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Easing of oversupply a good sign

The property sector is set to improve further next year, especially middle-class housing, due mainly to a limit of new supply and falling interest rates on home loans.

Sumek Chantrasuriyarat of Merrill Lynch Phatra Securities said the oversupply in the residential market had been gradually absorbed in many locations, paving the way for some surviving developers to build new projects.

However, banks are still reluctant to lend money to the sector. Only developers that have secured strategic partners and restructured massive debts are able to continue building.

"Small developers that have niche markets can also survive and grow during the crisis," he said.

Mr Sumek said low interest rates and convenient access to loans had encouraged purchases. Many banks are now offering home loans at rates as low as 4-4.5% fixed for one or two years.

Among 22 listed property firms on the Shareholder Scorecard, LPN Development led with a one-year return of 112.5%, followed by Sammakorn at 107.1% and Land & Houses at 87.5%. Nawarat Patanakarn, still undergoing debt restructuring, trailed at -52.8%.

Sombat Kittiporatang, assistant managing director of LPN, said that although the company was very small it had had strong sales from two new condominium projects this year.

It kicked off sales of Lumphini Place Sathon at midyear and sold 317 units in only three days. Lumphini Place Centre in Klong Chan followed, with 1,000 of its 1,400 units sold to date.

LPN focuses on city condominiums, as units in quality projects are in short supply due to a lack of new projects for almost four years. "After we launched our first condo project in the Sathon area, we knew that strong demand was there. The market has been very quiet because nobody was brave enough to develop new projects," said Mr Sombat.

As well, LPN has successfully restructured three billion baht in debt. Some properties, such as office space at LPN Tower on Rama IV Road and a number of condominium units in the Si Phraya and the Sathu Pradit areas have been transferred to creditors to repay debts.

LPN projects 400 million baht in sales this year and one billion next year, helped by three new condo projects.

Analysts said LPN's strengths included low debt and limited land bank holdings _ it currently has just one small undeveloped land plot in the Bang Bua Thong area.

Adisorn Thananan-narapool, senior executive vice-president of Land & Houses, credited his company's solid reputation among homebuyers for helping the company ride out the 1997 crisis and continue growing.

"During the hard times, we still con tinued our construction and delivered houses to homebuyers. That's the key to building credibility and trust among consumers.When things are better, they will come to us again," he said.

L&H is among the few developers to attract a major strategic partner. GIC Real Estate of Singapore has been its ally since 1999, and debts of 13 billion baht have been restructured.

The company has put a lot of effort into technological innovation to lower the time-frame and cost of building detached houses. Its main innovation has been in selling pre-built houses. Previously, developers did not begin construction until purchasers had completed instalment payments. However, during the crisis, thousands of houses were abandoned because buyers could not secure financing.

L&H has also been diligent with its debt repayments, and has lowered its debt:equity ratio to 0.7:1. This year, it expects eight billion baht in sales, a rise from 6.4 billion last year. It forecasts 15% growth in sales revenue next year.

- Krissana Parnsoonthorn