Positive credit factors seen for developers despite sluggish market: TRIS
TRIS Rating expects the residential property market to improve only slightly this year, if it improves at all. However, declining interest rates, stable costs for labour and construction materials, and an improving political situation are positive credit
The major concerns are the slower-than-expected growth in the domestic economy, high levels of household debt, and increasing inventories of housing units.
On March 23, the Bank of Thailand lowered its growth forecast for this year’s gross domestic product from 4 per cent to 3.8 per cent. The drop reflects a slower-than-expected recovery in the export sector.
Private consumption and private investment are expected to grow more slowly than forecast earlier in the year. The main economic drivers will be government spending and the tourism industry. As a result, there is no catalyst to boost demand for housing.
According to the Agency for Real Estate Affairs (AREA), the number of housing units launched in Bangkok and vicinity in 2014 dropped by 13 per cent year on year. However, the number of housing units sold dropped by 22 per cent, increasing the number of unsold units at the end of 2014 by 16 per cent compared with the end of 2013.
Concerns over the rising level of household debt and the expected slowdown in the economy may cause people to postpone their decisions to buy a new home.
Operating performances |acceptable
Despite the weakening market conditions, the operating performances of most residential-property developers rated by TRIS Rating remain acceptable. Last year, the firm rated 17 such developers. The combined sales of these developers and their subsidiaries accounted for 60-65 per cent of housing sales in metropolitan Bangkok.
Presales for these developers grew strongly in 2012 and 2013. As a result, the operating performances of most rated developers last year were in line with or better than the projections made at the beginning of 2014, except for Areeya Property, Charn Issara Development, Property Perfect, and Prinsiri.
Most rated developers achieved better operating profit margins in 2014 than in prior years.
The developers launched fewer new projects last year. However, the average debt-to-capitalisation ratio of the 17 rated developers increased to 52.9 per cent, up from 50.3 per cent in 2013. Leverage rose because the combined value of the investments in land, inventory, and projects under construction at these 17 developers increased by almost 20 per cent. The investment value was equal to 3.19 times the three-year average cost of goods sold, up from 3.16 years at the end of 2013.
The slowdown in the domestic economy caused the presales of the 17 rated developers to drop by 16 per cent year-on-year in 2014. Presales, in aggregate, fell to around Bt201 billion, compared with Bt240 billion in 2013. Presales in the condominium segment fell the most, dropping by 34 per cent year-on-year to around Bt84 billion. In contrast, presales in the low-rise housing segment grew by 5 per cent.
Despite the drop in presales, the backlogs at the 17 rated developers remained sizeable. At the end of 2014, their aggregate backlog stood at Bt230 billion, down by only 7 per cent from the prior year. Most of the housing units in the backlogs will be transferred to customers and realised as revenue this year and next.
The size of the aggregate backlogs is almost equal to one year of revenue summed across these 17 developers. The sizeable backlog will help sustain the operating performance of most rated developers in 2015, TRIS said.
