Three developers buck trend of falling sales

Despite construction costs rising between 15 per cent and 20 per cent, three major developers have managed to rein in expenses and record a growth in sales in the first half of this year.

The developers - Preuksa Real Estate, LPN Development and Property Perfect - shared their experiences during a seminar, "How constructors and property developers can do business when raw-material costs are rising", organised by Krungthep Turakij last week.

For the past two years, Preuksa Real Estate has been following a process that brings down the construction time for detached houses and townhouses from 200 days to 111 days per unit, the company's chief business officer Prasert Taedullaya-satit said. This has helped the company reduce construction costs between 5 per cent and 10 per cent, he said.

"We also changed our business strategy to launch more products to cater to our customers. This helped us balance our portfolio when the demand for residential projects shifted from detached houses to city condominiums," he said.

While small- and medium-sized developers registered a drop in sales and struggled with the rising construction costs, Preuksa posted sales growth of up to 50 per cent in the second quarter, compared with the same period last year, Prasert said.

The company has also been managing expenses by stocking raw materials, especially steel, used in construction. "We can stock raw materials because we have enough cash flow. That's why we can offer projects at prices lower than our competitors. We have also maintained our gross margin between 34 per cent and 35 per cent," he said.

LPN Development will likely meet its sales target of Bt4 billion in the first half, managing director Opas Sripayak. The company's sales will likely reach Bt8 billion by the end of this year, he said.

This is because the demand for city condominiums has remained strong despite a shaky economic outlook, Opas said.

LPN has been managing costs by designing projects that can use alternative raw materials, he said. The company is helping contractors by factoring in the rise in raw-material prices for ongoing projects.

"We have to help our contractors because if we don't, they may leave the job incomplete. That will have negative impact on our projects and our brand image," he said.

The company has slashed management costs by tapping economies of scale. It has also been revising home prices in line with the rise in construction costs. This will help the company maintain its gross margin at the same level as last year, Opas said.

Property Perfect chief operating office Dr Teerachon Manomaiphibul said the company has been offsetting the rise in raw-material costs by going in for alternative materials while ensuring quality.

The company also set up a fund and issued bonds to raise capital. The moves helped the company reduce costs and keep its gross margin at the same level as last year, Teerachon said.

"In my view, leading property companies have been devising ways to cut expenses since the past two years and therefore, most of them suffered little negative impact from the rise in construction costs. However, the climb in raw material costs affected small- and medium-sized developers in a big way. They also faced competition from the market leaders. The factors led to some of them suspending projects or selling incomplete projects to other companies," he said.

      At a glance

n Preuksa Real Estate, LPN Development and Property Perfect recorded a growth in sales in the first half.

n Leading firms have been devising ways to cut costs since the past two years and so, suffered little from the price rise, Property Perfect chief operating office.