Industry operators slowly adjusting as economy recovers

Economy August 01, 2014 00:00

By Vittakarn Chandavimol
Chief M

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AMONG THE TOPICS discussed at the Thai Condominium Association's recent seminar, "Strategies to Stimulate the Condominium Market", one discussion revealed the changes in the view of the head of Thailand's largest condominium developers.

It has been a long held view that those who can sell a condominium within a day or a week do not always guarantee solid revenues.  As condominiums require considerable development and construction time, many people think that being able to sell off the product off-plan as fast as possible will not result in generating real revenue and profit, but only brings in 10 – 20 per cent of total revenue from deposits.
Nonetheless it is true that more stimulation now is needed to boost condominium purchases when initially launched to sell approximately 30 – 50 per cent, as these numbers have a positive psychological effect on consumers and investors, as well as financial institutions that are funding the project, especially for smaller property developers.  
This change in perspective is one example of how industry operators adjust themselves as the economy is slowly recovering and consumer confidence revives. That is why we can see many property developers beginning to invest in new projects, which reflects their flexibility in being able to rapidly cope with constant flux. Such an environment has resulted in a flow of new projects that are constantly modified to meet changing consumer needs across the industry, from large-scale to small-scale developments, by spreading their risk over a variety of project types, styles and locations. 
A key contributing factor of more project variety is the shrinking pool of land banks in locations suited to constructing high-rises. Therefore, smaller plots of land have been eyed by increasing numbers of developers. Regardless of their locations and project types, all developers have to be scrutinised by the Land Department and the EIA who manage the way land is used and assess the environmental impact on the surrounding community to ensure that everyone can enjoy a happy and comfortable quality of life with these new additions. 
Nevertheless, as the industry has encountered problems due to mismatched demand and supply in the market, increasing numbers of operators are seeking in-depth analytical research on consumer want. An example of a mismatch is creating affordable projects in an environment where developers face rising costs of 15 – 20 per cent due to higher land prices, construction prices, and labour costs, while most white collar workers’ average annual salary increases hover between 6 to 7 per cent. 
Therefore, it is impossible to develop conventional projects as they simply do not sell, despite constant and even growing demand for condominium residences. With consumers’ financial limitations, developers have to find a way to make their projects successful in convenient urban settings by reducing unit sizes to make them more affordable. That is why present unit prices of Bt 3 – 4 million average 26 – 28 sqm, which was the price of 30 – 35 sqm units two to three years ago.
Operators too, need to manage investments in line with their true financial standings, and we recommend that they plan to grow at a more gradual pace. This is a significant precaution as many companies tend to be lulled into over-investing during economic booms, and are left facing unexpected storms that expose them to unnecessarily high risks. Developers who encountered the 1997 Asian Financial Crisis and weathered other situations will benefit from these experiences which check their enthusiasm during good times, and remind them of the necessity of financial discipline in pursuing new investments. The latter will usually result in operators finding ways to develop projects faster to receive revenue more rapidly, cutting operational costs, and balancing debt/equity ratios to an appropriate level.
These aspects exemplify Buddhist teachings of the Tri-Laksana or the Three Marks of Existence, namely impermanence (Annijung), suffering (Dukhang) and non-self (Anatta). These states of being teach us to be alert always, not become overly attached to anything, and to act and move with awareness. These qualities are required to be successful when battling various changes around us in the economic and political arenas, as well as keeping pace with our customers and most importantly, our own greed.