Reportdd the report for share

Currently, the price of construction materials, which is one of the major investment costs, has fluctuated according to considerable change of oil price.  Such price fluctuation has effect on the capital cost of the Company’s project and may have effect on future operations and financial position of the Company.  Accordingly, to reduce the risk causes by the fluctuation of prices of construction materials, the Company would manage the cost of the construction from the designing stage up to the entering into contracts with the contractors regarding the labor cost and the cost of construction materials, whereby the contractors must acquire most of the construction materials and equipment. The Company will provide certain types of construction materials from the trading partners, manufacturers or major agents to get discount price for the project while monitoring the movement of prices and estimating the prices in advance. In a necessary case, advance purchasing order has to be made in a big lot so as to be able to negotiate the prices and control the construction cost as well as managing and controlling the specified quality and standards of the houses.  Furthermore, the Company will conduct studies on choices of alternative materials of each type to be suitable for certain circumstances.

The risks in purchasing land for real estate development can be divided into 2 main types, namely,

3.1 risk due to relevant laws and regulations

3.2 risk in purchasing land for business purposes

The risk due to relevant laws and regulations involves the ability to develop the project in the prescribed form without being obstructed by restrictions of any law or regulation, while the risk in purchasing land for business purposes involves whether or not there is the ability to sell the project on the purchased land to receive returns as targeted within the specified period.

In purchasing land, the Company will control the risk caused by relevant laws and regulations by making careful examination and studies of all provisions relating to project development, such as provisions on city plan, construction of buildings, land allocation and various provisions of the locality, which might have effect on project development as well as a thorough examination of ownership and derogation of right to the land. Furthermore, after taking into consideration the above factors, the Company will experiment by laying out the project plan on such plot of land to see whether or not it responds to the Company’s demand.  As for the risk in purchasing land for business purposes, the Company will control such risk by conducting analysis of demand of each locality and economic condition, and updating the information on market condition of real estate business and changes of land prices in various locations on a continual basis.  As a result, the Company has been able to selectively purchase the land with suitable size in good location, which located at Main Rattanathibeth Street and next to Central Rattanathibeth to develop projects to properly meet the demand of the market and economic conditions of each period.  Such preparation before the purchase of land has efficiently helped reduce the risk due to laws and regulations and the risk in purchasing land due to the condition and nature of business

The Company has operated real estate development under the rules, regulations or relevant real estate laws causing risk from the changes or adjustment of such rules and regulations in the future, for instance, the restriction on utilization of land for construction of certain types of buildings, restriction on height, set back space of the building, disputes on land border with owners of adjacent land owners, complaints during construction or expropriation of land for construction of public utilities by the government, or problems arising from the amendment of laws, notifications and regulations of the government effective during the possession of land by the Company but under the process of preparation to apply for permission from relevant government agencies. Nevertheless, the Company has guidelines for reducing such risk by examining and studying legal restrictions and regulations of relevant agencies regarding the utilization of land before developing the following real estate project to find out whether there is any control which would affect the guidelines prescribed by the Company for developing such plot of land.

At present, the Company is employing external contractors for the construction of both houses and condominiums causing risk from the delay delivery of work, or the work does not have the quality as specified if the contractors are short of sufficient expertise, lack of personnel and having liquidity problem.  To reduce such risk, the Company will management skills by selecting a sufficient number of contractors with experiences and quality of work for the construction according to the plan and has ensured that the work does not concentrate heavily upon certain contractors.   For building houses, the work for any certain contractor would not be more than 30% of the value of the houses each year.

Besides, the work is better divided in order for the contractor to have better liquidity. The Company will supply certain items of materials to lessen financial burden of the contractors, and has clear policy to be allied with construction contractors and manufacturers to jointly develop construction work and construction materials to have better quality in shorter period of time by examining and selecting contractors or manufacturers with extensive expertise. In case of condominium, major contractors with experiences would be chosen and the hiring would be divided according to the types of work and the expertise.  No single contractor will be hired for all types of work in the project.

In addition, the Company has adequate experts and management teams to supervise the construction to be in line with the standards.  The Company also prepares training plans for operation personnel, supervisors and construction contractors in order to develop construction processes to be efficient with better quality and mutual understanding regarding the inspection of work so as to ensure good quality and reduce the risk of being delay in work delivery.

The world financial crisis and the internal political problems have affected the general economic situation in Thailand in 2009 resulting in the slow-down in granting credits by commercial banks to the operators’ projects. Currently, the Company’s major source of capital is from operation and the project finance, therefore, there is a risk regarding credits from commercial banks.  However the company can solve this problem because having been a leading professional real estate operator with strong financial position for a long time, the Company has been supported by most commercial banks as prime customer with the proportion of credit up to 70% of the project value.

Therefore, to reduce such risk, the Company can prepare to mobilize capital through debt instruments when the financial market condition and the financial cost are suitable.  In addition, due to restriction in granting credits to home buyers, there is a risk that commercial banks may not grant credits to the customers, which might affect the number of ownership transfers and the Company’s operational results.  To reduce such risk, the Company is currently carrying out assessment of basic qualifications and ability to repay loans on installments by the customers intending to acquire loans from financial institutions at the initial stage of the purchase up to the stage of applying for credit from financial institutions.

At the beginning of 2008, the government adopted measures to assist and stimulate the growth of real estate business in time of sluggishness in Thailand by reducing transferring fee from 2.0% to 0.01%, and specific business tax from 3.3% to 0.11%, which would end on 28 March 2010.  Also, in 2009, additional measures had been issued in 2009, that is, real estate buyers have been granted with a tax reduction not exceed 300,000 Baht on payments for real estate to be ended in 2009.  Therefore, if, after the ending of the above-mentioned periods, such measures are not renewed, there would be impact on the decision to buy properties which would further affect the operational results and ability to make profit of the Company because the cost of sales would increase as the reduction of transferring fees and related taxes would come to an end.

Due to the general economic slow-down during the first half of 2009 compared to that of 2008 because of the internal political problems, the world problems and financial crisis, the consumers’ confidence has been affected, they, therefore, are more careful in spending. As a result, there has been a slow-down of real estate business in general. Accordingly, each operator has launched marketing strategy or organized sales promotional events to stimulate the sales of properties, which leads to increasing competition.  Some competitors have opened the sales of condominium projects in the same area (rattanathibeth).

Nevertheless, due to being a major operator with more than 20 years of experiences, the Company has been at the advantage because of its reputation in operating business that based on honesty, fairness, sincerity with housing projects in convenient locations or close to the mass transit systems and has spread projects in all directions of Bangkok and its vicinities to satisfy different demands of various groups of customers. In addition, the Company has outstanding designs of energy conservation houses with the management under ISO 9001: 2000 standards, in which there are processes for quality inspection up to the delivery of the goods to the customers as well as the provision of after-sale-services and emphasis on customers’ satisfaction. Accordingly, the Company has competitive advantage in both the reliability and quality of the goods and services.

The general housing market in 2010 is expected to grow by 5-10% from 2009 in which there were direct impact from the world economic crisis. Condominiums would still be the main product in the market as the lifestyle of the consumers has changed permanently towards condominium living; the size of the family has been reduced, which also correspond to the condominium product.  When taking into consideration the supply-demand, the real estate market at present is not likely to generate a bubble crisis.  Nevertheless, all the developers must adjust themselves to continuous change of consumer behavior, which is increasingly severe and rapid.  Therefore, for developers to survive in real estate market, they must not only be big enough but also be flexible in adjusting the products and developing quality products and services to correspond to changing demand of the consumers.

Another factor to be taken into consideration in developing housing project in 2010 is the city planning of Bangkok Metropolis. This planning is to be enforced for 5 years and ends in the middle of 2010.  If there is an adjustment of the city plan regulations, or change of land utilization plan including the reduction of FAR, or increasing restriction on zoning for development, the developers must adjust themselves to accommodate this new city plan. Regarding the renewal of business tax on real estate, which would end at the end of March 2010, it is important to follow up whether or not the government would extend such tax measure.  If it is extended, it would tremendously enhance the overall real estate and business sector.  However, if the measure is not renewed, the developers and the consumers must expedite the transfer of ownership by 28 March 2010, and then the sales of real estate in April would slow down to a certain extent.  Accordingly, the developers may have to adjust the prices to be higher so as to accommodate reduced profitability due to increasing tax expenses.

Regarding the government’s mega projects, such as the development of Green Line electric train (extension part of Onnuch-Baring Line), Red Line (Bangsue-Taling Chan), Blue Line (Hua Lumpong-Bang Khae) and Purple Line (Bang Yai- Bang Sue), with this the announcement on launches of new mass transit lines, there is likely to be enhanced liquidity from financial institutions to support real estate sector. While the financial institutions may still have conservation in granting credits to the business sector, they may be more interested in increasing loans to consumers in 2010, especially housing loans with collateral and lower risk than other types of consumer loans. Such credit granting would enhance the real estate to grow on a continual basis in 2010.

The tendency that there would be an announcement of property tax is also a factor stimulating the selling of unused land for development as the land owners would be under pressure of tax burden in a short run and those land price speculators would sell off the land before the announcement of property tax, resulting in the downward pressure on land prices in the near future.  However, the property tax would be one of the factors to unavoidably push the cost of development of developers to be higher in the long run