad and manage their costs if they are to survive the present round of price rises for raw materials.

Industry experts told a Bangkok seminar last week that raw materials for construction had risen by 20 per cent, year on year.

The seminar, entitled "How Constructors and Property Developers can do Business when the Cost of Construction Raw Material is Rising", organised by Krungthep Turakij, heard three leading property firms - Preuksa Real Estate, LPN Development and Property Perfect - stress the need for companies to cut construction and management costs. They urged companies to develop new construction technologies and speed up the construction process.

The director of the Thai Contractors' Association under His Majesty the King's patronage, Danuch Yontararak, and Ascon Construction managing director Pattanapong Tanumathaya both advised constructors to find cheaper alternative raw materials to replace conventional building materials. They said companies should negotiate with their customers to adjust construction prices on current contracts.

Pattanapong recommended that companies should expand abroad, especially to the Middle East, where there is strong demand for construction and a willingness to pay higher prices.

Meanwhile, the number of land development licences issued for this year is 23 per cent lower, in terms of units, than in 2007. The number of units will fall from 59,000 in 2007 to 41,300, according to the Real Estate Information Centre.

The centre's director-general Samma Kitsin said new project launches in Bangkok and its suburbs were likely to fall by 10 to 13 per cent compared with 2007, because home-buyers are delaying their decisions to purchase while watching housing prices rise.

However, Property Perfect chief operating officer Teerachon Manomaiphibul said the negative factors affecting the industry would have an impact on small and medium-sized property developers, but not on the market leaders.

Thailand's leading property firms have developed their construction systems and managed their costs to the point where they can offer housing prices that meet customer demand while maintaining their gross margins. However, they cannot raise their residential project prices to meet the additional costs of construction, he said.

Preuksa Real Estate chief business officer Prasert Taedullayasatit said his company's sales in the second quarter showed growth of 50 per cent over the same period last year, when the company changed its business strategy and expanded its product range to cover all market segments.

Preuksa has developed its technology and reduced its construction time from an average of 200 days to 110 days in order to reduce its costs and compete with others in the market, he said.

At the same time, it is paying cash for stocks of construction raw materials so it will avoid the risk of further increases in raw material costs and will be able to offer residential project prices to match the purchasing power of home-owners.

LPN Development managing director Opas Sripayak said the way to reduce negative impacts from increasing costs of raw materials was to manage the construction process and stock construction raw materials according to a business plan.

"We have become market leaders in the development of condominiums by focusing on the middle- to lower-income markets. Our target customers are very sensitive to price, so we have to manage our construction costs to maintain our gross margins. We took more than 10 years to develop our design and construction skills to be able to reduce our construction costs," he said.

Opas said property developers had to know where their special strengths lay. They have to focus on these areas of expertise and develop their business skills, rather than trying to diversify. This would help them to be strong in times of high risk, like the present.