As confidence grows of a significant property market recovery in the second half of this year, Thailand's major developers are walking a financial tightrope between prudence imposed by the downturn and grasping the opportunities of recovery.
On one hand, most of the big listed firms remain bent on reducing their inventories to reduce their costs and build up cash reserves. On the other, many new residential projects will be launched in the coming seven months. Some of this expansion will be funded by public debenture issues, and property firms are preparing to splurge on new land plots.
Following the recent announcement of first-quarter financial results, a survey by The Nation found the country's 25 property developers that were listed on the stock exchange had a combined inventory of properties with a market value of Bt179.08 billion. This was an increase of only 0.16 per cent over the Bt178.79-billion value of the total inventory at the end of last year.
Most of the firms are trying to reduce their inventories by speeding up sales with promotions and special deals, cutting costs in the process and generating cash reserves. At the same time, they are striving to maintain their gross and net-profit margins close to last year's predownturn levels.
Preuksa Real Estate president and CEO Thongma Vijitpongpun said his company was trying to reduce its inventory from last year's level - sufficient for three months' trading - to enough for only one and a half months this year.
At present, the inventory is down to enough for about two months' trading, and efforts continue to bring it down even further in the second half of the year.
After the first quarter of 2009, Preuksa reported an inventory with a market value of Bt12.25 billion, down 3 per cent on the level at the end of last year.
"When we reduce our inventory, that means we're succeeding in selling our projects and generating income," Thongma said. "At the same time, we are keeping our cash for expansion to new locations."
He said the economic slump meant the company had to hold onto its cash and invest only in projects that would speed up sales and generate high returns.
LPN Development managing director Opas Sripayak said his company had to reduce its inventory to generate income.
"Our business strategy for reducing our inventory is to speed up sales by launching promotions at existing projects, which are selling more slowly than we expected. When we succeed in reducing our inventory, this will mean we will have more cash to develop new residential projects in new locations, following market demand," he said.
LPN Development's inventory at the end of the first quarter was valued at Bt5.49 billion, down 6 per cent from its value at the end of last year.
Asian Property Development CEO Anuphong Assavabhokhin said that in times of economic downturn, property firms had to speed up sales from their inventories to convert products into cash to serve their need for business expansion.
As a result, his company has been launching new marketing campaigns every month. These have helped to reduce the company's inventory stock from a value of Bt14.54 billion at the end of last year to Bt13.96 billion after this year's first quarter, a drop of 4 per cent, he said.
At the same time as they are striving to reduce their inventories, most major listed companies are continuing to launch new residential projects in areas where there is strong demand, such as Sukhumvit, Ram-Indra, Lat Phrao and Ratchadaphisek roads. Many are confidently expecting to record sales growth this year.
Most small and medium-sized property firms listed on the stock exchange are also trying to whittle down their inventories. But their future plans remain frozen, with a "wait and see" business strategy; holding on to their cash rather than investing it.
For example, NC Housing, which reported an inventory valued at Bt2.85 billion after the first quarter of this year, achieved a 2-per-cent drop in inventory value, from Bt2.89 billion at the end of last year. It suspended new projects in the first half of this year.
Managing director Somchao Tanterdtham said NC Housing would wait and see whether the market recovered in the second half. The suspension of new projects in the first half of the year could be extended to the full year, he said.
However, should the company see a convincing recovery in the second half, NC Housing could launch one or two new projects because it has land ready for development, Somchao said.
Despite the possibility of having no new projects this year, NC Housing still expects to match last year's sales, or possibly lift sales as much as 10 per cent. It recorded revenue of Bt779.59 million for a net loss Bt45.8 million last year but revenue of Bt220.44 million for a net profit of Bt26.37 million in this year's first quarter.
MK Real Estate director Chukiat Tangmatitham said his company launched only one residential project in the first half of the year and that there would be no more in 2009, because the company was waiting for the country's economy to recover.
Although the company will not launch more projects this year, its inventory, which is currently valued at Bt4.86 billion, is expected to generate sales growth of 5-10 per cent this year.
MK Real Estate recorded revenue of Bt748 million for a net profit Bt169 million in the first quarter, a whopping increase of 120 per cent and 317 per cent, respectively, over figures from the same period last year.