Developers warn higher prices for units will be an almost-certain result

Competition in the property market is stiff, forcing developers to absorb cost increases. If the government does not extend its tax incentives for home-buyers, which expire on March 28, 2010, residential prices will increase by at least 4.2 per cent, they say.

Preuksa Real Estate CEO and managing director Thongma Vijitpongpun said rising oil and raw-material prices had directly impacted residential property prices. Developers have tried to alleviate the cost increases by managing construction costs, but the tax breaks are key, Thongma said.

The government's tax incentives include a reduction in the specific business tax on property sales from 3.3 per cent to 0.11 per cent and a cut in transfer and mortgage fees from 2 per cent to 0.01 per cent. The tax allowance on property sales was also increased from Bt100,000 to Bt300,000.

"If the government does not extend the tax incentives, we believe residential prices will increase by at least 4.2 per cent. However, if the government extends the tax incentives, property developers may be able to maintain their prices," he said.

LPN Development managing director Opas Sripayak said condominium prices have risen significantly in line with construction costs. The company has tried to maintain its condominium prices and its net profit margin by managing operation costs, Opas said.

If the tax incentives expire, condominium projects launched next year will rise in price by between 3 and 4 per cent, he said.

"The property market is seeing stiff competition among the largest property firms. Most property developers face rising costs, and have had to adjust their prices or resize their residential units to maintain prices," Supalai president Prateep Tangmatitham said.

SC Asset Corporation chief operating officer Kree Dejchai said the company has tried to manage its construction costs to avoid increasing residential unit prices. The prices of raw materials, especially steel and cement, have risen this year, Kree said.

Home-buyers may have to pay higher prices next year if the tax breaks expire, he said.

Home-builder Seacon Home general manager Supitcha Chaipipat agreed raw-material prices had risen this year but said the company could not adjust its residential prices, because of the fierce competition.

Demand for new residences is expected to recover significantly in the second half, however, she said.

Four Pattana managing director Pramote Teerakul said the company's net profit margin this year would be below 10 per cent because of the rising construction costs. The firm cannot increase prices because most of its projects are subject to contracts that have already been signed, Pramote said.

"We have tried to manage our operating costs, but if raw-material prices keep rising, we may have to adjust our residential prices or unit sizes," he said.