Developers, bracing for a tough year, change tactics

Lumpini View Bang Kae

Reduce inventories, manage operational costs and generate more cash flow are the key strategies being adopted by Thailand's leading property developers as they brace themselves for a tough year ahead.

A survey by The Nation has shown that most property firms are begin¬ning to restructure their businesses to cope with a year in which the nation¬al economy is expected to achieve only meager growth - if any at all - as the twin crises of global recession and local political turmoil take their toll.

Leading property firm Land and Houses is reducing its inventory of completed residences from a number sufficient to cover one and a half or two months to enough for just one month. This will save cash for the develop¬ment of new residential projects, the company's senior executive vice pres¬ident Naporn Soonthornchitcharoen said.

"We don't know what will happen with Thailand's economy next year, especially the country's political situ¬ation, which has a greater negative impact on the economy than the glob¬al recession. We have to manage our business risks by saving on operational costs and holding on to our cash by reducing our inventory," he said.

Preuksa Real Estate's president and chief executive Thongma Vijitpongpun said his company was similarly trying to hold on to its cash by reducing its inventory from a num¬ber sufficient for two or three months to enough for just one month. This will help the company to reduce its invest¬ment budget and generate cash.

"We will also downsize our invest¬ments next year by focusing strictly on our target customers, who have the purchasing power to buy, and stick¬ing to locations where there is known to be strong demand rather than launching projects around the coun¬try," he said.

Preuksa Real Estate believes that demand for new residences in Bangkok and its suburbs will drop by 15 to 20 per cent, from about 50,000 units a year to only 40,000 in 2009. A fall of that scale will affect all prop¬erty developers in the market, partic¬ularly small and mediumsized com¬panies, which may have to suspend their business next year when the recession hits, Thongma said.

Asian Property Development's chief executive Anuphong Assavabhokhin said his company's business strategy in 2009 would focus on existing residential projects and launching new projects only if they offered to generate "cash in" faster than "cash out". That means the com¬pany will launch lowrise residential projects such as detached houses and townhouses, rather than condomini¬ums.

"We have to prepare our business before we face the crisis in 2009 because we believe Thailand's econo¬my may fall when compared with this year," he said.

LPN Development's managing director Opas Sripayak said his com¬pany reorganised its business early in the current quarter by focusing on cost management and revising its new projects from large residences to small and mediumsized units.

"Normally, we develop condo¬minium projects which take one and a half or two years from presale to transfer to our customers. We've decided to be strict with our cash flow by speeding up the sale of existing con¬dominium projects. This will help us to reduce our inventory. We will also adjust our new projects from large size to small size, reducing construction time and speeding up delivery," he said.

"We believe that our new concept will speed up sales and generate cash faster than large condominium proj¬ects," Opas said.