TRIS Rating Co., Ltd., the Thai credit rating agency, announces today that the residential property developers in Thailand are expected to continue facing a sluggish property market in 2009. The slowdown will be particularly tense in areas of single detached houses and town houses, both of which have suffered a sliding demand trend since 2007. The number of new condominium projects is also expected to decline, suggesting the total number of new residential property in 2009 to be lower than a year ago. TRIS Rating believes that the gloomy residential property market is mainly due to an unfavorable economic condition haunted by deteriorating consumer confidence, declining investment projects, and vulnerable political situation. The economic recessions in the US and most of the European countries added difficulties to the Thai economy as income from exports and tourisms dropped precipitously. Though the world economic recession is expected to bottom out in 2009, TRIS Rating believes that the prospect of residential property market depends primarily on domestic factors, among them are prospects of domestic economy, consumer confidence, and government policies.
Residential property market in 2008 was volatile. The market was negatively affected by a prolonged political unrest, inflationary pressures, and financial crisis in the US. These factors discouraged housing demand, particularly in the last quarter of 2008. The market; however, was stimulated by several government incentives introduced since the second quarter and increasing demand for condominium units driven by rising oil prices. As a result, the number of new condominium projects sold increased. Meanwhile, a number of big residential developers took more cautious stances in view of the tougher market conditions ahead by suspending new investment projects and controlling their leverage levels.
TRIS Rating said, the residential development firms rated by TRIS Rating are the medium- to big-sized companies. All of them are listed on the Stock Exchange of Thailand. As of December 2008, there were 10 residential developers rated by TRIS Rating. Their credit ratings ranged from “A” to “BBB”.
Owing to the fact that most of the rated residential developers were big players with large market shares and acceptable financial strengths, they tended to weather the difficult market condition better than the smaller and weaker players. Profit margins and leverage ratios of most residential property firms rated by TRIS Rating in 2008 changed only marginally from a year earlier. However, many developers recorded a significant drop in sales in the last quarter of 2008. In 2008, TRIS Rating upgraded the company ratings of two developers: Preuksa Real Estate PLC, to “A-/Stable” (“A-” rating with “stable” outlook) from “BBB+/Positive”; and Quality Houses PLC, to “A-/Stable” from “BBB+/Stable”. Meanwhile, Lalin Property PLC was downgraded to “BBB/Stable” from “BBB+/Negative”.
TRIS Rating discovered that residential developers with improved financial performances were companies that had been able to reap the tax incentive benefits provided by the government since March 2008. Developers who successfully launched condominium projects in 2007 and 2008 showed increases in revenues and profit margins in 2008 after they realized income from units that were finished construction and transferred to the buyers. Most rated residential property developers had been more cautious about their investment plans and debt obligations. Many had prepared long-term sources of funds ahead of the weak market environment. Some issued long-term debentures, while others negotiated long-term loans with banks.
TRIS Rating expects that the property market for the rest of 2009 will be tougher despite numerous government stimulus packages, including property tax benefits. In the short term, demand for residential property relies primarily on consumer confidence and the wealth of home buyers. Several negative economic factors, ranging from poor economic prospects, political conflicts, high unemployment, to volatile stock prices, should continue to suppress consumer confidence. Thailand’s economic growth rates have been consistently revised downward by both public and private agencies. The National Economic and Social Development Board projected that real gross domestic product (GDP) in 2009 could plunge between 2.5% and 3.5%.
TRIS Rating said, the creditworthiness of residential property developers depends mainly on the prospects of housing demand, developers’ competitiveness, capability of management teams, and financial strength. Amid the current economic downturn, the credit rating analysis puts more focus on the flexibility of developers to adjust their business and financial profiles. Other important rating factors are financial discipline of the management team, quality of liquidity management, and financial flexibility. Good relationships with banks and supports from a stronger parent company are also important rating consideration factors. Developers with condominium projects will be scrutinized with regard to the ability to achieve the targeted number of transferred units and to maintain a competitive edge. — End
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Table 1: Credit Ratings of Residential Developers Rated by TRIS Rating*
Year AP Lalin LH MK Noble PS PF** QH SIRI*** SPALI 2003 - - A - BBB BBB - BBB BBB - 2004 - BBB+/Sta A/Sta - BBB/Sta BBB/Sta - BBB+/Sta BBB/Sta BBB/Sta 2005 - BBB+/Sta A/Sta - BBB/Sta BBB/Sta - BBB+/Sta BBB/Sta BBB/Sta 2006 - BBB+/Sta A/Sta - BBB+/Sta BBB+/Pos - BBB+/Sta BBB/Sta BBB+/Sta 2007 BBB+/Sta BBB+/Neg A/Neg - BBB+/Sta BBB+/Pos - BBB+/Sta BBB/Sta BBB+/Sta 2008 BBB+/Sta BBB/Sta A/Sta BBB/Sta BBB+/Sta A-/Sta BBB/Sta A-/Sta BBB/Sta BBB+/Sta Sta = stable outlook; Neg = negative outlook; Pos = positive outlook * Company rating announced to the public
Source: TRIS Rating
Table 2: Adjusted Operating Margins of Residential Developers Rated by TRIS Rating
Unit: % of total sales
Developer 2000 2001 2002 2003 2004 2005 2006 2007 2008
AP 15.60 24.70 28.00 31.00 22.80 21.00 17.10 20.10 25.40
Lalin 16.60 8.40 27.60 33.40 34.50 34.90 29.50 19.40 23.30
LH 17.10 24.30 30.30 34.30 29.20 24.50 19.00 18.50 23.30
MK 1.00 3.10 19.20 32.90 29.20 28.10 26.00 23.10 27.90
Noble -49.90 -60.10 20.60 22.90 14.50 20.40 26.00 12.70 6.60
PS 19.70 30.30 34.40 29.60 24.70 23.80 20.90 20.10 25.00
PF -15.50 -17.70 25.80 21.70 18.90 14.00 8.50 9.90 14.60
QH 17.30 17.80 21.50 23.80 17.70 16.00 11.80 17.60 21.30
SIRI -15.50 0.80 10.90 21.00 9.50 6.90 9.80 10.20 15.20
SPALI -7.00 7.20 20.40 35.30 27.70 27.70 31.30 28.20 31.20
Average -0.06 3.88 23.87 28.59 22.87 21.73 19.99 18.02 21.39
Source: TRIS Rating