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    BackAug 02, 2013

    Land & Houses Plc's president Naporn Sunthornchitcharoen

    Lower demand from speculators, people's concern about their future earnings, and banks' lending restrictions are the main factors that will down the property sector in the second half of the year, Land & Houses president Naporn Sunthornchitcharoen said in an interview with The Nation.

    However, L&H is maintaining its sales-growth target of 19.5 per cent to Bt30 billion this year after recording presales worth about Bt17 billion in the first seven months.

    Naporn said rising land prices in Bangkok's central business districts along with increased construction costs had forced up residential prices to an average of Bt150,000-Bt250,000 per square metre. This has limited the number of people who can afford to buy in the CDBs.

    Meanwhile, speculators too cannot afford to hold on to an already expensive home long enough to make a profit on its resale. As a result, the proportion of speculators, which averaged between 20 and 25 per cent in 2011-12, has dropped.

    On top of all this, there are signs that the country's economic growth will slow amid the sluggish global recovery, as the major traditional destinations for Thai exports are either struggling - the United States and Europe - or are slowing, such as China. The Bank of Thailand, the Fiscal Policy Office, and the Office of the National Economic and Social Development Board have all lowered their 2013 growth estimates from the earlier 5 per cent to 4 per cent or even lower.

    As a result, people wanting to buy a home are delaying their decisions until they see whether the economic slowdown will affect their incomes.

    Finally, commercial banks are tightening the provision of both project loans and mortgages, demanding loan-to-value ratios of 70-80 per cent depending on the customer's financial health. That means potential home-buyers at least have to pay higher down payments, and may even see their mortgage applications rejected.

    Given this business environment, Naporn said the outlook for the property market in the current second half was for slower growth than in the first half.

    However, this has not affected L&H's business plan for this year, which targets sales of Bt30 billion, because the company has been selective with its customers, fixing down payments at 20-25 per cent for condominiums and 5-10 per cent for townhouses and detached houses. This reduces its customers' risk of having their mortgage applications rejected by the banks.

    In the first quarter, L&H posted revenue of Bt6.35 billion and net profit of Bt1.42 billion.

    Infrastructure a key

    To boost economic growth in the long term, Naporn believes that the government has to demonstrate whether its mega-projects such as the Bt350-billion water-management scheme and the Bt2-trillion infrastructure programme, which now are going through legal processes, will kick off or not. If they do, that will raise consumer confidence.

    "The key to boosting the country's economy now is government spending, while exports face a hard period, new domestic investment is also growing only slightly compared with last year, and consumer spending has dropped," he said.

    The Bt2-trillion project will not only to improve the country's infrastructure, it will provide transport links with other countries in the region when the ASEAN Economic Community (AEC) becomes effective in 2015. This will make Thailand the logistical and transport hub in this region, creating business opportunities for Thai corporates, he said.

    Overseas challenge

    "We also are studying expanding our investment in AEC countries after we did so in the US last year," Naporn said.

    L&H was the first Thai property firm to expand into ASEAN countries in 1994. But the company withdrew from the market after the financial crisis in 1997 when faced with the baht's devaluation.

    "If we expand our investment in ASEAN countries again, we are interested in rental-income business such as hotels, apartments, or office buildings, taking over existing projects rather than developing homes for sale. This is like what we did in the US, buying apartments that will generate rental income. This is the best way to test the market," he said.

    Indonesia and Myanmar are two countries in ASEAN that look attractive for investment. Indonesia has purchasing power, while Myanmar has natural resources and strong demand for the hospitality business as the number of foreign investors there rises, he said.

    However, before investing overseas the company has to study about potential countries' laws related to foreign investment and also study the business opportunities.

    "We think we don't need to be the first company to enter a new country and face [too much] risk."

    However, the overseas investment is one of L&H's business strategies to boost business growth in the long term, he said.


    2 August 2013