What home-builders need to know ahead of the AEC

Economy April 18, 2014 00:00

By Supitcha Chaipipat
Managing D

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Over the past three years, no business sector in Thailand has failed to talk about its preparation for the upcoming regional market liberalisation under the Asean Economic Community (AEC). Everyone, including the home-building sector, is alert and prepare

But there is a caveat for small and medium-sized enterprises.

Home-builders – most of which are SMEs – need to be aware of the sector’s commitments under the trade liberalisation, and how this might affect their businesses.

It is important to note that the commitment Thailand has under the AEC blueprint binds home-building businesses.

First, the Asean Free Trade Area will result in zero tariffs and eliminate non-tariff barriers. This will enable home-builders to acquire construction materials in neighbouring Asean countries, giving them an edge in price and quality.

Second, service liberalisation under the Asean Framework Agreement on Services (AFAS) is aimed at reducing barriers to market access. This includes changes in company-shareholding limits for Asean nationals.

Under AFAS, Asean nationals will be allowed to hold stakes in companies in other Asean countries of up to 70 per cent – against 49 per cent currently. AFAS will provide greater opportunities for Thai home-builders to enter the markets of neighbouring countries.

However, these opportunities may be limited for SMEs, which on top of comprising the bulk of home-building businesses also service customers with land in scattered locations. This requires different service approaches in different locations, and thus cannot operate on a large scale. Foreign businesses can only focus on mass-housing estates in single locations.

Third, investment liberalisation under the Asean Comprehensive Investment Agreement will bring down or terminate barriers to investment. This will allow investment in raw materials used in the home-construction industry to be redirected to places where there are already resources and investment costs are low.

Fourth, liberalisation of capital mobility will strengthen Asean’s capital-market development and facilitate freer capital movement. This will make sources of capital for businesses more accessible.

Last, home-builders will benefit from the liberalisation of the skilled-labour market under the Asean Economic Ministers agreement, which will allows doctors, nurses, accounting-services professionals, engineers, architects and others to work in other Asean countries.

Home-builders will benefit from the scheme’s impact on four professions, as it will broaden opportunities to acquire diverse sources of quality labour suitable for varying degrees of quality home-building business.

The AEC blueprint mentioned above will facilitate the flow of skilled labour and capital as well as raw materials, giving an edge in price and quality. Local home-builders will expand as a result of the increased purchasing power of the middle class.

However, there is a need to look at the strengths and weaknesses of home-builders in Asean in conjunction with the tastes and needs of customers, as well as residential demand, geography, culture and relevant laws in each country.

As far as the international professional standards of business operations are concerned, data such as building-information modelling (a single comprehensive calculation of capacity and quantity) are required. This system is already applied by home-building and architecture companies in Singapore and Malaysia.

In addition, home-builders must be prepared to work with a quantity surveyor (the price estimator) in a process that is in line with international-standard pricing and be prepared for independent checking (a referee who mediates disputes during the construction period).

Looking at the points mentioned above, it is clear that a number of home-builders – mostly SMEs – are not yet prepared. Therefore, cooperation is needed to build strong business entities, raise professional standards to international levels and improve the image of the Thai construction industry to make it more acceptable in the region.

This will surely help Thai home-builders expand into neighbouring countries.