Phoenix rises from ashes

Housing demand helps revive sector, making developers' shares very attractive, on the back of low interest rates and government efforts to stimulate mortgage lending

Krissana Parnsoonthorn

The continuing improvement of the property market has pushed up the performances of major listed developers, making their shares very attractive to investors and offering the highest returns on investment on the SET over the past year.

The momentum of low interest rates together with government measures to revive the property business have boosted housing demand while brand-new supply is limited.

``Several listed property firms, which have already restructured debts and received fresh funds, have been expanding their property operations,'' said Sumek Chantrasuriyarat, an analyst at Bualuang Securities.

Earnings growth was improving since low interest rates were also helping developers reduce their expenses, he said. ``Profit margins on developing new projects are higher because they can acquire land at lower costs.''

Mr Sumek said the outlook for the sector over the next six months would continue to improve. Demand will grow further though it is not expected to reach the boom-era levels of 150,000 to 160,000 units a year.

``The business fundamentals will not change and low interest rates are likely to prevail until the year-end. Worries about the US slowdown still persist. If it really occurs, it will affect the continuity of property recovery,'' Mr Sumek said.

Among the 23 listed property firms, the return on investment of LPN Development shares was the highest at 552% over one year, followed by Asian Property Development at 457% and Sino-Thai Engineering and Construction at 246%.

Heavyweight Land & Houses, accounting for 38% of the sector's capitalisation, delivered 186% over one year and 15% over five years. The sector's one-year average was 163.9% but over five years it has returned only 4.8%, while the 10-year return is -8.2%, reflecting property's roller-coaster ride.

Propping the one-year table was Nawarat Patanakarn (15%), behind Sansiri and MBK Property and Development.

Yupa Techakraisri, deputy managing director of LPN, said the company outperformed the others because it had a clear business policy to develop only city condominiums, which were now in short of supply.

``Our project locations are very good and prices are very affordable. We have few competitors as most surviving developers have shifted to developing detached houses or townhouses instead,'' she said.

As well, she said, LPN could finish a condo development within just 12 to 18 months, ensuring better cashflow.

LPN projects sales of one billion baht this year and 1.5 billion next year. The figures do not include income from a joint venture with two other companies to revive the Watercliff Condominium on Rama III Road.

Mrs Yupa said the company had four ongoing condo projects that would generate revenues starting next year. LPN also plans to buy more land and develop three or four new projects in the next two years.

Pumipat Sinacharoen, vice-president for corporate planning and investor relations of AP, said the company had a high-growth property business, which generated 90% of total revenues, while building materials production was improving.

``We have been able to clear up our image that we are not part of Land & Houses. We have successful products such as the Baan Klang Muang and Baan Klang Krung townhouses,'' he said.

AP's main business used to be precast concrete floors and its biggest customer was L&H, but over the past three years it has become a successful developer of niche properties.

The company has set an annual growth target of 30% over the next two to three years with a profit margin of at least 35%. This year, it forecasts total sales of 2.2 billion baht, doubling from last year.

AP has seven ongoing projects and five new ones will begin sales activities in the first quarter of 2003.

Sansiri, meanwhile, was expecting a turnaround now that its funding challenges have been overcome, according to Mayta Chanchamcharat, vice-president for corporate finance.

The company took on Starwood Capital Group as its strategic partner in 1998, but the US investor had been hesitant to raise its holding to 51% as agreed originally, he said.

``When we could not raise more funds, we could not diversify our property business. We waited until late 2000 before our first housing estate in Soi Vatcharapol got a green light to take off,'' he said.

To help improve performance, Sansiri has focused on generating additional income from property management and serviced apartments.

In July this year, Sansiri finally solved its cash problem when a group of new investors agreed to inject 2.59 billion baht into the company. It has wasted no time putting the money to work, acquiring the Sofitel Silom Hotel for 684 million baht and buying new land plots for future development.

``We are gearing up to grow with many projects in the pipeline. Our major revenues will come from residential projects while steady income from hotels and property management will support us,'' Mr Mayta said. _Krissana Parnsoonthorn

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