Growth is still the goal

THONGMA VIJITPONGPUN

By KANANA KATHARANGSIPORN

In the face of global economic crisis and domestic political instability, the country's second largest developer Preuksa Real Estate has developed new strategies and still aims for 15% growth in 2009.

Even so, chief executive Thongma Vijitpongpun said his business was bracing for an inevitable jolt.

"We cannot avoid an impact from the global financial crisis that has spread from the US and Europe to every country, debilitating consumers' purchasing power and residential demand,'' he said.

From October to December in 2008, when political crisis in Thailand reached a peak, the company registered a 30% decrease in sales and walk-in customers.

In 2009, the political turmoil is likely to return while the global recession is set to further erode consumer confidence, potentially triggering a 20% slump in the property market, he said.

He added that recession generally bites deepest on the lower end of the housing segment, where Preuksa Real Estate leads, which means that surviving the downturn may require more than one solution.

In response to the growing caution of financial institutions, which has raised rejection rates for mortgages, the company set up a business unit by mid-2008 to look after rejected customers, who have risen from 25% to 30-35% of potential buyers.

The unit closely consults with customers whose loan applications have been rejected. Solutions include substituting the intended purchase with a smaller, cheaper unit. Where a financial history has been rejected, the company can help build a new record.

"We make an initial examination of the customers before they apply for post-finance. If their records are rejected as too risky, our sales and marketing department will review them and go through them case by case. If the problems are trivial, such as insufficient budget or disqualifications, they can be solved,'' said Mr Thongma.

If customers change their mind, sales and marketing need to talk with them to find out why, he added.

Mr Thongma said this strategy would prevent an increase in re-sell units, which add to the company's housing stock and hold up its housing production cycle.

Inventory reduction is another strategy to manage liquidity in a property slowdown. The company is now aiming to reduce its inventory as far as possible.

Sales promotion will continue, said Mr Thongma. They will include more attractive campaigns such as discounts or free furniture and gardens to shift less appealing properties such as larger and more expensive units and those on large plots.

Building presale units will also be done very carefully and in line with the sales and booking rates in an attempt to turn them into revenue.

"Our management and executive level have a monthly discussion on how to get new customers and maintain existing ones,'' said Mr Thongma. "We have to monitor the situation very closely and more frequently.''

In its 2009 business plan, the company will carefully stay in line with economic conditions. It will improve liquidity management, customer management and supply-chain management with an aim to maintain annual growth at 15%.

"Economic recession does not mean total bankruptcy. We're in the real estate business, one of the four requisites. If we don't have new projects to do, our business will stop,'' said Mr Thongma, ranked Thailand's 18th richest individual by Forbes magazine.

He said the company needed to carefully direct its launches at specific target demand.

"In a macro view, everything seems to be worse. But in a micro view, there is some good and some bad. We should divide the business into layers and we will find some chances among them,'' he said.

In addition, he said the company would look for opportunities overseas and rigorously control its costs.

Preuksa may need more than one approach in the coming year as a recession hurts lower-income buyers, who represent a big portion of its customers.

"We will freeze new recruitment if staff resign. We will cut unnecessary costs, limit overtime hours, make smarter spending in advertising and ask our employees to co-operate with us in saving costs,'' he said.

Foreign investment plans will also continue, although the market study will take around one year. Preuksa aims to use its strength in property business management and experience in construction and technology to find the right partner to tap overseas markets.

"Overseas investment is our alternative for the future direction in the next five to 10 years,'' said Mr Thongma.

"The potential size of the residential market overseas is much larger than in Thailand. It's in millions of units while it's only around 100,000 units in Thailand.''

Despite all its efforts, though, Mr Thongma said his company remained at the mercy of a political system that has raised the risks for developers.

"The political atmosphere does not support business,'' he said. "If a government maintains order in the country, business will go well even without helpful measures.''

He added that he hoped everything would have improved by the end of 2009.