Cash management a top priority for developers during period of uncertainty

Real Estate February 07, 2014 00:00

By Somluck Srimalee
The Nation

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Firms also restrict project launches as market slows amid political turbulence, economic slowdown

Property companies are restricting the launch of new residential projects and using financial management to drive their business this year, amid a drop in purchasing power due to slower economic growth and the ongoing political turmoil.
 “We have to manage our cash flow at this time, having seen our customers delaying their decisions to buy and transfer homes in the current quarter,” said Thongma Vijitpongpun, president and CEO of Pruksa Real Estate, the residential market leader.
 The company’s presales fell by about 15 per cent in December, with the trend continuing with a decline of between 15 and 20 per cent in January, said the company’s managing director for condominiums, Prasert Taedullayasatit.
 He added that while the demand to buy was still there, the prolonged political uncertainty had damaged home-buyers’ confidence to take the plunge.
 Due to the prevailing market sentiment, Thongma said Pruksa was managing its cash flow by reducing its inventory of homes ready for sale from an average of two months’ worth of stock to just one month, especially for detached housing and townhouses.
 The company has also reduced the number of project launches this year from the previous average of 70, to between 40 and 50 projects. This will reduce both construction costs and the budget for acquiring land.
 “We have to manage our cash flow to support our business during a period of slower sales and transfers to customers,” Thongma said.
 Land & Houses managing director Adisorn Thananun-Narapool said the company was halving its inventory of homes ready to transfer to customers, from 600 units to 300 a month. 
 This will help the company to manage its cash flow during a period of lower sales value, which began in December.
 “Our presales dropped by up to 50 per cent in December, and continued to fall in the first month of this year,” president Naporn Sunthornchitcharoen added.
 Adisorn said the company was also managing its cash flow through the planned issue of an Bt8-billion debenture, with half of the amount to be raised in the first half and the remainder in the latter.
 Part of the funds raised will be used to roll over some of a debenture due to expire this year, and the remainder for cash-flow purposes.
 When it issues the debenture, the company will save one percentage point in interest costs when compared with the market rate. Its current funding cost is about 4 per cent, he said.
 “We have to manage our costs across all parts of the business: construction process, operation and management, and financial cost. This will help our business survive at a time of falling home-buyer confidence due to the prolonged political turmoil,” said Naporn.
Delayed project launches
 Meanwhile, small and medium-sized property firms are trying to manage their business by delaying the launch of residential projects and conserving cash to support the business for the long term, at a time when more customers are deferring the transfer of homes and banks are restricting the provision of mortgages.
 Kessara Thanyalakpark, director of listed developer Sena Development, said the company had cut the number of new launches this year from 10 projects to just seven. 
 The company is also pushing back the launch of new projects from the current quarter to the second quarter, given that there is no end in sight to the country’s political problems.
 “We also have to work closely with customers who have to transfer this year. This will help us to reduce the level of rejections of mortgage applications by the banks at a time when commercial banks are restricting loans due to rising household debt,” she said.
 Kanda Group CEO Issara Boonyoung said that as many home-buyers had delayed their decision to purchase a home since November, the company had to manage its business by focus on existing customers scheduled to have a home transferred this year. 
 Kanda also manages cash by reducing its inventory and delaying the purchase of more land for residential development.
 “Cash management is the key to helping property firms survive the market uncertainty caused by the unpredictable political situation. We have had an election that has not solved the country’s political problems, so we cannot estimate when the market will recover,” he said.