Several external factors have been affecting the property sector, leading developers to be more cautious about their plans in the second half by KANANA KATHARANGSIPORN

The property sector was hit with rising construction costs, declining consumer confidence and a more intense competitive environment in the first half of the year as developers struggled to cope with external negative factors such as surging oil prices and unfavourable sentiment in the global market.

Of the three factors, higher construction costs did not necessarily affect property developers's bottom line. Presale housing developers generally pass on higher costs to buyers while prebuilt ones, especially condominium developers, lock in the costs when signing construction contracts with contractors.

Nigel Cornick, chief executive of the residential developer Raimon Land Plc, said controlling costs and monitoring the process of project construction were two factors essential for highrise residential development.

Achieving the desired sales target in line with the construction process is also necessary as financial institutions release loans for projects only when presale levels reach 3040%.

When doing quarterly evaluations, Preuksa Real Estate Plc, the leading property developer in the mediumto lowend residential segment, found that the rising price of diesel had influenced construction costs.

According to Thongma Vijitpongpun, Preuksa's managing director and chief executive, the company increased its housing prices by 45% between the fourth quarter of 2004 and the first quarter of 2005 to help compensate for a 7% increase in construction costs in the fourth quarter alone.

Overall, the recent trend of rising oil prices prompted developers to be more cautious when preparing their 2005 business plans indicated by the decline in new residential supply in the first quarter of this year.

According to a survey by the property consulting firm Agency for Real Estate Affairs Co Ltd (AREA), the number of new residential units launched in Greater Bangkok in the first quarter fell 30% in terms of both units and value when compared with the same period in 2004.

Two additional factors behind the decrease were concerns of declining consumer purchasing power and stricter rules imposed on banks for the release of project finance loans.

Meanwhile, land banks held by developers are likely to decline. The Bank of Thailand reported that the value of land transactions nationwide in January was 721.79 billion, down 5.3% yearonyear while the number of land transactions decreased by 4.1% over that oneyear period.

Residential developers have made various adjustments to cope with the changing market conditions.

Sales of highpriced condos in Bangkok have slowed since early this year.

The AREA survey found that an average price of a housing unit dropped from 3.14 million baht in the first quarter of 2004 to 3.096 million baht in the same period of 2005.

But Sopon Pornchokchai, AREA's managing director, said the new price did not mean that a housing unit was cheaper as cost of construction had risen since last year.

He pointed out that to adjust to falling purchasing power, developers tended to build smaller sized homes.

All told, demand for mediumtolow priced housing units held up in the first quarter.
As well, he said, the proportion of new mediumpriced homes, units costing between three and five million baht, increased from 10% of the total market to 14% and the proportion of condominium units priced at 13 million baht rose from 8% to 14% of the total market, in the first quarter of this year.

Tikhamporn Plengsrisuk, managing director of the medium to lowpriced residential developer L.P.N. Development Plc, said his company's market had been steady.
"As we tap real demand with the income of our customers ranging between 20,000 and 50,000 baht a month, our market remains sound," he said.

Meanwhile, the AREA survey found that the new supply of highend condominium units dropped, reflecting cautious sentiment over possible oversupply conditions from developers.

On the demand side, however, the news was more upbeat with developers reporting a jump in sales in the first quarter which many attributed to a rush by homebuyers to make their purchase decisions ahead of possible price increases stemming from higher fuel costs.

The outlook for housing sales is far from rosy for the rest of the year as expectations of higher interest rates, rising construction costs and lower purchasing power are expected to weigh on the market.

A research report by Sansiri Plc estimated that a hike in interest rates by 25 to 50 basis points in the second half of the year would cut into the purchasing power of the homebuyer by 4.87.2%.

Meanwhile, Kasikorn Research Center estimates that the cost of construction materials is expected to rise by 7.2% on average by the end of 2005. During the first four months of the year, the construction materials index rose 2.3%.

Pressure from both the drop in home purchasing power and the rise in costs will force developers to adjust their development plans and many will be forced to adjust the price of ongoing projects as construction costs contracts expire.

Atip Bhijanond, president of the Thai Condominium Association, said construction costs for housing projects were expected to rise by 5% and that developers would most likely pass the entire cost on to homebuyers.

To make up for the higher costs, he expects that more joint campaigns between developers and commercial banks involving loan promotions will be offered to spur sales, he said.

"New project developments from nonprofessionals will disappear from the market as they are not confident about the economy. But the property market this year is expected to grow 10%, lower than earlier forecasts of 15%."

cheaper as cost of construction had risen since last year.
He pointed out that to adjust to falling purchasing power, developers tended to build smaller sized homes.

All told, demand for mediumtolow priced housing units held up in the first quarter.
As well, he said, the proportion of new mediumpriced homes, units costing between three and five million baht, increased from 10% of the total market to 14% and the proportion of condominium units priced at 13 million baht rose from 8% to 14% of the total market, in the first quarter of this year.

Tikhamporn Plengsrisuk, managing director of the medium to lowpriced residential developer L.P.N. Development Plc, said his company's market had been steady.
"As we tap real demand with the income of our customers ranging between 20,000 and 50,000 baht a month, our market remains sound," he said.

Meanwhile, the AREA survey found that the new supply of highend condominium units dropped, reflecting cautious sentiment over possible oversupply conditions from developers.

Sales of highpriced condos in Bangkok have slowed since early this year.