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The Nation: 12 Jan 2008
Property developers are more worried about construction costs and say government
valuations are well below market prices
Developers continue to build condominiums in Bangkok’s central business
district, even though land valuations have increased and construction costs
continue to escalate.
Although the Treasury Department has announced increases in land valuations
averaging 26.9 per cent across the country, the move will have little noticeable
effect on residential prices. There is strong competition in the property
market, and many developers are battling rising costs to maintain their margins
and hold prices down.
Moreover, Property Perfect senior executive director Teerachon Manomaiphibul
says the new land valuations will have a negligible affect on property
developers, because they are still 20-30-per-cent lower than market prices.
At the end of last year, the Treasury Department announced land valuations for
tax calculations between this year and 2011 had jumped an average of 26.9 per
cent.
In Bangkok, the average valuation rose only 5.76 per cent. The highest was on
Silom Road, where each square wah was given a value of Bt650,000, while the
lowest was in Nong Chok district, where each square wah was worth only Bt260.
In setting the new valuations, the department took into account land use, the
environment and economic conditions.
Average valuations in the South rose a sharp 85.79 per cent. In Songkhla's Hat
Yai district, land was valued at Bt400,000 per square wah, while in Ranot
district, by way of contrast, 1 square wah was declared to be worth only Bt15.
Valuations in the Northeast rose 22.97 per cent. One square wah in Khon Kaen's
Muang district was given a value of Bt200,000, but on the other end of the
scale, land in Sakon Nakhon's Song Dao district and Chaiyaphum's Phakdi Chumphol
district was worth only Bt20 per square wah.
Land in the North increased in valuation 15.43 per cent on average. The highest
valuation was in Chiang Mai's Muang district, where 1 square wah was declared to
be worth Bt250,000. But in some parts of Chiang Mai's Doi Tao and Mae Chaem
districts, valuations were as low as Bt10 per square wah.
In the Central region and along the Eastern Seaboard, land valuations rose an
average of 11.71 per cent. The highest value, in Samut Prakan's Muang district,
was Bt140,000 per square wah, while land in Kanchanaburi's Sangkhla Buri
district was valued at only Bt10 per cent square wah.
The department reviews land valuations every four years. It evaluates 5.12
million plots in Bangkok and 3.32 million upcountry.
The new valuations, to be used for calculating tax over the next four years,
will increase tax payments about 1 per cent over those of last year.
They will have no noticeable effect on home-buyers.
Agency For Real Estate Affairs president Sopon Pornchokchai says the new
valuations do not reflect real market prices, which are generally higher than
Treasury Department estimates.
However, the new valuations will affect calculations of transfer tax this year,
making it a higher payment than last year.
"We think the new land valuations will effect property developers less than the
rising costs of construction. This will be the main factor forcing developers to
decide whether to increase their residential prices," he says.
Most property developers are expected to absorb the increased transfer tax
payments for their customers, and so, unlike construction-cost increases, the
new valuations will not be a factor like in the setting of housing prices,
Teerachon says.
Construction costs began to increase last year, and by now the average rise is
5-10 per cent.
"We believe most property developers want to increase their prices, but they
cannot do so immediately, because of strong competition in the market and the
fact that home-buyers have reduced their budgets," he says.
The market trend is forcing property firms to adjust their business costs,
especially operational costs, to maintain their gross margins. If they cannot
reduce their business costs, they may be faced to accept lower gross margins
than last year.
LPN Development managing director Opas Sripayak says high market competition is
forcing the company to hold its residential prices, even though its construction
and management costs are rising. The company is trying to maintain its gross
margin by adjusting and developing its construction process to reduce costs.
"We speed up the construction process by completing a project within one year of
presales. In that way, we cut our construction costs, especially our payments to
workers on the projects, while creating economies of scale. As a result, we can
maintain our gross margin, although our construction raw-material costs are
rising," he says.
Preuksa Real Estate chief business officer Prasert Taedullayasatit says his
company has tried to maintain its gross margin by reducing management and
construction costs. It uses innovative construction processes like
prefabrication and relies on information technology to manage its operational
and management costs.
"We don't want to increase our residential prices when the property market has
such strong competition. We're trying to maintain our net income after tax at 15
per cent, so we must manage our business model to reduce costs and maintain our
margin," Prasert says.
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