Industry insiders: A detailed look at the nation’s leading developers

Property developers in Thailand are a diverse lot, ranging from large, diverse companies with land banks that will suit their needs for years to come, to smaller companies considered takeover targets because the economy is developing and margins are increasingly tight. Pruksa Real Estate, which specialises in building low-income units, is the largest developer in the country by sales; it surpassed Land & Houses, the largest diversified company, in 2011.

CROWDED FIELD: In the condominium market a crowded field pursuing high-end buyers includes specialist developers such as Raimon Land, alongside diversified firms including Sansiri, Asian Property Development and LPN Development. This is a segment of the market in which reputation is exceptionally important. Thai buyers have fresh memories of the 1997-98 Asian financial crisis and want to be able to trust a developer before handing over downpayments on units bought off-plan. Furthermore, as the market for condos is increasingly dominated by end-users instead of speculators, the quality of common areas and maintenance of a building is taking on greater significance in the minds of buyers.

There are 63 stocks on the Stock Exchange of Thailand (SET) listed in the property development category, however, only four are included in the SET50, the bourse’s benchmark index of large-cap stocks: Pruksa, Land & Houses, Supalai and Central Pattana, the latter of which falls within the corporate structure of Central Group.

PRUKSA: This company is known for being among the only major developers willing to build low-cost housing, which is typically eschewed because margins are lower and because the upmarket condominium segments have showed no signs of a major drop in demand in recent years. Margins differ wildly by project, but a rough measure can be found in the number of titles Pruksa transferred in 2010 compared with Raimon Land – about 12,800 for Pruksa and about 300 for Raimon, according to Edward Cooper, Pruksa’s CFO and chief risk officer. The company’s high-volume model has, however, left it among the most exposed in the market to flooding damage. Cooper told OBG that of 240 projects in and around Bangkok, approximately 90 are incomplete and suffered flood damage.

The company has also pioneered cost-saving techniques by taking a larger role in the building process than most developers, who typically outsource the whole job to contractors. Pruksa does that only for its high-rise developments. Key to the Pruksa model is using pre-cast parts that can be shipped to construction sites, which creates savings on time and labour (see Construction overview).

Pruksa’s consolidated net profit for 2011 amounted to BT2.83bn ($90.3m), according to a statement from the company, an 18.7% drop from 2010. Its costs ticked up from 62.5% of revenue to 63.3% on account of rising materials prices. Among its mix of products, sales of townhouses were down 3.5% and detached houses by 8.4%. A 26.3% surge in condo sales wiped out those losses, while revenue was little changed at BT23.42m ($747,098).

Pruksa’s sales target for 2012 is BT26bn ($829.4m), with approximately 53% of it coming from townhomes, 32% from detached homes and 12% from condominiums, according to research from the Thai branch of CIMB Group, the Malaysia-based regional financial services company.

LAND AND HOUSES: This diversified developer has interests across several segments of the market, but revenue is primarily derived from building detached homes. In 2011, 73% of its revenue in 2011 was from detached homes, down slightly from 76% in 2010, according to the company. Its geographical diversification includes other parts of Thailand as well as other countries. In April 2012, local media reported a land purchase in Udon Thani, in the less-developed north-east of Thailand. Internationally, 2011 saw the divestiture from investments in Indonesia.

In 2011 Land & Houses reported a net profit of BT5.61bn ($179m), a 41.2% surge from BT3.97bn ($126.6m) in 2010, according to its annual report. The jump was not because of its regular operations, however, but instead from the divestitures from its Indonesian interests and from its stake in a Bangkok-based hospital chain. Revenue was up 12.3%, to BT18.58bn ($592.7m), from BT16.55bn ($527.9m) in 2010. While revenue in 2011 was distorted by the flooding, which generated BT211.1m ($6.7m) in expenses and affected sales, 2010 sales were impacted by political unrest in Bangkok.

In the first quarter of 2012 Land & Houses announced its plan to raise BT3.3bn ($105.3m) from the sale of mature properties to a property fund it said it intends to create, the Land & Houses Freehold and Leasehold Property Fund.

Investors in the fund can expect to share in a projected net income of at least BT179.9m ($5.7m) in 2012, with the total expected to rise annually through 2015, according to the company. Property sales to the fund mean Land & Houses shares on the SET are expected to rise in 2012 on the back of these gains, according to equity research from the Bangkok-based Bualuang Securities.

SUPALAI: Supalai is a developer of residential properties, with 64% of sales in 2011 derived from condominiums and 36% from houses, according to its 2011 annual report. As of the end of the year it had 60 ongoing projects in the greater Bangkok area. The company’s has stated its future plans include a move into commercial retail, expanding into other ASEAN countries, and a focus on the provinces.

The company is currently developing projects in the provinces of Songkhla, Phuket, Khon Kaen and Chiang Mai, and is preparing to break ground in Surat Thani and Chonburi. Candidate provinces for new projects include Nakhon Ratchasima, Ubon Ratchathani, Phitsanulok, Nakhon Sawan, Nakhon Si Thammarat and Rayong. In April 2012 local media reported that the company is seeking land in the north-east province of Udon Thani.

In Khon Kaen, for example, the sales target for 2012 is BT600m ($19.1m), Tritecha Tangmatitham, the executive director of Supalai, said. The market is growing by 20% annually in the north-eastern province, and the best-selling units thus far are at the BT3m ($95,700) price point, he told local media.

Net income was little changed in 2011, dipping to BT2.57bn ($81.98m) from BT2.58bn ($82.3m) in 2010, according to the company’s financial statements. Revenue from real estate sales reached BT12.47bn ($397.79m), up 14.5% from BT10.89bn ($347.39m) in 2010. The company’s profit margin slid to 20% from 23%. The firm attributed its lower profitability rate in 2011 to changes in tax laws resulting in its effective tax rate rising from 30% to 33%.

Research from Bangkok-based Bualuang Securities showed that sales of houses were down 50% in the fourth quarter of 2011, when the floods in Thailand were at their worst. The company forecasted stronger sales for Supalai in the latter half of 2012 as its condo backlog of four projects is scheduled for completion and transfers to owners from the third quarter on. The company’s revenue target is BT13.5bn ($430.7m) for 2013, a 5% increase on 2011. The projection is for 70% of revenue to be derived from condominiums, and 19% to come from projects in the provinces north of Bangkok.

CENTRAL PATTANA: The company is Thailand’s largest retail developer, having built 18 shopping centres with a total leasable area of 697,038 sq metres, according to company data, including CentralWorld. The company has reported an occupancy rate at 95% or above since 2007. It also has on its balance sheet six office towers with a total leasable area of 144,791 sq metres. Asset value reached BT64.06bn ($2bn) in 2011, up 18.9% from BT53.87bn ($1.7bn) in 2010. Three of the company’s malls were closed for a period during the flooding, however, profit growth in the first three quarters of the year was enough to preserve an overall expansionary trend. Net profit in 2011 reached BT1.87bn ($59.7m), up 20.6% from BT1.55bn ($49.4m) in 2010.

Since the 2008 financial crisis the company has been increasingly focused on high-end retailing, in part to capture income from tourists. Spending power has increased in populous and nearby countries, perhaps most notably in China and India. Tourists from Hong Kong, Russia, Taiwan and Australia are also a big part of the mix, Kuntol Boonkrajang, the senior-vice president for marketing for Central Pattana, told local media in April 2012. The Sukhumvit line of the Bangkok Skytrain near the central business district is clustered with hotels and malls, with the CentralWorld shopping complex among them, and between 50% and 60% of shoppers are tourists, Kuntol said. Thais typically spend on average between BT3500 ($112) and BT5000 ($160) per visit at Central Pattana malls, whereas spending is estimated at around some BT10,000 ($319) per visit for foreign tourists.