Property developer Sathaporn Estate Co has vowed a careful cash strategy in entering the slow condo market this year.
As a mid-scale developer, the company will minimise risks from residential development by using the 4% rule when launching new projects, said managing director Soonthorn Sathaporn.
This means the company needs to have cash of at least 4% of sales value for new projects to cover expenses during the launch period. If it cannot achieve its sale target, its loss will be only 4%.
"This is a formula for new launches as we are more careful about entering the condo market during the slowdown," he said.
"We will launch only one condo project a year, or one-third of total new launches, and will ensure the location has real demand."
This year, it plans to launch three new projects worth a combined 4.6 billion baht, aiming for presales growth of 20% by the end of the year.
A key driver is condo projects, a new business for the company that started in 2018, hoping to spur presales growth this year to its target of 1.2 billion baht.
Last year 80% of the company's presales or 800 million baht was from the first condo project -- the Shade Sathon 1, a low-rise condo worth 1.3 billion baht that was launched in late 2018.
Presales in 2018 totalled 600 million baht, all of which were from single detached houses, duplex houses and townhouses.
With registered capital of 650 million baht, Sathaporn Estate was created in early 2018 by old developer Chalermnakhon Co.
During a sluggish condo market and with fewer speculators, the minimum sales rate for a condo project that financial institutions expect when extending loans has been reduced to 25-30% during a launch period of around eight months, said Mr Soonthorn. In previous years, banks asked for 30-40% over four months.
In order to reduce risks, developers should have cost of funds of only 3-4% or lower, he said.
"To get the sales rate banks require, we need to select a good location that has real demand for condos, and launch a project with an affordable price, or 15% lower than that of competitors' in the same location, even though this means a lower margin," said Mr Soonthorn.
He said last year the company sold a plot on Soi Yen Akat where it earlier planned to develop a condo project as the plot is located near The Shade Sathon 1, where it recorded 65% of units sold. Instead, it bought a plot sized 7.5 rai in the Watcharapol area to develop 86 three-storey townhouses priced between 4.4 and 9 million baht a unit, slated to launch on Feb 29.
"New condo supply in locations near mass transit lines like the Orange, Yellow and Pink lines was lower last year. This is an opportunity for townhouse development in the same locations," said Mr Soonthorn.