The combined profits of listed housing developers are expected to decline by more than 10% this year compared with 2023, driven by intense market competition and aggressive discount campaigns to capture dwindling demand.
Sumitra Wongpakdee, managing director of property research and consultancy Terra Media and Consulting, said a sluggish market prompted developers to make significant adjustments this year.
"Many developers resorted to price cuts and promotional campaigns to lift sales, willingly sacrificing profit margins to maintain their yearly revenue targets," she said.
During the first nine months of 2024, 35 listed housing developers reported a combined net profit of 20.8 billion baht on revenue totalling 223 billion baht, compared with 38.5 billion baht in net profit and 331 billion baht in revenue for the full 2023.
The net profit margin to revenue ratio dropped to 9.3%, down from 11.6% at the end of 2023 and 13.1% in 2022, according to Terra.
The combined revenue of the 35 listed housing developers is projected to decrease by 5-8%, tallying around 300 billion baht by the end of 2024, noted the consultancy.
Only a few developers are expected to meet their annual targets, having achieved more than 63% of their goals in the first nine months, while others fell short, with some reaching only 36-38% of their annual targets.
According to Kasikorn Securities, 12 listed developers under its analysis reported a combined net profit of 7.5 billion baht in the third quarter, a decline of 8% year-on-year and 2% quarter-on-quarter.
While the results aligned with market and internal estimates, they were underwhelming, as quarter-on-quarter growth was absent despite significant condo backlog transfers during the previous three months, according to the brokerage.
The combined net profit for the first nine months of 2024 fell 20% year-on-year to 21.3 billion baht and is expected to plunge 11% by year-end, noted Kasikorn Securities.
In the third quarter, the 12 listed developers, particularly those with joint ventures, saw a significant rise in transfer value both year-on-year and quarter-on-quarter, driven by the transfer of condo backlogs.
This was reflected in a significant rise in profit contributions from investments. However, intense market competition, especially in low-rise houses, led to a drop in gross profit margin for residential properties.
The 12 developers reported a decrease of 1.0 percentage point year-on-year and 0.5 percentage points quarter-on-quarter, reaching a four-year low of 30.6%.
Given ongoing challenges, cash flow management strategies are crucial, said the brokerage. Project development has slowed, leading to reduced housing stock, which helps manage interest-bearing liabilities and improves cash flow.
Kasikorn Securities reported the housing market in the third quarter remained under pressure because of weakening demand. Fierce competition further compressed gross profit margins, emphasising the critical need for effective cash flow management across the sector.
While condo backlog transfers and the seasonal uptick in fourth-quarter transfers are expected to bolster profits, challenges persist, noted the brokerage.
Several developers downgraded their 2024 project launches, leading to an anticipated 16% year-on-year decrease in the value of new project launches, totalling 314 billion baht.
Fourth-quarter profits are likely to stand out, fuelled by high transfer volumes, the seasonality effect and the condo backlog, said Kasikorn Securities.
The expiration of tax incentives for homes priced less than 7 million baht is expected to provide an added boost before year-end, yet there are no short-term catalysts in sight, noted the brokerage.
A positive shift in macroeconomic conditions, coupled with lower interest rates and declining loan rejection rates, will be crucial for lifting sales and profits in 2025, potentially rekindling investor interest, according to Kasikorn Securities.