Strong competition and a sluggish property market are set to prompt more large and medium-sized developers to team up with foreign partners, especially from Japan, says property consultancy Colliers International Thailand.
An aerial view of high-rises along Rama IV Road. PATTARAPONG CHATPATTARASILL
Deputy managing director Sunchai Kooakachai said there will be at least two new deals between Thai developers and Japanese firms to forge partnerships this year which would include not only property development, but also technology.
Last year, there were several foreign investors exploring the Thai property market and looking at Thai developers for possible joint ventures. Most were Japanese and Chinese, but a deal with a Japanese partner is more likely to materialise as the latter prefer large-scale projects.
"Thai developers are not looking for financial, but strategic partners," said Mr Sunchai yesterday. "They need a partner who can enhance their competence or add selling points to their projects."
Over the last several years, the property market had been dominated by large developers, which have a market share of 60%. One of the key factors has been a rich source of available funds.
Mr Sunchai said large developers are eligible to raise funds on the stock market and have a partnership with foreign investors. They can also secure more credit from financial institutions with more flexible requirements.
Meanwhile, small developers or new entrants have more difficulties in getting project loans as financial institutions are less confident in their projects' feasibility.
"To secure loans, some small developers have been asked to have a sales rate of over 70%, up from 50% before, while demanding 20% of the unit price as a down payment from customers," said Mr Sunchai.
"It is not easy to sell a condo amid unfavourable market sentiment even for large developers. Smaller ones are struggling more as condo buyers will only seek out projects from developers they are confident in."
To survive, small developers or new entrants have been advised to do more homework, particularly market studies and research, before launching a new project.
Seeking a new market would be one alternative to avoid competition with larger firms.
Mr Sunchai said that because of the sluggish economy, homebuyers are not confident in purchasing a house as indicated by the sales rate for condominiums, which dropped to 57% from more than 60% a year before.
Meanwhile, banks were stricter in their mortgage requirements. The trend is likely to continue this year as banks themselves have been trying to avoid racking up non-performing loans.
To facilitate homeownership through mortgages, the government has been advised to extend the mortgage period to longer than 30 years or up to 50 years.