Costs hinder project completion

With a large number of contractors leaving projects incomplete, Bangkok’s landscape is likely to be dotted with unfinished buildings.

Property developers, home-builders and construction material companies need to be careful while selecting contractors because a number of them have been abandoning projects reacting to rising construction costs.

Home-builder company Seacon Home managing director Supincha Chaipipat said 5 per cent of its contractors left projects incomplete because of financial problems arising from raw-material prices rising 20 per  cent to 30 per cent from last year.

"Now, we conduct a thorough investigation of their experience and profile before signing deals with contractors for building residential units for developers," she said.

General Engineering president Kittichai Raktakanit said the company will have to search for new customers for its products because small-  and medium-sized construction companies are facing financial problems.

General Engineering is a leading manufacturer of construction raw materials.

This year, the company has recorded a non-performing debt of about Bt300,000, which has accumulated over several years to about Bt15

million.

"This year, we hope to maintain our non-performing debt at the present level of Bt15 million. We will be selective in choosing our customers and will focus on existing players, who are market leaders in the construction business, rather than entertain newcomers, in order to ensure a healthy business outlook," Kittichai said.

Research conducted by the Kasikorn Research Centre has shown that rising raw material costs in the first half of the year have had a negative impact on both contractors and  developers.

The research showed construction raw-material costs have increased at an average of 25.4 per cent this year compared to last year. Steel prices have also witnessed an increase of up to 75.7 per cent, followed by wood prices rising 9.8 per cent and cement prices 9 per cent.

Most of the construction contracts signed last year were based on raw-material costs as they were in that period.

However, when faced with higher raw-material costs this year, which are about 25 per cent higher than last year, many contractors decided to abandon existing projects instead of completing them at a loss, the research showed.

Normally, contractors generate margins between 7 per cent and 10

per cent. Their net profit dropped 5 per cent.

As a result, most contractors were unable to maintain sufficient cash flow and thus left projects incomplete.

At a glance

-Construction raw-material costs have increased at an average of 25.4 per cent this year compared with last year.

- Steel prices have increased up to 75.7 per cent, followed by wood prices rising 9.8 per cent and cement prices went up 9 per cent.

-Net profit of contractors has dropped 5 per cent, leading to insufficient cash flow.