TRIS Rating Co., Ltd. has reviewed the residential property industry and reported that the industry in 2009 grew amid global and domestic economic volatility. The number of registered units rose and the operating margins of major firms were higher as well. Residential property developers will be challenged by increasing competition, political instability, and a rising inflation rate which will raise costs for both developers and buyers.
TRIS Rating said in the Industry Research report, released today (20 August 2010), that the residential property industry continued its upturn, especially in the condominium segment which has expanded rapidly since 2008. In 2009, there were 46,452 new condominium units registered in Greater Bangkok according to the Real Estate Information Center (REIC). The number of new registered condominium units was 31,535 units in 2008, far higher than the 17,461 units registered in 2007. In 2010, REIC forecasted that new 63,600 condominium units will be launched, that is to make available for sale, in Greater Bangkok.
TRIS Rating evaluated 11 residential property developers that it had rated as of August 2010. Most reported revenue growth in 2009. Across the 11 rated firms, the average cash adjusted operating margin increased to 21.8% in 2009 from 19.1% in 2010.
TRIS Rating said the higher profit margins were supported by the government incentives which were implemented between 2008 and 2009. In addition, profitability was boosted by the ability of developers to control costs and lower administration expenses. New construction technology such as the prefabrication construction technique has been used widely during the last few years. Pruksa Real Estate PLC has implemented this technique successfully which helps the company maintain its operating margin at a relatively high level. Some residential developers such as Asian Property Development PLC, Noble Development PLC, Sansiri PLC, and Supalai PLC transferred many condominium projects in 2009. These firms reported satisfactory sales and profit growth rates.
TRIS Rating believes the residential property market in 2010 and 2011 will continue to grow as many more new projects will be launched. However, this will lead to more intense competition. As large developers have announced plans to enter the lowered price segments, smaller developers may feel the pain. According to interviews with rated residential property developers, in 2010, up to 62,000 new residential units might be launched, of which 21,000 units are single-detached houses, 16,000 are townhouses, and 25,000 are condominium units. The average price across all three types of units will be Bt3.17 million per unit, notably lower than Bt3.67 million per unit average price recorded in 2009. Moreover, now that the government incentives have expired, operating margins may fall in the rest of 2010.
Residential property developers in 2010 and 2011 will also be challenged by political instability, a major factor that may affect consumer confidence and housing demand. In addition, rising inflation may lead to higher interest rates which will raise the financial costs for both buyers and developers, said TRIS Rating.
TRIS Rating has currently assigned ratings for 11 residential developers, namely, Asian Property Development PLC at “BBB+” with “positive” outlook, Lalin Property PLC (BBB/Stable), Land & Houses PLC (A/Stable), M.K. Real Estate Development PLC (BBB+/Stable), Noble Development PLC (BBB+/Stable), Pruksa Real Estate PLC (A/Stable), Property Perfect PLC (BBB-/Stable), Quality Houses PLC (A-/Stable), Sansiri PLC (BBB+/Stable), Supalai PLC (A-/Stable), and Univentures PLC (BBB/Stable). -- End
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