Unlike during the financial disaster of 1997, the country’s leading property firms now maintain their health by strictly keeping their debt-to-equity ratios below 2:1, making it unlikely speculators can cause a property bubble, experts say.

Prasert Taedullayasatit, Pruksa Real Estate director and chief business officer, said that after the economic crisis in 1997, most property firms kept their business growth in check with disciplined cost management, especially ensuring that their debt covenant ratios did not exceed 2:1. Commercial lenders also have a policy of holding property as collateral until the firms show strong financial results.

“Our business is now controlled by commercial banks, which restrict the provision of loans for us. When a bank provides a loan for a condominium project, it has a rule that the project has to show presales of at least 50 per cent for small and medium property firms and at least 30 per cent for a top-10 listed company. This is to keep real-estate speculators under control,” he said.

Sansiri president Srettha Thavisin said that in 1997, most property firms faced financial crisis because they had bought land banks sufficient to serve at least three years’ worth of new project launches. This was in line with the Stock Exchange of Thailand’s policy that a business needed to ensure long-term growth.

But such large land banks proved to be a burden for property firms when they were hit by the financial crisis. Now, firms buy land in accordance with their development plans. This reduces their financial burden and provides business flexibility.

via Discipline keeps developers healthy – The Nation.

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