By Kanana Katharangsiporn, Bangkok Post, Thailand
Jan. 07–Despite an expected slowdown in the condominium market this year, property development remains attractive to contractors with at least two firms including non-listed Ritta Co Ltd and SET-listed Pre-Built Plc entering the higher-margin business from 2009-10.
Ritta embarked on property development as the country faced a political crisis that negatively affected the economy and the contracting business.
Knowing construction margins and costs and being able to manage lower overheads, Ritta’s major shareholders decided to start a property development business and established Siamese Asset Co Ltd. They launched the Siamese Gioia condominium on Sukhumvit Soi 39.
Kajohn Sae-Eng, managing director of Siamese Asset Co, said the contracting business generated a lower net margin of 5-10% of contract value, while property development earns a margin of 20-30% of selling prices.
“Contracting is a headache as it involves many parties,” he said. “As we built condominiums for developers, we saw an opportunity to build quality projects with reasonable construction costs.”
Its first project cost 1 billion baht and is located on a plot of almost two rai on Sukhumvit Soi 39. It acquired the plot in late 2009 for 200 million baht, and it will have 168 units starting from 42 square metres priced from 80,000 baht per sq m, which the company said is 20-30% lower than rival projects nearby.
Kajohn: Contracting more of a headache
While it used cash for land acquisition, it took out a 400 million baht loan from Siam Commercial Bank to complete the project, scheduled for early 2012.
The project has 30% of its units remaining for sale. It unofficially launched in March 2010, selling to shareholders’ partners and acquaintances, most of whom are Singaporean, Japanese and British. During the past few months, it had the brokerage Harrison helping sell the units.
Founded in March last year, Siamese Asset plans to raise registered capital from 10 million baht to between 50 million and 100 million whenever it launches its second project.
Its second project will be located on a one-rai suspended project on Phahon Yothin Road where it spent 280 million baht to buy from an individual investor.
It plans to invest another 600-700 million baht to continue the development of two towers, according to the previous blueprint. They will be a 27-storey condominium and a 15-storey office building. Both will be for sale with a value of around 1.3 billion baht.
Mr Kajohn, who is also executive director of the 21-year-old Ritta, said it usually had turnover of around 10 billion baht per year, but it dropped to 9 billion last year due to the economic crisis. Some contractors’ revenue fell by 30-40%, he said.”It took Ritta two decades to have annual turnover of 10 billion baht, but Siamese Asset projects the same turnover in only half the time,” he said.
Last year Ritta won two big jobs including a 300,000-sq-m building at Mega Bang-Na retail complex for Ikea, and a 100,000-sq-m building at Wat Dhammakaya with a construction value of 3.5 billion baht each. Its backlog is around 15 billion baht, which will take around 18 months to realise.
About 20% of its jobs are retail, 25% each condominiums and factories and the rest hotels and shops.
Pre-Built entered property development in 2009 with the subsidiary Built Land Co, launching two low-rise condominiums, noting that the gross profit margin from property development was 30-40% while that from construction was only 10%.