TRIS Rating Co., Ltd. has upgraded the company rating of Sansiri PLC (SIRI) to “BBB+” from “BBB” and has also upgraded the rating of SIRI’s existing debentures to “BBB” from “BBB-”. The rating outlook is “stable”. The upgrades reflect SIRI’s improving financial profile. The ratings are based on SIRI’s leading position and strong presence in the condominium segment, and well-accepted brand names in the residential property market. The strengths are partially offset by the uncertain economy which may cause a downturn in the property industry, the cyclical nature of the industry, and commercial banks’ tight credit policies, which limit access to mortgage financing for homebuyers. TRIS Rating also takes into consideration the cyclical nature of the property development market and the relatively low level of consumer confidence, which is the result of economic conditions and the uncertain political situation.
The “stable” outlook reflects the expectation that SIRI will be able to manage construction of several condominium projects as planned. During the slowing economy, revenue will be partly secured by its large condominium backlog. Transfer risk of its condominiums is somewhat reduced by the recent government stimulus tax package and its cash-advance collection scheme, which voluntarily offers an upfront payment of the condominium price with attractive discounts. Profitability is expected to stay at the 2009 level, though the government tax incentives on special business tax and transfer fee will expire in March 2010. In the short term, leverage is expected to drop below 50% when some condominium projects are finished and transferred to customers during the period of tax incentives.
TRIS Rating reported that SIRI is one of the leading property developers in Thailand. As of November 2009, the company had more than 50 residential property projects in the portfolio, worth a total of around Bt70,000 million. The portfolio consists of condominium (50% of the total portfolio value), single-detached house (SDH) (35%) and townhouse (15%) projects. The average unit price across the portfolio fell to Bt4.3 million, reflecting a policy to expand its customer base to add the medium-priced segment in its portfolio. As of November 2009, the company’s total backlog was nearly Bt16,600 million, while the unsold value of the existing residential projects was around Bt17,000 million. SIRI’s main competitive edge stems from its well-accepted brand, strong marketing strategies and the good quality of its products, especially in the condominium segment.
TRIS Rating said, although overall economy slowed in 2009, SIRI reported increasing revenue due to its high backlog and greater market share gained from small developers. Revenue rose to Bt11,006 million in the first three quarters of 2009, from Bt10,067 million in the same period of 2008. SIRI slowed its pace of investment from late 2008 through early 2009 in response to economic uncertainty. The pace returned to normal after mid-2009 onwards. Land acquisition decreased to around Bt2,500 million for the fiscal year 2009, from around Bt4,000-Bt4,500 million in 2007 and 2008. However, the value of project openings increased to around Bt19,000 million in 2009 from around Bt12,000 million in 2008. As a result of more project openings, presales increased to Bt13,585 million in the first 11 months of 2009, from Bt10,258 million in the same period of 2008. New condominium projects worth more than Bt7,000 million were launched, while condominium presales were Bt6,300 million for the first 11 months of 2009. In 2009 the company enjoyed the full year benefit from the government’s tax incentives, introduced in late March 2008. Hence, operating margins in the first three quarters of 2009 strengthened further to 14.4% from 12.2% in 2008 and 10.2% in 2007. Earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage has stayed at 2.8-3.3 times over the last three years. Funds from operations (FFO) to total debt dropped from 10% (non-annualized) in the first three quarters of 2008 to 8.4% in the same period of 2009, but is expected to improve from more condominium transfers in the fourth quarter of 2009. The debt to capitalization ratio increased from 47.5% in December 2007 to 53.4% in September 2009 due to additional capital outlays for condominium construction, and is expected to decrease in late 2009.
The residential property market was volatile over the past year, reflecting the national political instability and global financial crisis. Although it recovered in the second half of 2009, the market remained relatively slow and has become increasingly dominated by major developers. Government tax incentives that allowed homebuyers to get a personal income tax deduction of up to Bt300,000 for the purchase of a new residence expired in December 2009. Demand for residential property in 2010 will depend heavily on the pace of recovery in economy and consumer confidence. TRIS Rating said it expects the demand to be in line with that in 2009.
Sunday, February 7, 2010
Saturday, January 30, 2010
S.T. Thammaporn launches Nakornthon Plaza healthy lifestyle centre
S.T. Thammaporn Company Limited is developing Nakornthon Plaza, an 18,000 square metre Holistic Lifestyle Center and Residence for customers seeking a high quality, healthy and active lifestyle. The 500 million baht project occupies a four-rai plot of land adjacent to Nakornthon Hospital on Rama II Road.
This unique lifestyle plaza offers a wide selection of health facilities on over 4,800 square metres of commercial space, and Jonathan Schwimmer, General Manager of S.T. Thammaporn, believes that it will be ideally suited to the health-conscious lifestyle of new generation.
“There is generous space available for a fitness centre, health spa, supermarket and shops for health products, as well as health restaurants, a tutoring zone and meeting facilities,” he said.
“There will also be 118 serviced apartment units and 90 standard apartment units for lease.”
Wisan Saipecth, Executive Director of Nakornthon Hospital, added that the Hospital welcomed Nakornthon Plaza as its new neighbour. He expressed the management team’s confidence that the new plaza would help to raise the quality of life in the community, and encourage people to strengthen their immune system by means of exercise and a nutritious diet.
Built on the strengths of Nakornthon Hospital, the new plaza is expected to extend the hospital’s customer base so that it may achieve its goal of being the Family Lifestyle Hub providing comprehensive medical services for patients of all ages.
S.T. Thammaporn Company Limited was established in 2004 and has registered capital of 97 million baht.
This unique lifestyle plaza offers a wide selection of health facilities on over 4,800 square metres of commercial space, and Jonathan Schwimmer, General Manager of S.T. Thammaporn, believes that it will be ideally suited to the health-conscious lifestyle of new generation.
“There is generous space available for a fitness centre, health spa, supermarket and shops for health products, as well as health restaurants, a tutoring zone and meeting facilities,” he said.
“There will also be 118 serviced apartment units and 90 standard apartment units for lease.”
Wisan Saipecth, Executive Director of Nakornthon Hospital, added that the Hospital welcomed Nakornthon Plaza as its new neighbour. He expressed the management team’s confidence that the new plaza would help to raise the quality of life in the community, and encourage people to strengthen their immune system by means of exercise and a nutritious diet.
Built on the strengths of Nakornthon Hospital, the new plaza is expected to extend the hospital’s customer base so that it may achieve its goal of being the Family Lifestyle Hub providing comprehensive medical services for patients of all ages.
S.T. Thammaporn Company Limited was established in 2004 and has registered capital of 97 million baht.
Sunday, January 24, 2010
THE THAI PROPERTY MARKET TRENDS IN 2010
2009 was a challenging year for the Thai property market, but CB Richard Ellis (CBRE) sees positive signs for 2010. Whilst 2009 has been a tough year, it was not as bad as many expected.
2010 has begun with a more positive market sentiment. The improving economic outlook globally and perception of Thailand’s political situation, together with low market prices compared to other mature property markets, have had a positive impact on consumer confidence in property investment in Thailand.
Following the economic crisis, the supply of new office, retail and industrial space is at an all-time low. These sectors are expected to improve this year, in line with the global and local economic recovery.
Thailand’s residential market in 2009 was primarily driven by local demand. This year, CBRE believes that local demand will continue to be strong and that individual foreign property investors will start to return to the market. Thai condominium prices remain attractive compared to other cities in the region, such as Shanghai, Hong Kong and Singapore where prices have risen sharply in the last six months.
Average Price of Luxury Residential Units in the Region (THB per sq.m.)
City 2008 2009 %Change
y-o-y
Shanghai THB 176,032 THB 189,659 7.7
Hong Kong THB 622,549 THB 722,376 16.3
Singapore THB 479,327 THB 555,481 12.8
Bangkok THB 117,875 THB 124,539 5.6
Source: CBRE Research
However, there are continuing concerns about Thailand’s political stability and the strength of the global economy. If Thailand’s economy and politics are stable in 2010, the residential sector will see consistent positive growth.
Government Policy
The Government stimulus package will expire in March 2010 and it remains uncertain whether it will be extended. CBRE believes the extension of this package will benefit buyers and developers of large condominium projects launched during the crisis which are due for completion and transfer within this year.
The initiative of this government to reform property and land taxation with a view to creating fairness sounds positive, but it will only be possible to determine the effect on the property market once the details of the proposed legislation have been finalised. “So long as the new tax legislation is on a fair basis and the tax rate not so excessively high as to discourage investment, CBRE sees this reform as beneficial for the market,“ Ms. Aliwassa Pathnadabutr, Managing Director of CBRE Thailand said. An additional measure that CBRE urges the government to consider is the extension of the long lease term from the current 30 years up to a maximum of 90 years. This will help improve the market mechanism and make large-scale commercial projects viable which would not be feasible if such developments were freehold due to the high land cost or if they were on a 30-year lease due to the limits on lease terms. The extension of the lease term will also have a direct benefit for resort destinations such as Phuket and Samui where the property markets are primarily driven by foreign demand.
Looking at 2010 and beyond, environmental issues are a key consideration for all industries including the property market. There will be more restrictions which may increase the cost for developers. The Environmental Impact Assessment (EIA) process is one of the key concerns and risks for developers as there are uncertainties in the details and timing required to obtain such a permit. This is one of the factors which are likely to delay the emergence of new supply.
Any additional incentives that would attract foreign direct investment in both manufacturing and the service industries would be welcomed, in order to enable Thailand to compete with rival destinations.
Office : The Market Should Improve in 2010
Bright future due to limited new supply
In 2010, there will be very limited new supply in the office sector. Only 78,380 sq.m. are due to be completed, including Sathorn Square (72,500 sq.m.) and Sivatel Wireless Road (5,880 sq.m.). CBRE sees the limited increase in new supply as a positive indicator for the office market because any increase in take-up will reduce vacancy rates and lead to rental increases. At the end of 2009 the vacancy rate stood at 12%.
Even though net demand in 2009 dropped by more than 50 % to only 52,000 sq.m., average grade A CBD office rents fell by 7.26% to THB 690 per sq.m while grade B CBD office rents fell by 12% to THB 509 per sq.m. This is considerably better than in other markets. Rents fell by 52.6% in Singapore and 49.9% in Hong Kong in 2009.
Average Grade A CBD Office Rents in the Region (THB per sq.m.)
City 2008 2009 % Change
Y-o-Y
Hong Kong THB 4,107 THB 2,255 -49.09%
Singapore THB 4,041 THB 1,913 -52.66%
Bangkok THB 744 THB 690 -7.26%
Source: CBRE Research
Following the recovery of the global economic, CBRE believes that companies will be less cost conscious and that 2010 will be a good time to take advantage of the low rents to relocate to newer buildings.
Sathorn Square – the only new grade A office building to be completed in 2010.
Condominium : The Most Exciting and the Most Competitive
Supply Outlook : More competitive market in 2010
The total supply of downtown condominiums increased to 61,522 units by the end of Q3 2009, up 14% year-on-year. In total, there are 17,664 units under construction in downtown Bangkok, of which 78% of which have been reportedly sold, leaving 3,879 units being marketed (completed and under construction).
In 2009, there were 3,912 units in 15 projects launched in the downtown area, with the majority being one-bedroom unit types. In 2010 CBRE expects a much more competitive market, with an increasing number of project launches as there is pent-up supply from developers who have delayed their projects since the onset of the economic crisis in late 2008 and also new supply from large developers who acquire plots of land for new developments.
Newly Launched Condominium Projects* Broken Down by Unit Type
Year Studio 1 B/R 2 B/R 3 B/R 4 B/R PH Total
2008 243 2,270 1,090 194 19 10 3,826
2009 54 1,284 694 10 0 0 2,042
Total 297 3,554 1,784 204 19 10 5,868
Source: CBRE Research
* Include 18 selected projects in 2008 and 11 selected projects in 2009 as of Q3 2009.
Demand Outlook : Demand continues to be strong
CBRE sees a growing demand for condominiums driven primarily by a change in lifestyle which has led to the need to own a first or second home in the CBD or near mass transit routes to reduce the need to commute. From an investment perspective, investors also increasingly recognise condominium purchases as an appreciating long-term investment asset. In the past, there were few Thai investors in the market. However, with lower interest rates and proven returns, investing in condominiums has become a popular investment choice for many Thais. It is also considered a safe and secure investment compared to the equities market which is much more volatile.
New Trends : Good locations, small furnished units with affordable prices
From the development side, developers need to ensure they are ahead of the game in trying to predict future location trends. The danger is that a popular location can quickly become saturated with new supply. The key to success is either to be the first to launch in an upcoming location, or to find a location with high barriers to entry.
New supply especially for the middle income market will focus on smaller units at affordable prices. In a competitive market with experienced buyers, products must offer quality as well as innovative and functional design in order to be successful. The reliability and reputation of the developer is another key consideration for buyers.
Luxury and Super Luxury Segments : Limited future supply
The luxury and super luxury condominium segment is expected to slowly recover and develop into a niche market. Prime downtown land is rarely available for sale and prices will remain high, CBRE, therefore, does not expect many new launches for luxury condominiums in prime downtown locations.
With a wave of new launches focusing on smaller one-bedroom units along mass transit routes with prices ranging from THB 3 to 8 million, the majority of unsold two to three-bedroom units priced at over THB 15 million and developed before the crisis should soon be absorbed. There will then be a shortage of two-bedroom units in the luxury market especially in prime locations. Short-term investors will speculate on one-bedroom units whereas long-term investors will focus on two and three bedroom units which are in demand among expatriates in the rental market, while smaller units are driven by local demand. With a limited supply of newly launched larger units CBRE believes the existing supply of such grade-A units in prime locations will continue to appreciate in value.
2010 Pricing Trends : Completed prime condo prices on the rise
In terms of price movement, CBRE sees no significant increase in prices per sq.m for mid-market condominiums as the economic recovery is still underway with the prevailing political problems which continue to concern buyers. The best selling segment is priced at THB 50,000 – 80,000 per sq.m in mid-town locations or within 15 kilometres of the CBD. Prices in this segment are unlikely to increase as the purchasing power of the target market is limited. The developers have to compete on cost control and pricing.
Prices for completed high-end and luxury downtown condominium have increased slightly by 5.6% from THB 117,875 per sq.m from Q4 2008 to THB 124,539 per sq.m in Q3 2009 and CBRE believes that the prices of completed buildings in prime locations will continue to rise in 2010.
Prices of the future supply of high-end and luxury downtown condominium in 2009 fell slightly by 6.3% from THB 142,133 per sq.m in Q4 2008 to THB 133,134 per sq.m in Q3, 2009 due to the slow market conditions. New launches in 2010 are likely to see an increase in price per sq.m due to the higher construction costs but, as unit sizes are smaller, total unit prices will be on par with current levels.
Retail : More Focus
Improvement expected following return of consumer confidence
In the first three quarters of 2009, the supply of retail space grew by 6.6% or 327,125 sq.m. Whilst occupancy was stable throughout the year, rents were flat and even fell in some cases during the earlier part of 2009. The fourth quarter showed signs of consumer confidence and spending returning.
The trend for new retail centres in Bangkok is evolving from one-stop mega shopping complexes to more focused community malls and medium-sized lifestyle and entertainment complexes such as Esplanade Rattanathibet.
The major players in the retail market are Central, The Mall, Siam Future and Major Cineplex. Retail developments to note this year are Terminal 21 which is currently under construction and located in Sukhumvit at the Asoke junction, Central Rama 9 and Mega Bangna which will house Thailand’s first IKEA store.
Serviced Apartments : Highly Competitive
Occupancy rates are likely to be flat and downward pressure on rents
The serviced apartment sector, which partially depends on tourists and business travellers as well as expatriates working in Bangkok, has suffered from growing supply which led to an overall drop in occupancy and rates in 2009.
Total supply increased to 12,392 units, up by 6.84% year-on-year, with a further 610 units expected to be completed by 2010 and approximately 2,000 units by 2013. Occupancy rates remained at 75% in Q3 2009. Occupancy was partly protected by a number of long-term contracts which are less volatile than the daily rate market. Average rates, however, fell by about 20% year-on-year.
The biggest challenge faced by this sector is the volume of new supply targeting both long-stay expatriates and short-stay businessmen and tourists.
Serviced apartments compete against apartments and particularly small condominium units for rent in the long-stay market and the rapidly growing supply of hotels in the short-stay market. The influx of new supply of both serviced apartments and hotels will continue to exert a downward pressure on both rates and occupancy.
Expatriate Rental Apartments
The total supply of expatriate-standard rental apartments in Bangkok increased to around 11,151 units, up by 4.5% year-on-year
Occupancy remained high at 91%. CBRE has not seen a dramatic drop in the number of expatriates in 2009 but, since companies are trying to maintain or reduce costs, so CBRE does not expect any increase in housing allowances.
Multinational companies continue to be cautious on their expansion plans given that the global economy is yet to fully recover. Thailand’s political problems are also an added factor which has restrained business expansion plans in Thailand.
CBRE does not expect that there will be a significant increase in the number of expatriates in 2010. There will be increased competition from individual “buy-to-rent” condominium owners seeking to lease out units in recently completed developments. There are about 620 apartment units under construction but there are also 17,664 condominium units under construction and CBRE expects that up to 50% of the new condominiums have been bought by purchasers who want to lease out their units on completion. This increase in supply combined with little or no growth in demand will dampen any potential for overall rental growth.
New well-designed condominium and apartment buildings will continue to perform better than older buildings that have not been refurbished or redecorated.
About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2008 revenue). The Company has approximately 30,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis has been named a BusinessWeek 50 “best in class” company for three years in a row.
CB Richard Ellis established an office in Bangkok in 1988, followed by Phuket office in 2004, and Samui office in 2007. CB Richard Ellis (Thailand) Co., Ltd. has grown to be a leading real estate services provider, offering strategic advice and execution for sales and leasing for all types of property, property and facilities management, valuation and advisory, and research and consulting.
2010 has begun with a more positive market sentiment. The improving economic outlook globally and perception of Thailand’s political situation, together with low market prices compared to other mature property markets, have had a positive impact on consumer confidence in property investment in Thailand.
Following the economic crisis, the supply of new office, retail and industrial space is at an all-time low. These sectors are expected to improve this year, in line with the global and local economic recovery.
Thailand’s residential market in 2009 was primarily driven by local demand. This year, CBRE believes that local demand will continue to be strong and that individual foreign property investors will start to return to the market. Thai condominium prices remain attractive compared to other cities in the region, such as Shanghai, Hong Kong and Singapore where prices have risen sharply in the last six months.
Average Price of Luxury Residential Units in the Region (THB per sq.m.)
City 2008 2009 %Change
y-o-y
Shanghai THB 176,032 THB 189,659 7.7
Hong Kong THB 622,549 THB 722,376 16.3
Singapore THB 479,327 THB 555,481 12.8
Bangkok THB 117,875 THB 124,539 5.6
Source: CBRE Research
However, there are continuing concerns about Thailand’s political stability and the strength of the global economy. If Thailand’s economy and politics are stable in 2010, the residential sector will see consistent positive growth.
Government Policy
The Government stimulus package will expire in March 2010 and it remains uncertain whether it will be extended. CBRE believes the extension of this package will benefit buyers and developers of large condominium projects launched during the crisis which are due for completion and transfer within this year.
The initiative of this government to reform property and land taxation with a view to creating fairness sounds positive, but it will only be possible to determine the effect on the property market once the details of the proposed legislation have been finalised. “So long as the new tax legislation is on a fair basis and the tax rate not so excessively high as to discourage investment, CBRE sees this reform as beneficial for the market,“ Ms. Aliwassa Pathnadabutr, Managing Director of CBRE Thailand said. An additional measure that CBRE urges the government to consider is the extension of the long lease term from the current 30 years up to a maximum of 90 years. This will help improve the market mechanism and make large-scale commercial projects viable which would not be feasible if such developments were freehold due to the high land cost or if they were on a 30-year lease due to the limits on lease terms. The extension of the lease term will also have a direct benefit for resort destinations such as Phuket and Samui where the property markets are primarily driven by foreign demand.
Looking at 2010 and beyond, environmental issues are a key consideration for all industries including the property market. There will be more restrictions which may increase the cost for developers. The Environmental Impact Assessment (EIA) process is one of the key concerns and risks for developers as there are uncertainties in the details and timing required to obtain such a permit. This is one of the factors which are likely to delay the emergence of new supply.
Any additional incentives that would attract foreign direct investment in both manufacturing and the service industries would be welcomed, in order to enable Thailand to compete with rival destinations.
Office : The Market Should Improve in 2010
Bright future due to limited new supply
In 2010, there will be very limited new supply in the office sector. Only 78,380 sq.m. are due to be completed, including Sathorn Square (72,500 sq.m.) and Sivatel Wireless Road (5,880 sq.m.). CBRE sees the limited increase in new supply as a positive indicator for the office market because any increase in take-up will reduce vacancy rates and lead to rental increases. At the end of 2009 the vacancy rate stood at 12%.
Even though net demand in 2009 dropped by more than 50 % to only 52,000 sq.m., average grade A CBD office rents fell by 7.26% to THB 690 per sq.m while grade B CBD office rents fell by 12% to THB 509 per sq.m. This is considerably better than in other markets. Rents fell by 52.6% in Singapore and 49.9% in Hong Kong in 2009.
Average Grade A CBD Office Rents in the Region (THB per sq.m.)
City 2008 2009 % Change
Y-o-Y
Hong Kong THB 4,107 THB 2,255 -49.09%
Singapore THB 4,041 THB 1,913 -52.66%
Bangkok THB 744 THB 690 -7.26%
Source: CBRE Research
Following the recovery of the global economic, CBRE believes that companies will be less cost conscious and that 2010 will be a good time to take advantage of the low rents to relocate to newer buildings.
Sathorn Square – the only new grade A office building to be completed in 2010.
Condominium : The Most Exciting and the Most Competitive
Supply Outlook : More competitive market in 2010
The total supply of downtown condominiums increased to 61,522 units by the end of Q3 2009, up 14% year-on-year. In total, there are 17,664 units under construction in downtown Bangkok, of which 78% of which have been reportedly sold, leaving 3,879 units being marketed (completed and under construction).
In 2009, there were 3,912 units in 15 projects launched in the downtown area, with the majority being one-bedroom unit types. In 2010 CBRE expects a much more competitive market, with an increasing number of project launches as there is pent-up supply from developers who have delayed their projects since the onset of the economic crisis in late 2008 and also new supply from large developers who acquire plots of land for new developments.
Newly Launched Condominium Projects* Broken Down by Unit Type
Year Studio 1 B/R 2 B/R 3 B/R 4 B/R PH Total
2008 243 2,270 1,090 194 19 10 3,826
2009 54 1,284 694 10 0 0 2,042
Total 297 3,554 1,784 204 19 10 5,868
Source: CBRE Research
* Include 18 selected projects in 2008 and 11 selected projects in 2009 as of Q3 2009.
Demand Outlook : Demand continues to be strong
CBRE sees a growing demand for condominiums driven primarily by a change in lifestyle which has led to the need to own a first or second home in the CBD or near mass transit routes to reduce the need to commute. From an investment perspective, investors also increasingly recognise condominium purchases as an appreciating long-term investment asset. In the past, there were few Thai investors in the market. However, with lower interest rates and proven returns, investing in condominiums has become a popular investment choice for many Thais. It is also considered a safe and secure investment compared to the equities market which is much more volatile.
New Trends : Good locations, small furnished units with affordable prices
From the development side, developers need to ensure they are ahead of the game in trying to predict future location trends. The danger is that a popular location can quickly become saturated with new supply. The key to success is either to be the first to launch in an upcoming location, or to find a location with high barriers to entry.
New supply especially for the middle income market will focus on smaller units at affordable prices. In a competitive market with experienced buyers, products must offer quality as well as innovative and functional design in order to be successful. The reliability and reputation of the developer is another key consideration for buyers.
Luxury and Super Luxury Segments : Limited future supply
The luxury and super luxury condominium segment is expected to slowly recover and develop into a niche market. Prime downtown land is rarely available for sale and prices will remain high, CBRE, therefore, does not expect many new launches for luxury condominiums in prime downtown locations.
With a wave of new launches focusing on smaller one-bedroom units along mass transit routes with prices ranging from THB 3 to 8 million, the majority of unsold two to three-bedroom units priced at over THB 15 million and developed before the crisis should soon be absorbed. There will then be a shortage of two-bedroom units in the luxury market especially in prime locations. Short-term investors will speculate on one-bedroom units whereas long-term investors will focus on two and three bedroom units which are in demand among expatriates in the rental market, while smaller units are driven by local demand. With a limited supply of newly launched larger units CBRE believes the existing supply of such grade-A units in prime locations will continue to appreciate in value.
2010 Pricing Trends : Completed prime condo prices on the rise
In terms of price movement, CBRE sees no significant increase in prices per sq.m for mid-market condominiums as the economic recovery is still underway with the prevailing political problems which continue to concern buyers. The best selling segment is priced at THB 50,000 – 80,000 per sq.m in mid-town locations or within 15 kilometres of the CBD. Prices in this segment are unlikely to increase as the purchasing power of the target market is limited. The developers have to compete on cost control and pricing.
Prices for completed high-end and luxury downtown condominium have increased slightly by 5.6% from THB 117,875 per sq.m from Q4 2008 to THB 124,539 per sq.m in Q3 2009 and CBRE believes that the prices of completed buildings in prime locations will continue to rise in 2010.
Prices of the future supply of high-end and luxury downtown condominium in 2009 fell slightly by 6.3% from THB 142,133 per sq.m in Q4 2008 to THB 133,134 per sq.m in Q3, 2009 due to the slow market conditions. New launches in 2010 are likely to see an increase in price per sq.m due to the higher construction costs but, as unit sizes are smaller, total unit prices will be on par with current levels.
Retail : More Focus
Improvement expected following return of consumer confidence
In the first three quarters of 2009, the supply of retail space grew by 6.6% or 327,125 sq.m. Whilst occupancy was stable throughout the year, rents were flat and even fell in some cases during the earlier part of 2009. The fourth quarter showed signs of consumer confidence and spending returning.
The trend for new retail centres in Bangkok is evolving from one-stop mega shopping complexes to more focused community malls and medium-sized lifestyle and entertainment complexes such as Esplanade Rattanathibet.
The major players in the retail market are Central, The Mall, Siam Future and Major Cineplex. Retail developments to note this year are Terminal 21 which is currently under construction and located in Sukhumvit at the Asoke junction, Central Rama 9 and Mega Bangna which will house Thailand’s first IKEA store.
Serviced Apartments : Highly Competitive
Occupancy rates are likely to be flat and downward pressure on rents
The serviced apartment sector, which partially depends on tourists and business travellers as well as expatriates working in Bangkok, has suffered from growing supply which led to an overall drop in occupancy and rates in 2009.
Total supply increased to 12,392 units, up by 6.84% year-on-year, with a further 610 units expected to be completed by 2010 and approximately 2,000 units by 2013. Occupancy rates remained at 75% in Q3 2009. Occupancy was partly protected by a number of long-term contracts which are less volatile than the daily rate market. Average rates, however, fell by about 20% year-on-year.
The biggest challenge faced by this sector is the volume of new supply targeting both long-stay expatriates and short-stay businessmen and tourists.
Serviced apartments compete against apartments and particularly small condominium units for rent in the long-stay market and the rapidly growing supply of hotels in the short-stay market. The influx of new supply of both serviced apartments and hotels will continue to exert a downward pressure on both rates and occupancy.
Expatriate Rental Apartments
The total supply of expatriate-standard rental apartments in Bangkok increased to around 11,151 units, up by 4.5% year-on-year
Occupancy remained high at 91%. CBRE has not seen a dramatic drop in the number of expatriates in 2009 but, since companies are trying to maintain or reduce costs, so CBRE does not expect any increase in housing allowances.
Multinational companies continue to be cautious on their expansion plans given that the global economy is yet to fully recover. Thailand’s political problems are also an added factor which has restrained business expansion plans in Thailand.
CBRE does not expect that there will be a significant increase in the number of expatriates in 2010. There will be increased competition from individual “buy-to-rent” condominium owners seeking to lease out units in recently completed developments. There are about 620 apartment units under construction but there are also 17,664 condominium units under construction and CBRE expects that up to 50% of the new condominiums have been bought by purchasers who want to lease out their units on completion. This increase in supply combined with little or no growth in demand will dampen any potential for overall rental growth.
New well-designed condominium and apartment buildings will continue to perform better than older buildings that have not been refurbished or redecorated.
About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2008 revenue). The Company has approximately 30,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis has been named a BusinessWeek 50 “best in class” company for three years in a row.
CB Richard Ellis established an office in Bangkok in 1988, followed by Phuket office in 2004, and Samui office in 2007. CB Richard Ellis (Thailand) Co., Ltd. has grown to be a leading real estate services provider, offering strategic advice and execution for sales and leasing for all types of property, property and facilities management, valuation and advisory, and research and consulting.
The first time in Thailand, JARKEN launches the 4D “MINE” Series- the phenomenal super luxury in property industry - with expected revenue of 300 MB.
JARKEN Group of Companies is taking a firmer and more solid step into the year 2010 by launching “MINE” Series in 4D form of perfection, targeting only at the elite and aiming at 300 MB revenue.
Kuldej Sinthawanarong PhD., Managing Director of JARKEN Group of Companies, the avant-garde architectural organization well trusted both locally and internationally, has disclosed that “After 9 years of fulfilling the needs of our clients in Thailand as well as international, JARKEN is now well versed for our unique style of minimalism blended perfectly well with modern elegancy. With client’s satisfaction in mind, JARKEN has achieved full trust from clients to design very high end residences, be it condominium or houses with space of 200-10,000 sqm. and budget of 15-20 or over 100 MB. Our clients are Thai and foreign developers as well as individuals”
“In 2010- we adopted a more aggressive marketing strategy especially in developing and creating new designs in order to answer to the need of broader scale of clients. We changed our logo from a green cross on white background to the solid black letters of JARKEN in combination with the 4 vertical lines of different sizes. It symbolized our professionalism in external and internal architectural designs,
Last but not least is our masterpiece of architectural design “MINE” Series by JARKEN. This new residential designs reflect well each individual characteristics, the inter-relation of spaces which allow each dweller to absorb in the ambience of every corner of his/her own “home”. The house is “MINE”. Pride one has in his/her house likens pride in the achievement along the passage of past unto present when he/she is at “home”.
There are 3 designs with 3 styles in “MINE” Series, ie, Quintessence, Extravaganza and Temptation with spaces of 2,000 sqm. up and budgets of 50-100 MB. The presentation of this “MINE” Series is in the perfect form of 4D.
In addition, the Company has created very unique Magazine Ads. We’ve got great honor from clients who worked mutually with us to create 5 masterpieces under the concept “Modeling JARKEN’s Role Models” which reflected the achievement, from extensive effort, in each and every aspect of designs for construction and services delivered to clients in the JARKEN’s way. Once the campaign is launched, it will be “talk of the town” especially and extensively in the property industry” anticipated Kuldej Sinthawanarong PhD.
JARKEN focuses only on high end and super luxury targets. And that covers 5-10% of the total market. The possibility is high since we have earned recognized international awards. And that put JARKEN on the path of never-ending development in order to create, to design and to deliver services that differ. We are confident that this will be another good year for JARKEN and we will achieve 300 MB revenue with our “MINE” Series.
Kuldej Sinthawanarong PhD., Managing Director of JARKEN Group of Companies, the avant-garde architectural organization well trusted both locally and internationally, has disclosed that “After 9 years of fulfilling the needs of our clients in Thailand as well as international, JARKEN is now well versed for our unique style of minimalism blended perfectly well with modern elegancy. With client’s satisfaction in mind, JARKEN has achieved full trust from clients to design very high end residences, be it condominium or houses with space of 200-10,000 sqm. and budget of 15-20 or over 100 MB. Our clients are Thai and foreign developers as well as individuals”
“In 2010- we adopted a more aggressive marketing strategy especially in developing and creating new designs in order to answer to the need of broader scale of clients. We changed our logo from a green cross on white background to the solid black letters of JARKEN in combination with the 4 vertical lines of different sizes. It symbolized our professionalism in external and internal architectural designs,
Last but not least is our masterpiece of architectural design “MINE” Series by JARKEN. This new residential designs reflect well each individual characteristics, the inter-relation of spaces which allow each dweller to absorb in the ambience of every corner of his/her own “home”. The house is “MINE”. Pride one has in his/her house likens pride in the achievement along the passage of past unto present when he/she is at “home”.
There are 3 designs with 3 styles in “MINE” Series, ie, Quintessence, Extravaganza and Temptation with spaces of 2,000 sqm. up and budgets of 50-100 MB. The presentation of this “MINE” Series is in the perfect form of 4D.
In addition, the Company has created very unique Magazine Ads. We’ve got great honor from clients who worked mutually with us to create 5 masterpieces under the concept “Modeling JARKEN’s Role Models” which reflected the achievement, from extensive effort, in each and every aspect of designs for construction and services delivered to clients in the JARKEN’s way. Once the campaign is launched, it will be “talk of the town” especially and extensively in the property industry” anticipated Kuldej Sinthawanarong PhD.
JARKEN focuses only on high end and super luxury targets. And that covers 5-10% of the total market. The possibility is high since we have earned recognized international awards. And that put JARKEN on the path of never-ending development in order to create, to design and to deliver services that differ. We are confident that this will be another good year for JARKEN and we will achieve 300 MB revenue with our “MINE” Series.
Sunday, January 17, 2010
The Home Builder Association has laid out 4 strategic policies to develop the home building market
The Home Builder Association will aggressively move in 2010 with its 4 strategic policies including a policy to increase total home building market value to 12 billion Baht (a 10% growth YoY); consumer oriented policy; members’ capability development policy; and CSR related policy. The Association also reveals it will focus more on direct communication with the consumers; speed up its development of a sound database system; and innovate more appealing products and services for the consumers. With the said policy framework, the Association will start its 1Q with the staging of the Home Builder Focus 2010, whose on-site target is set at 500 million Baht.
Mr.Vibul Chantradilokrat , President of the Home Builder Association, discloses today that the Association has laid out 4 strategic policies in 2010 including a policy to increase total home building market value, consumer oriented policy, members’ capability development policy, and Corporate Social Responsibility (CSR) related policy. In details, the Association will attempt to grow total home building market value to hit 12 billion Baht in 2010 from 11 billion Baht in 2009 implying a 9 – 10% increase YoY. The increase is expected to come from 2 major catalysts. First is market growth through its promotion and PR activities, which are hoped to generate continuous consumer acceptance, especially the staging of its annual Home Builder and Home Builder Focus, which are its major tools used to get the consumers to know more about its members. Second is median price increase. Since consumer mode price was up from 4.2 million Baht in 2008 to 4.7 million Baht in 2009, it is expected that this upward trend would continue in 2010.
On the consumer side, the Association will set the consumers on a higher priority. In 2010, it will work closely with the Office of the Consumer Protection Board to draft out a standard contract in order to protect the consumers from unethical home building companies.In addition, the Association will directly communicate with the consumers. Emphasis will be given to the providing of useful news and home building related information. In this regard, the Association has a plan to further develop its official site (www.hba-th.org) to be a modern portal site so that the Association as well as its members could use the information gathered from the site to develop more appealing products and services for the consumers. To go with its electronic media, the Association will also initiate its first newsletter in mid February 2010 in order to publicize its activities as well as to educate the consumers. Last on this list, the Association has also been in talks with several financial institutions, whom are keen to provide special interest-rate loans to the Association’s members in order to make it easier for the consumers to own their homes.
On its members, the Association would focus on its members’ capability development, while attempting to increase the numbers of its ordinary as well as extra ordinary members so that a wider standard could be set up. At the same time, it will support its members, whom voluntarily develop their organizations in accordance with ISO standard, as well as assist them to file copy right applications for their residential models to force more design developments in the market.
On corporate social responsibility front, the Association currently has two main activities. First is its support towards the Department of Skill Development’s activities and second is its joint scholarship with Donmuang Technical College granted to students in construction and architecture majors. In 2010, these two activities will continue, while the Association is studying the possibility of adding in one extra environmental activity.
In 1Q10, the Association will translate its market development and consumer related policies through the staging of its Home Builder Focus 2010 to be held during February 26-28, 2010 at the Bangkok Convention Center, Central Plaza Ladprao. The event, which is expected to generate an on-site sale of approximately 500 million Baht, will be excellent gatherings and showcases of leading home building companies as well as financial institutions ready to provide special interest-rate loans to the consumers.
Mr.Vibul Chantradilokrat , President of the Home Builder Association, discloses today that the Association has laid out 4 strategic policies in 2010 including a policy to increase total home building market value, consumer oriented policy, members’ capability development policy, and Corporate Social Responsibility (CSR) related policy. In details, the Association will attempt to grow total home building market value to hit 12 billion Baht in 2010 from 11 billion Baht in 2009 implying a 9 – 10% increase YoY. The increase is expected to come from 2 major catalysts. First is market growth through its promotion and PR activities, which are hoped to generate continuous consumer acceptance, especially the staging of its annual Home Builder and Home Builder Focus, which are its major tools used to get the consumers to know more about its members. Second is median price increase. Since consumer mode price was up from 4.2 million Baht in 2008 to 4.7 million Baht in 2009, it is expected that this upward trend would continue in 2010.
On the consumer side, the Association will set the consumers on a higher priority. In 2010, it will work closely with the Office of the Consumer Protection Board to draft out a standard contract in order to protect the consumers from unethical home building companies.In addition, the Association will directly communicate with the consumers. Emphasis will be given to the providing of useful news and home building related information. In this regard, the Association has a plan to further develop its official site (www.hba-th.org) to be a modern portal site so that the Association as well as its members could use the information gathered from the site to develop more appealing products and services for the consumers. To go with its electronic media, the Association will also initiate its first newsletter in mid February 2010 in order to publicize its activities as well as to educate the consumers. Last on this list, the Association has also been in talks with several financial institutions, whom are keen to provide special interest-rate loans to the Association’s members in order to make it easier for the consumers to own their homes.
On its members, the Association would focus on its members’ capability development, while attempting to increase the numbers of its ordinary as well as extra ordinary members so that a wider standard could be set up. At the same time, it will support its members, whom voluntarily develop their organizations in accordance with ISO standard, as well as assist them to file copy right applications for their residential models to force more design developments in the market.
On corporate social responsibility front, the Association currently has two main activities. First is its support towards the Department of Skill Development’s activities and second is its joint scholarship with Donmuang Technical College granted to students in construction and architecture majors. In 2010, these two activities will continue, while the Association is studying the possibility of adding in one extra environmental activity.
In 1Q10, the Association will translate its market development and consumer related policies through the staging of its Home Builder Focus 2010 to be held during February 26-28, 2010 at the Bangkok Convention Center, Central Plaza Ladprao. The event, which is expected to generate an on-site sale of approximately 500 million Baht, will be excellent gatherings and showcases of leading home building companies as well as financial institutions ready to provide special interest-rate loans to the consumers.
Tuesday, December 15, 2009
LONDON (WEST END) AGAIN WORLD’S MOST EXPENSIVE OFFICE MARKET; TOKYO’S INNER CENTRAL MARKET RANKS SECOND
CB Richard Ellis Group, Inc. Report Finds Global Rents Continue Decline
London’s West End is again the world’s most expensive office market, according to CB Richard Ellis (CBRE) Global Research and Consulting’s semi-annual Global Office Rents survey. Tokyo’s Inner Central has slipped to second place, followed by that city’s Outer Central market. Hong Kong’s Central Business District (CBD) and Moscow are fourth and fifth respectively in the CBRE report, which tracks office occupancy costs in nearly 180 cities around the globe.
Office markets worldwide are experiencing declines in prime office occupancy costs. The year-over-year change in prime office occupancy costs of the 179 markets monitored revealed an average drop of 7.7% worldwide over the 12-month period ending September 30, 2009 (in local currency and on an un-weighted average basis). The majority of markets – 131 markets in total – experienced a year-over-year decline including nearly 50 which saw rents tumble by double-digit percentage-points.
Many of the world’s bellwether financial centers are at the top of the list of fastest changing markets, including Hong Kong Central CBD(-40.7%) and New York, Midtown(-29.7%) along with emerging markets such as Ho Chi Minh City(-45.4%) and Abu Dhabi(-38.6%). Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels.
“While there are signs that commercial real estate values are stabilizing in some markets in Asia and parts of London, underlying property fundamentals are still weak,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. ”However the office market may be on the cusp of moving from intensive care to the stabilization stage - the first step to getting back to good health.”
Forty-one markets experienced positive growth. Aberdeen, Scotland and Rio de Janeiro, Brazil both grew by more than 10% as not all markets have been as affected by the decline in global demand and demand for office space has proven resilient in some areas due to the local market dynamics.
Office occupancy costs measured in U.S. dollars are affected by changes in the dollar’s value versus the respective local currency. Hence, office occupancy costs when converted into U.S. dollars are driven by both the local market dynamics of supply and demand, as well as currency changes.
Asia-Pacific
Tokyo (Inner Central) was Asia’s most expensive market with an occupancy cost of THB 5,130 per square meter per month (US$172 per square foot per annum). while that city’s Outer Circle market was second with occupancy costs of THB 4,157 per square meter per month (US$139 square foot per annum). Hong Kong (CBD) follows with occupancy costs of THB 4,113 per square meter per month (US$138 square foot per annum). Mumbai and New Delhi were the other two Asia-Pacific markets in the world’s top 10 most expensive cities roster. Bangkok, one of the cheapest market, was ranked at 151st out of 179 markets surveyed with occupancy costs of THB 694 per square meter per month (US$23 square foot per annum), followed by Jakarta ranked at 177th with the lowest occupancy costs in Asia at THB 481 per square meter per month (US$16 square foot per annum)
For the Asia Pacific region, the office markets that experienced the largest decreases include Singapore (-53.4%), Ho Chi Minh City (-45.4%), as well Hong Kong which declined over 30% in the past year. The Asia-Pacific region had 17 cities with double-digit declines in office occupancy costs.
Europe
London’s West End was the world’s most expensive office market at THB 5,525 per square meter per month (US$185 square foot per annum). Moscow was second in Europe with occupancy costs at THB 3,932 per square meter per month (US$132 square foot per annum). Dubai, Paris and the City of London all were in the top ten most expensive markets.
Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels. Other markets in Europe that are experiencing the largest decreases include Moscow, Oslo, Warsaw and Dublin. The EMEA region had 17 cities with double-digit declines in office occupancy costs.
Americas
Two cities in Brazil -- Rio de Janeiro and São Paolo -- have supplanted New York’s Midtown as the most expensive office location in the Americas. Rio de Janeiro’s occupancy costs of THB 2,600 per square meter per month (US$87 square foot per annum), was good for twelfth place on the global list, while São Paulo came in at 16th globally with occupancy averaging THB 2,451 per square meter per month (US$82 square foot per annum). New York’s Midtown’s market has dropped to third in the Americas and 24th globally with occupancy costs of THB 2,062 per square meter per month (US$69 square foot per annum).
Boston’s CBD led the Americas, with a decline of 33.9% year-over-year, followed by New York’s Downtown and Midtown markets. Fifteen markets in North America posted double-digit declines. Meanwhile, Latin America held up stronger than the rest of the world, with only six cities registering a decline, including a 6.3% decrease in Buenos Aires, Argentina.
London’s West End is again the world’s most expensive office market, according to CB Richard Ellis (CBRE) Global Research and Consulting’s semi-annual Global Office Rents survey. Tokyo’s Inner Central has slipped to second place, followed by that city’s Outer Central market. Hong Kong’s Central Business District (CBD) and Moscow are fourth and fifth respectively in the CBRE report, which tracks office occupancy costs in nearly 180 cities around the globe.
Office markets worldwide are experiencing declines in prime office occupancy costs. The year-over-year change in prime office occupancy costs of the 179 markets monitored revealed an average drop of 7.7% worldwide over the 12-month period ending September 30, 2009 (in local currency and on an un-weighted average basis). The majority of markets – 131 markets in total – experienced a year-over-year decline including nearly 50 which saw rents tumble by double-digit percentage-points.
Many of the world’s bellwether financial centers are at the top of the list of fastest changing markets, including Hong Kong Central CBD(-40.7%) and New York, Midtown(-29.7%) along with emerging markets such as Ho Chi Minh City(-45.4%) and Abu Dhabi(-38.6%). Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels.
“While there are signs that commercial real estate values are stabilizing in some markets in Asia and parts of London, underlying property fundamentals are still weak,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. ”However the office market may be on the cusp of moving from intensive care to the stabilization stage - the first step to getting back to good health.”
Forty-one markets experienced positive growth. Aberdeen, Scotland and Rio de Janeiro, Brazil both grew by more than 10% as not all markets have been as affected by the decline in global demand and demand for office space has proven resilient in some areas due to the local market dynamics.
Office occupancy costs measured in U.S. dollars are affected by changes in the dollar’s value versus the respective local currency. Hence, office occupancy costs when converted into U.S. dollars are driven by both the local market dynamics of supply and demand, as well as currency changes.
Asia-Pacific
Tokyo (Inner Central) was Asia’s most expensive market with an occupancy cost of THB 5,130 per square meter per month (US$172 per square foot per annum). while that city’s Outer Circle market was second with occupancy costs of THB 4,157 per square meter per month (US$139 square foot per annum). Hong Kong (CBD) follows with occupancy costs of THB 4,113 per square meter per month (US$138 square foot per annum). Mumbai and New Delhi were the other two Asia-Pacific markets in the world’s top 10 most expensive cities roster. Bangkok, one of the cheapest market, was ranked at 151st out of 179 markets surveyed with occupancy costs of THB 694 per square meter per month (US$23 square foot per annum), followed by Jakarta ranked at 177th with the lowest occupancy costs in Asia at THB 481 per square meter per month (US$16 square foot per annum)
For the Asia Pacific region, the office markets that experienced the largest decreases include Singapore (-53.4%), Ho Chi Minh City (-45.4%), as well Hong Kong which declined over 30% in the past year. The Asia-Pacific region had 17 cities with double-digit declines in office occupancy costs.
Europe
London’s West End was the world’s most expensive office market at THB 5,525 per square meter per month (US$185 square foot per annum). Moscow was second in Europe with occupancy costs at THB 3,932 per square meter per month (US$132 square foot per annum). Dubai, Paris and the City of London all were in the top ten most expensive markets.
Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels. Other markets in Europe that are experiencing the largest decreases include Moscow, Oslo, Warsaw and Dublin. The EMEA region had 17 cities with double-digit declines in office occupancy costs.
Americas
Two cities in Brazil -- Rio de Janeiro and São Paolo -- have supplanted New York’s Midtown as the most expensive office location in the Americas. Rio de Janeiro’s occupancy costs of THB 2,600 per square meter per month (US$87 square foot per annum), was good for twelfth place on the global list, while São Paulo came in at 16th globally with occupancy averaging THB 2,451 per square meter per month (US$82 square foot per annum). New York’s Midtown’s market has dropped to third in the Americas and 24th globally with occupancy costs of THB 2,062 per square meter per month (US$69 square foot per annum).
Boston’s CBD led the Americas, with a decline of 33.9% year-over-year, followed by New York’s Downtown and Midtown markets. Fifteen markets in North America posted double-digit declines. Meanwhile, Latin America held up stronger than the rest of the world, with only six cities registering a decline, including a 6.3% decrease in Buenos Aires, Argentina.
Moody's says newly listed Chinese property developers face challenges
Moody's Investors Service says that eight major Chinese property developers succeeded in substantially enhancing their capital bases and liquidity positions during September-December
2009 with a total raising of HK$38.5 billion (US$4.9 billion) through IPOs on the Hong Kong Stock Exchange, but these improvements to their financial fundamentals could prove short lived.
"Debt leverage is likely to rise again and exceed the levels seen at the time of the IPOs as the sector continues with its ingrained strategy of pursuing high growth and bigger scale," says Peter Choy, a Moody's VP and Senior Credit Officer.
"It was common for the debt to total capitalization of those developers already rated by Moody's to increase -- some by 10-15% -- in the 2 years after their IPOs, and such a similar trend is therefore expected for most of the recently listed developers," says Choy.
"Most usually, funds are spent on the expansion of land banks and larger scale developments, and experience indicates that Chinese developers generally come over budget in their land acquisitions," says Choy.
Choy was speaking on the release of a special comment -- authored by him and Kaven Tsang, a Moody's Assistant Vice President and Analyst -- on the implications of recent IPOs by Chinese property developers.
"Once their listings are complete, developers will experience -- in line with past examples -- strong shareholder pressure to grow," says Choy.
"As a result, the newly listed companies are likely to see debt leverage increase over the next 2 years."
Even though the Chinese real estate market in 2010 is expected to be stable, conditions will not be strong enough to support the very aggressive targets set by the newly listed companies, and their reliance on strong pre-sales to reduce their borrowing needs may prove misplaced, the report says.
In addition, Chinese banks will likely strengthen their capital bases and reduce loan growth in 2010 to help reinforce the stability of the banking system; and, as such, availability of mortgage finance to property purchasers will not be as strong as in 2009, the report says.
2009 with a total raising of HK$38.5 billion (US$4.9 billion) through IPOs on the Hong Kong Stock Exchange, but these improvements to their financial fundamentals could prove short lived.
"Debt leverage is likely to rise again and exceed the levels seen at the time of the IPOs as the sector continues with its ingrained strategy of pursuing high growth and bigger scale," says Peter Choy, a Moody's VP and Senior Credit Officer.
"It was common for the debt to total capitalization of those developers already rated by Moody's to increase -- some by 10-15% -- in the 2 years after their IPOs, and such a similar trend is therefore expected for most of the recently listed developers," says Choy.
"Most usually, funds are spent on the expansion of land banks and larger scale developments, and experience indicates that Chinese developers generally come over budget in their land acquisitions," says Choy.
Choy was speaking on the release of a special comment -- authored by him and Kaven Tsang, a Moody's Assistant Vice President and Analyst -- on the implications of recent IPOs by Chinese property developers.
"Once their listings are complete, developers will experience -- in line with past examples -- strong shareholder pressure to grow," says Choy.
"As a result, the newly listed companies are likely to see debt leverage increase over the next 2 years."
Even though the Chinese real estate market in 2010 is expected to be stable, conditions will not be strong enough to support the very aggressive targets set by the newly listed companies, and their reliance on strong pre-sales to reduce their borrowing needs may prove misplaced, the report says.
In addition, Chinese banks will likely strengthen their capital bases and reduce loan growth in 2010 to help reinforce the stability of the banking system; and, as such, availability of mortgage finance to property purchasers will not be as strong as in 2009, the report says.
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