It’s the right time for consolidation

Hong Kong architect Eric Lai is one of many developers who are walking on eggshells in the present difficult economic environment and playing it safe. Mr Lai is now working on his third project in Thailand, La Royale high-rise condominium on Jomtien beach in Pattaya, after making a big splash in the capital with SV City and Empire Tower.

Mr Lai said his focus now is on consolidating and transferring the units in the completed beachfront tower and repaying the bank loan, and not on looking for land for future projects.

“At the moment there isn’t a lot of big news in the market and you can’t expect developers to make a lot of moves,” he said in an interview.

Despite the economic and political gloom of recent months, Mr Lai’s company, Wise Power Land, has managed to transfer 41 units in the tower out of the 116 it has sold. The tower has 165 units in all, but the company is reserving 15 of them.

Mr Lai has used the money generated from the transfers of 41 units to repay as much as 55% of the loans he has taken out for the project, and now owes around 200 million baht. The project has been valued at three billion baht and the 116 units sold so far amount to 1.4 billion.

He considers himself fortunate in that most of his buyers are still cash-rich and are real end-users, not investors or speculators who often back out when the going gets tough. The timing of the project was also very fortunate in that most of the units were sold before the economic crisis erupted last year.

However, other developers in Pattaya have been less fortunate and some of have halted or postponed their developments. “I think it’s really affecting Pattaya. As far as I can see only a few projects will be completed. Others, I think, will be held up for quite a long time.”

While sceptics question how many real buyers are in the market, Mr Lai says there is interest but it is in finished developments with titles ready for transfer.

“They are not going to take any risk. Prior to this I think quite a lot of them thought paying installments was almost like saving for the future, but now they will probably look at what is ready, pay and secure the unit.”

Wise Power Land has also seen a shift in its buyer profile over the past two months. The previous mix of mainly Scandinavians, Britons, some Americans and a few Thais is shifting to mainly people from Hong Kong.

“One interesting thing is that lately we have started selling again, even without advertising, but mainly lower-priced, small units.”

The few sales that took place from mid-May onward occurred despite uncertainty about whether the government would extend for another year the reduction of the special business tax from 3.3% to 0.11% and transfer fee from 2% to 0.01%. The extension was announced in March but implementation was delayed to mid-May.

“So several hiccups made it quite difficult for developers to transfer property on time. We had to tell customers, ‘Sorry, you have to wait for a while.”‘

Mr Lai hopes to launch La Royale’s second phase in September or October, marketing a few villa apartments on the beach in front of the high-rise tower. The company is keeping similar low-rise apartments at the rear to generate rental income.

Not wanting to do too much in this shaky environment, the company has put its project on the Malaysia’s Langkawi island on the back burner. Called Perdana Residences, this is a five-storey U-shaped resort hotel that is being converted into condominiums.

An encouraging sign that the current economic gloom might be lifting is that the property market in Hong Kong has improved lately after prices dropped substantially last year.

“Surprisingly, the Hong Kong property market has recovered quite a lot compared to early this year, it’s not like before as yet but it has recovered quite a lot.”

Where Bangkok is concerned, the market does not seem to be improving, but price declines have been modest. Even in Phuket, some transactions are taking place.

“A few months ago it was almost zero, but now it has come back to life and turned into a buyers’ market. There are people buying there, but they are selective.”

Mr Lai urged the authorities to consider further extending the special business tax and transfer fee waivers to help the property market get over the current rough patch.

“In general the government only has limited ways to stimulate the property market. For the local market, one way is for the banks to make it easier for buyers to get low-interest loans. But for foreigners I don’t think they can do much except making it easier to get visas.”

He points out that Malaysia has surged ahead of Thailand in this area with its “Malaysia My Second Home” programme that gives qualified foreigners a lot of benefits and makes obtaining a long-stay visa of up to 10 years a very simple affair.

It’s the right time for consolidation