Developers struggle with rising costs

Since last year, property companies have been unable to raise the price of housing units despite rising construction and management costs. Most of them have had to shoulder high costs and bear lower margins. According to property experts, this trend is likely to continue this year as well.

Property Perfect chief operating officer Dr Teerachon Manomai-phibul said property companies have had to manage these costs to maintain profitability and achieve a profit of at least 10 per cent of revenue despite the rise in expenses.

"They have been maintaining margins by speeding up sales and managing fixed costs by improving  staff efficiency. They have also reduced construction costs by improving and shortening the construction process. This is expected to help them reduce costs," he said.

Property Perfect is among the developers who have succeeded in reducing selling, general and administrative (SG and A) expenses from 24 per cent in 2006 to 21 per cent last year.

According to the survey conducted by The Nation, eight out of 17 property companies listed on the Stock Exchange of Thailand (SET) recorded high SG and A costs as a percentage of revenue last year compared to 2006. They are Areeya Property, NC Housing, Golden Land Property Development, Lalin Property, Sansiri, Prinsiri, Preuksa Real Estate and Supalai.

Meanwhile, four of the 17 companies were able to keep SG and A expenses stable over the two years. They are Noble Development, MK Real Estate, Asian Property Development and Land & Houses.  The remaining five companies -  Sammakorn, Property Perfect, SC Asset Corporation, Quality Houses and LPN Development - have managed to reduce their SG and A expenses over the last year (see graphic).

SC Asset Corporation executive vice president for corporate support Attapol Sariddipuntawat said the company has succeeded in reducing its management costs (SG and A) as a percentage of revenue because its topline growth was stronger than the rise in management cost.

"Our revenue portfolio increased and this had an impact on our SG and A ratio compared to revenue. These expenses dropped from 18 per cent in 2006 to 16 per cent last year."

Asian Property Development chief executive Anuphong Assavabhokhin said the company has tried to maintain its management costs by developing information-technology systems. The company also increased its sales growth due to which the management cost-to-revenue ratio has remained at 15 per cent over the past two years.

"However, we are concerned about inflation this year and it is expected that this may drive our management costs higher though we will try to maintain the existing ratio by scaling our sales growth faster than the rise in management costs," Anuphong said.

Sansiri president Sretha Thavisin said the company's SG and A expenses have risen 1 per cent from the 21 percent recorded in 2006. He attributed this to the huge marketing budget that the company set aside for brand-building last year. "We believe our SG and A will be reduced this year and net profit will be better than last year," he said.

A property industry analyst said some property companies have recorded 20 per cent to 40 percent rise in SG and A costs as a percentage of revenue, which is higher than the industry average which stands between 12 per cent and 17 per cent. This may be because some of them recorded lower sales last year though the management costs stayed just as high, the analyst said.

"We believe this ratio will be maintained this year because some developers don't have new projects to launch and their sales will also be lower this year," an expert said.

      At a glance

n Eight out of 17 property companies listed on the Stock Exchange of Thailand recorded high SG and A costs as a percentage of revenue last year.

n Companies have been maintaining margins by speeding up sales and managing fixed costs by improving staff efficiency.

n Companies have cited inflation as a main worry this year.