Sena trims sails over political chaos

Real Estate January 24, 2014 00:00

By Somluck Srimalee
The Nation

Fewer launches planned, targets cut as home-buyers' confidence takes a tumble

The combination of domestic political turmoil and an economic slowdown has forced Sena Development to cut the number of new residential projects to be launched this year, and to scale down its presales and revenue targets. 
“We have had to revise down our new project launches from at least 10 projects worth between Bt6 billion and Bt7 billion this year, to just seven projects worth Bt5 billion, as the political turmoil is impacting directly on home-buyers’ confidence in the current quarter, while spending on the Bt2-trillion government mega-projects has also been delayed,” director Kessara Thanyalakpark said during an interview with The Nation early this week.
Three of the listed developer’s seven launches will be low-rise projects for detaching housing and town-houses, while the others are condominiums. 
The company has revised down its presales target from Bt3 billion to Bt2.8 billion, and its overall revenue target from Bt2.8 billion to Bt2.5 billion for the year. This follows presales of Bt2.5 billion last year, while revenue hit the annual target of Bt2 billion.
Despite the downward revisions, Sena still expects to see growth this year as it has a backlog worth Bt2 billion, some Bt1.7 billion of which will be booked as revenue this year. 
To boost its prospects of achieving the new presales and revenue targets, the developer has set aside an investment budget of Bt3 billion for the year. 
Bt2 billion will be spent on the development of the seven new projects, as well as on the renovation of its golf club and resort in Pattaya, while the remaining Bt1 billion will be spent on purchasing land for development in 2015, she said.
Half of the investment budget will come from the company’s cash flow, and the rest will be bank borrowings. The company is also studying the issue of a debenture, which is currently subject to a rating process, she added.
Kessara said the company had to use flexible management during the current period of political uncertainty, as it could not forecast what would happen in the future.
“The first priority is to manage our cash flow so that there is enough to drive our business if we have a situation in which the bank will not provide lending. As a result, we have to revise all of our investment and financial plans to meet any unpredictable situations,” she added.
Another factor besides politics that will directly affect the property sector in the current quarter is high household debt, as the second half of last year was already impacted by a drop in residential purchasing power.
“We have seen a rise in banks’ rejections of mortgage applications from our customers, from 5 per cent early last year to 10 per cent – and now 15 per cent. This means we face a higher business risk of having customers who commit to buying a home, but being unable to transfer when the banks reject their loan applications. 
“This will impact on our business as we then have to resell these properties, at the same time facing the risk of a bank declining to provide a loan again. This will negatively affect our cash flow. As a result, we have to manage our cash flow so that there is enough to cope with such an unpredictable factor,” said the director.
Becoming an integrated property firm
Although this year will be a tough one for property companies amid a number of unpredictable situations, Sena is maintaining its five-year business goal of becoming an integrated property firm that develops housing for sale and a rental-income business from retail, golf club and hospitality, provides after-sales service to its customers under 360-degree property management, and a sales agency for the resale of residences – thus maintaining each customer’s property value after purchase.
“We will aim not only to sell a residence, but to provide a sales touch for customers that means they receive quality not only from the building itself but also a quality service from our staff, with help in creating value for the long term, and also helping them when they need to sell the property and buy a new, larger one when their family grows,” she said.
Meanwhile, Sena is trying to balance its portfolio for long-term sustainable growth by developing its retail, hospitality and golf-club business, which will generate rental income for the long haul. This will balance its income during periods of economic slowdown, she said.
The company currently owns the Sena Fest at Klong San-Thon Buri and the Pattaya Country Club, which generate rental income of between Bt170 million and Bt190 million a year, she added.
It has also set aside Bt100 million to renovate its golf club and 20-villa resort at the Pattaya Country Club this year, in a move that will enhance future rental income from the properties.
“We target rental income averaging 10 per cent of our total revenue in the long term,” she said, adding that it was also targeting total annual revenue of Bt5 billion within the next five years, which implied average yearly growth of 10 per cent over the period.
Kessara said that given this ambitious target, the company had to focus on developing its staff so that employees have the knowledge and experience to drive growth in the long term.
“Staff is the key to driving our business growth,” she stressed.
Sena has 30 years of experience in the property business since Kessara’s father founded the company. As a result, it also has many staff members with long experience, plus new staff who have knowledge but – as yet – no experience. 
When the company achieves the right blend of experience and knowledge among its employees, it will be able to support sustainable growth for the long term, she added.