Developers rejig plans, seek quicker income generation in tough times
March 28, 2014 00:00 By Somluck Srimalee The Nation
Leading property companies have had to revise their business plans and income structure in order to maintain growth by developing residential projects that can generate revenue this year.
They are also expanding their rental-income business both domestically and overseas, as the residential sales market is showing signs of dropping by between 2 per cent and 5 per cent this year – the first contraction since the aftermath of the economic crisis in 1997.
This is largely due to the country’s political turmoil, according to a survey carried out by The Nation early this week, with the prolonged political crisis now carrying over until at least the second quarter.
This year, Supalai will focus on detached housing and townhouse projects rather than developing condominiums, due to slower overall market growth, especially for condos, said president and CEO Prateep Tangmatitham.
The company plans to launch 26 residential projects worth Bt32 billion in total, 18 of which will be detached housing and townhouses and just eight condominium projects.
Detached houses and townhouse take between four and eight months to construct, which will generate much speedier income than condominium development, which generally takes 18 months to three years – depending on project size – before a full income stream is possible, he said.
Supalai is also expanding its investment overseas by bidding for land to develop a residential project in Australia this year. This follows the purchase of an office building in Manila last year.
Targeting overseas income
“We target overseas income from both from rental income and residential development at less than 10 per cent [of our overall revenue] in the next two or three years,” he added.
Sena Development, meanwhile, has cuts the number of new residential projects to be launched this year, and has scaled 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,” said company director Kessara Thanyalakpark.
Three of the developer’s seven launches will be low-rise projects for detaching housing and townhouses, while the others are condominiums.
However, its condominium projects will be low-rise, which will take between a year and 18 months to develop and generate income for the company, she said.
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 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.
Land & Houses is a leading property firm that is balancing its portfolio between investment income – largely dividends from its subsidiaries – and sales income from the development of residential projects for sale.
“At a time when the economy shows only slight growth and the property market is falling, income from our subsidiaries’ dividends and our investment will balance our financial results at nearly last year’s level,” president Naporn Sunthornchitcharoen said during an interview with The Nation earlier this year.
Land & Houses’ investment in serviced apartments in the US last year also forms part of a business strategy to balance its portfolio between domestic and overseas investment, he added.
“We have seen the property market slowing down since the final quarter of last year, and as a result our business plan to launch residential projects has been revised down from between 25 and 40 projects a year to just 19 projects worth Bt33.26 billion this year,” Sansiri president Srettha Thavisin said earlier in the year.
Sansiri has been expanding its investment in hospitality business by developing hotels in tourist destinations such as Hua Hin and Khao Yai under the Escape brand. The company also owns the Siripinyo office building on Bangkok’s Phayathai Road.
The developer also plans to launch Escape hotels in other tourist destination such as Phuket or Chiang Mai in the next phase of its hospitality-development plans.
“Recurring income is still less than 10 per cent of our revenue, but it is part of balancing our business for the future,” said Sretta.