Bangkok Apartments
| L.P.N. chief foresees impact of US problems in six months |
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source: Bangkok Post MONDAY Sept 29 2008 Thailand will not be spared from the seismic waves moving across the world from Wall Street but the impact will only be felt six months from now, says Opas Sripayak, managing director of L.P.N. Development Plc. Opas: ‘‘We weigh the risk factors all the time and try to grow at a suitable pace’’ While the country should brace itself for reverberations, the impact is expected to be less severe than from the Asian financial crisis of 1997 that began in Thailand. "There are many parties helping shoulder this crisis so that [the financial system] doesn't suddenly crack up, and businesses are also being careful. This should lead to the situation not being as bad as in 1997," Mr Opas said. He noted that conditions in 1997 were so severe locally that liquidity dried up completely. With no money in the system to keep companies afloat, executives scrambled to get what cash they could, accepting write-downs of 50% or more if need be. Real estate in Thailand today is in substantially better shape. It can still generate rental income or could be pooled into a property fund. As L.P.N. is among the companies that survived 1997 and has since emerged as the budget condo market leader, it knows from experience that if a company has liquidity it can withstand a crisis. Companies lacking liquidity can fail even if their sales figures are good. "I remember in 1997 there were many buildings close to completion. They required only a little more cash but they couldn't be completed because there wasn't any," Mr Opas recalls. One clear short-term effect of the US financial turmoil is that Thai banks are highly likely to be more cautions about lending to small borrowers, including homeowners. L.P.N. itself has seen mortgage rejection rates rise among its customers. "[The rejection rate] should edge up because banks are screening more carefully now. I asked banks after the sub-prime crisis erupted whether they had changed their policy but they said there weren't any changes. Actually, I am sure that is not the way it is." Mindful of the lessons learned from 1997, L.P.N. adopted a conservative stance as soon as the sub-prime mess started shaking the US financial system. "I want to tell investors and shareholders that lately there have been many factors that don't look good for L.P.N., but L.P.N. is a company that experienced the 1997 crash," says Mr Opas. "Over the past 10 years we have conducted business with risk in mind; we weigh the risk factors all the time and try to grow at a suitable pace. Sometimes our experience shows that we should slow down and we do so even though others could still be aggressive. This has led to people wondering whether L.P.N. has any internal problems. "L.P.N. is not facing any internal problems. Sales are good, liquidity is still good, it's only that we see signs of problems that have built up over the past three to six months and so we have become more careful." So far this year L.P.N. has obtained 4.7 million baht from condominium unit transfers. It has sold but has yet to transfer 1.8 million baht worth of units, leaving the company only 700 million short of this year's target of 7.2 billion baht. For 2009, L.P.N. has sold and is transferring 6.5 billion baht worth of units or 75% of its target of 8.6 billion. For 2010, part of the revenue stream will come from the Lumpini Place Rama IX-Ratchada project, where nearly 1.9 billion baht worth of units in phase one have already been sold. At the end of this year the company will launch the second phase, with total revenue of the two phases estimated at 5.2 billion baht. This would be approximately half of the 10.3 billion baht in revenue realisation it forecasts in 2010. While some observers fear that the ultra-luxurious condominium market is likely to suffer the most in the current climate, Mr Opas believes the very wealthy remain relatively immune. "The group that will be strongly affected is the middle to high segment. Those who need housing will continue to feel this need but whereas last year they could buy at 70,000 baht per square metre, they now have to drop their budget to 60,000 or 50,000 baht because a lot of things are more expensive now. "The lower segment won't be much affected because they are already careful with money and they have fixed expenses for accommodation. If they are not renting they are paying installments." Mr Opas does not expect foreign property developers and buyers who live in Thailand to back out of their investments because the former have found their investments in developing real estate in Phuket worthwhile. However, foreign newcomers would think hard about making such investments in light of both Thailand's lingering internal problems and the tumultuous external situation. While Mr Opas has not heard of any local property companies reaching the point of bankruptcy, he has heard of contractors doing so. One large contractor ran into problems because steel prices rose sharply just as it was trying to resolve the problem. Had the company been able to hang on for a little longer, it would have seen the price eventually go down. Steel is a large component in the cost of developing a condominium and in L.P.N.'s case it is as much as 10%. This also means that a 1% rise in the price of steel would cost the company an additional 10 million baht on a billion-baht building             |
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