Sammakorn builds on strengths

Sammakorn Public Co Ltd was founded in September 1970 with registered capital of 8 million baht by His Majesty the King’s Private Property Office, to develop and build houses for middle and upper-income markets. The company listed on the Stock Exchange of Thailand on Feb 3, 1992 under the symbol SAMCO. It has steadily increased its registered capital, now 450 million baht, and has a total of 12 housing projects. Managing director Kittipol Pramoj Na Ayudhya discusses the company’s strategy and outlook.

KITTIPOL PRAMOJ NA AYUDHYA
Managing Director Sammakorn Plc

What is SAMCO’s business model?

The average house in Bangkok costs about 4 million. We feel comfortable targeting this customer segment, as demand is consistent and real. Samco is a real estate property developer concentrating on two major areas: single detached houses in Bangkok and the suburbs, which has been our core business for 40 years; and retail community malls, utilising the properties we own in a joint venture with Rayong Purifier Plc.

Who are your target customers?

Our targets are first-home buyers and families in the middle- and upper-income segments. House prices range from 2.5 to 19 million baht, but the average is about 4 million. We feel comfortable targeting this customer segment, as demand is consistent and real. For this price level, if you want a three-bedroom house with two parking places, your choices are very limited and it’s difficult to find substitute products other than single detached houses in the suburbs of Bangkok. With the mass-transit infrastructure expanding farther out into the suburbs, it is opening up more areas for potential development.

Sammakorn has expanded into the community mall business. How is this progressing?

We currently have two in operation: at Rangsit Klong 2, which is now in its fourth year with 4,000 square metres of saleable area; and at Ramkhamhaeng, which began operations in 2010 in front of our development, with 9,000 sq m. Our third mall at Ratchaphruek will open next month with 4,000 sq m. This is part of our policy to diversify and earn recurring income. Last year we had 60 million baht in rental income including from the two malls in operation, and by 2013 all the malls should be profitable on an accounting basis. Every community needs good facilities, shops and schools, and this is our strategy and motto: “We don’t only build houses, we build communities.”

What differentiates Sammakorn from its competitors?

Sammakorn has been in operations for more than 40 years and is very reputable. If you look at our projects, most are on main roads. And while housing materials and details change over time, the core functions remain the same. We know what customers want.

How do you view the property market in Thailand?

The residential market in Bangkok and suburbs dropped by 20% last year in terms of value transferred. The main reasons were that in 2010 you had government incentives that pulled in a lot of future demand, and in 2011 we were hit by the floods. The high-rise sector, condominiums, dropped by 29%, while the low-rise sector dropped about 10%. There is a lot of pent-up demand from the fourth quarter of 2011 and as the government’s flood prevention measures become clearer.

How do government policies affect the industry?

The government’s first-home buyer incentive programme, introduced last September, allows buyers to deduct 10% of the house price (5 million baht and below) when calculating personal income tax, over a five-year period. It shouldn’t have much of an impact, as the number of people qualifying is limited. There is also the three-year, zero-interest mortgage programme for houses priced at 1 million baht or below. Again, this will not have much of an impact, especially in Bangkok, as the average house price is already 2.1 million.

The new town planning regulations that will take effect next year will be more stringent about high-rise projects in locations that are not on main roads or near BTS or MRT stations. For example, where current regulations allow you to build a high-rise up to 10,000 sq m, you will only be able to build up to 2,000 sq m. So unless these new rules are amended, the condo market will be affected, especially those that target the middle- to lower-income target at 40,000 to 50,000 baht per sq m.

Sammakorn had a difficult 2011, why was this?

This was due to a combination of new accounting standards regarding deferred income taxes; the floods delaying more than 200 million baht in revenue from transfers; and the community malls, in which we now hold 52% in the JV, still recognising a loss on an accounting basis. We forecast that 2012 results should be vastly improved.

What are the biggest risks facing your business today?

Apart from the worries of another flood, other risks include labour shortages and higher cost of both labour and construction materials. We have been using a lot of Myanmar, Lao and Cambodian labourers, but with Myanmar opening up, construction activities there will exacerbate the labour shortage in Thailand. Developers will have to adjust by using more prefab techniques or materials and be more efficient in their operations.

How was Sammakorn affected by the floods?

We had four projects affected by the floods, of which three had residents. Only two had water enter the houses but only up to 25 centimetres maximum. We have had to revitalise the landscape and repair and strengthen the boundary walls for improved water management in the future.

Where do you see Sammakorn in five years from now?

We will continue with our housing projects and community malls. We have also purchased land in Pattaya to develop first and second homes or for the expat community. We also see opportunities for housing developments further upcountry but will need to be certain regarding the size of demand. Within Bangkok we are still looking to develop other types of residential products other than detached houses. Finally, we are beginning to shift to a 100% ready-built house model so we manage our construction more effectively. It’s a model that is already accepted in the market today.

Originally published in the Bangkok Post 16th March 2012

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