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    Developers face rising cost, slow demand

    BackJan 27, 2012

    An increase in the price of residences will not be at the same level as the rise in the cost of construction

    SOMLUCK SRIMALEE

    Increase in the price of residences will not be at the same level as the rise in the cost of construction

    Although construction and logistics costs are rising between 8-10 per cent this year compared with 2011, residential prices will increase only between 3-5 per cent due to the high competition and slow demand to buy residences in the first half of this year, property experts said.

    According to a survey by The Nation, construction cost will rise as the daily minimum wage will go up from an average of Bt215 per day to Bt300 per day effective on April 1. Logistics costs will also rise due to the increase in the price of oil and NGV, while construction raw materials such as cement, steel and decoration items are also rising between 5-10 per cent.

    However, land price will maintain last year's price because there is less demand to buy land in some locations that were hit by floods, while landlords also are not selling undeveloped land.

     Land prices are rising steeply in location that were not hit by the flooding. Also, property firms are delaying launch of their projects in the first half of this year because they are waiting for the new Bangkok city plan that will come into effect early this year. This will also mean limited land to develop condominium projects as condos can only be developed on roads that are wider than 12 metres, and will also have limited space utilisation. Property firms will prefer to wait and watch before buying land to develop residential projects in the first half of this year.

    All these factors will collectively impact construction cost, which will rise between 8-10 per cent for single detached house, and about 5-10 per cent for condominium projects.

    Land & Houses senior executive vice president Naporn Soonthornchitcharoen said that although construction cost will rise, property firms cannot increase residential price by more than 5 per cent as home-buyers are continuing to delay their decision to buy residences amid continued concerns about flooding.

    Meanwhile, there is tough competition in some locations that did not face flooding hence property firms cannot increase the price to cover the rise in the cost of construction, he said.

    "We believe that the price of residences will increase only 3-5 per cent this year compared with last year," he said.  

    Sansiri president Srettha Thavisin added that residential prices will increase only 3-5 per cent because the demand to buy residences in the first half of this year will be slow compared to the same period of last year.

    Also, because of high competition, property developers cannot increase the price to cover the increase in the construction cost, he said.

    LPN Development managing director Opas Sripayak said that condominium costs would rise 5-10 per cent. The rise will depend on the construction stage of a project. If a project's construction process is about 50 per cent complete, construction cost will increase about 5 per cent this year compared with last year. If the project begins construction only this year, the construction cost will rise between 8-10 per cent. But, the condominium price will not be raised to match the increase in cost because some of the locations are facing high competition from new projects launched and existing projects resold by investors who have lower cost than new projects launched, he said.

    DOUBLE DIGIT NET PROFIT

    Although property firms cannot increase their residential price to cover with the rise in cost, they will continue to maintain their net profit margin between 10 per cent and 16 per cent in this year. This is thanks to the corporate income tax cut from 30 per cent to be 23 per cent effective this year.

    Land & Houses senior executive vice president Adisorn Thananun-Narapool said that the property firms' gross profit margin will drop only one per cent from the rise in construction cost. The cut in corporate income tax will help property firms maintain double-digit net profit margin.

    "It depends on property firms how they manage their cost," he said.

     

    THE NATION
    27 January 2012