Residential developers set to see decline in Q3 net profit margins

“We accept that our net profit margin in the third quarter will be lower than in the first half, which was also lower than at the end of 2015, as property firms have had to launch special marketing campaigns to boost sales in the current quarter at a time when a great many home-buyers have delayed making the decision to buy.
“The commercial banks are also [severely] restricting mortgage approvals out of concern over high household debt and with customers’ ability to make their monthly instalment payments having dropped due to a reduction in their earnings,” said Prasert Taedullayasatit, president of the Thai Condominium Association and Pruksa Real Estate’s president for premium products.
Most potential home-buyers who work at manufacturing plants have seen their earnings fall after their companies reduced production capacity – and hence overtime, too – during a period of continued low demand, he said. This has forced developers to cut their residential prices to match what customers can now afford, especially in locations where there is an oversupply in the property market, he added.
According to a survey by The Nation early this week, property firms are offering special discounts of between Bt50,000 and Bt1 million for condominiums, townhouses and detached houses in the Rangsit area, such as on Phaholyothin Road close to Bangkok University Rangsit and Thammasart University Rangsit through Rangsit-Thanyaburi Road, from Khlong 1 to Khlong 7.
For example, SC Asset Corp offers a waiver of all fees when transferring units at its Life Bangkok Boulevard Rangsit detached-housing project, and also includes air-conditioning and a fully equipped kitchen in the price.
These savings are worth up to Bt1 million for home-buyers who purchase houses costing between Bt5.09 million and Bt10 million at the project.
LPN Development is also helping customers to buy ready-to-stay units at the Lumpini Township Rangsit-Klong 1 condominium by offering to pay the initial monthly instalments for them.
Meanwhile, developers launching residential projects close to the Purple Line rail route from Bang Sue to Bang Yai are offering discounts of up to Bt2 million.
For instance, Quality Houses has discounted Bt500,000 off the price of each unit at its Trust Ngam Wong Wan condominium, cutting the cost for home-buyers from Bt1.89 million to Bt1.39 million early this month. The project is located about 1.2 kilometres from Nonthaburi’s Government Centre station.
Pieamsuk Development is offering a discount of Bt2.2 million for its 100-square-wah (400 square metres) detached-housing plots, lowering the asking price from Bt11.9 million to Bt9.7 million per unit.
AP (Thailand)’s deal is to offer a free booking fee, free down payment, free furniture and free transfer fee – worth about Bt150,000 combined per unit – to buyers at the Aspire Rattanathibeth 2 condominium, where prices start at Bt1.7 million per unit. The project is situated about 200 metres from Bang Kra So station on the Purple Line.
Business Housing Association president Atip Bichanond said most residential developers had been forced to launch special campaigns to boost sales during a period when demand had dropped after the majority of buyers speeded up the transfer of their homes in the first half of the year, before the government’s stimulus package for the property sector expired at the end of April.
“However, we cannot say this is a price war, because property firms have continued to limit their marketing spending as most of them still have a net profit margin in double digits, even though their margins look set to be lower than last year’s level,” he said.
Property Perfect’s chief business development officer, Wongsakorn Prasitvipat, said all residential developers would run special campaigns to boost sales in the latter part of the year, using a combination of price-cutting and financial support to customers after seeing home-purchasing power decline this quarter from the level witnessed in the first half.
Meanwhile, most property firms plan to launch more projects during the second half of the year than they did in the first, he added.
“We accept that our net profit margin in the third and fourth quarters will be lower than at the end of last year, as we have had high marketing costs in a bid to boost sales in the second half,” he explained.
The overall net profit margin among residential developers this year will likely be one to 2 percentage points lower than the 2015 level, due to their raised spending on marketing to boost sales, said Thai Condominium Association chief Prasert. This will, however, have less of an impact on listed property firms with double-digit net profit margins, he added.
According to a survey by The Nation on the net profit margins of the top 10 property firms listed in the Stock Exchange of Thailand, most posted a net margin in the region of 14-15 per cent for last year, but most of them experienced a fall to between 12 and 14 per cent in the first half of this year. (See graphic.)