Budget-condo leader bucks conventional wisdom

When the field gets crowded, the brave move on to play in virgin territory, which could apply to L.P.N. Development Plc. The company that pioneered the budget condominium trend and has come to dominate the segment appears to be breaking one of the cardinal rules of the game.

The conventional wisdom has been that the people who buy budget condos do so because, well, they have tight budgets. Many are young working people, and given the choice between a first home and a car, some have chosen the former. Even if they have their own wheels, driving to and from work is inconvenient and expensive, so they want to be near a skytrain or subway station.

There's only one problem with this assumption, says L.P.N. managing director Opas Sripayak. Heavy demand for locations near mass transit has pushed up land prices. That poses a big cost challenge for developers who want to provide quality products for thousands of people with budgets of two million baht or less. For this reason L.P.N. has been moving a bit farther afield.

''These locations are close to the stations but not next to them, but because we have invested in shuttle buses to transport residents to the stations, our clients will have the same convenience as those living close to them, but it is much cheaper,'' he said.

''Being a bit further away from the station means there is less commotion and this is better than having it on one's doorstep with the whole area being so busy.''

Buyer response seems to vindicate Mr Opas's decision. Interest has been high in the company's new development in the Rarm Intra-Laksi area, and while sales of another condo in the Pracha Chuen area have not started officially, the model units are ready and the sales office is open.

''We launched a project in Rarm Intra-Lak Si and it has been quite successful,'' he said. ''The total number of visitors to the site hasn't dropped. Each week around 200 to 300 people come to the project, some weeks the total is even 400 especially during the launch.''

This strategy is also working because it matches Bangkok's demographic profile. Mr Opas explained that the lifestyle of the new generation means families are smaller with children moving out when they complete their education and get a job. But should they opt for a townhouse or a single house it often means moving much farther away from the parental home, while a condo in the neighbourhood would keep them close. Of course, the price is another lure with suburban condos being cheaper than townhouses or single houses.

In selecting locations, L.P.N. takes several issues into consideration. Chief among these is the total number of apartments because this means the area is well populated. Its marketing depends heavily on persuading people that they can own an L.P.N. condo for about the same money they're now paying to rent an apartment.

''Another thing we look at is whether it is an old residential neighbourhood,'' he said.

Mr Opas acknowledges that consumers are more thrifty these days _ witness slowing auto sales and the never-ending campaigns by department stores to draw shoppers. But he says L.P.N.'s business has not been affected. After all, he points out, people's incomes haven't dropped, only their confidence.

However, some buyers have had difficulty obtaining mortgages. Mr Opas and his developer colleagues have complained that banks have been rejected as many as 40% of their buyers.

''I think that is the meanest they can get,'' he said. ''I don't think the sub-prime crisis will make the banks tougher. As I see it, the financial crisis Thailand passed through in 1997 taught everyone a lesson, especially the financial institutions, and these institutions have been very, very tough in giving loans to both buyers and developers of late. If developers' sales don't reach a certain point they don't get a loan, and if banks are uncertain about a buyer, they won't give him a loan.''

He expects banks to continue being tough, with interest rate directions also affecting the rejection rate. Whether buyers who fail to get a mortgage get their downpayments back depends on the company, but L.P.N. does take this into consideration.

In some cases banks reject a mortgage application because the client has been blacklisted by the Credit Bureau without being aware that it has happened. ''Property buyers should check their credit ratings,'' is Mr Opas's advice.

Many others have been rejected because they have not been able to adequately demonstrate a steady income. Sometimes this is because their employers do not provide pay slips, or they are freelance workers.

''There is an automatic system in place to score loan applications, and to pass you need certain papers and when these aren't available they can't do anything, so it is not approved.''

As a result, Mr Opas advises buyers to get a mortgage pre-approved before they even book a unit.

While getting a mortgage is important, there are those who buy condos in cash. L.P.N. has noticed that up to 90% of the buyers of its lower-end projects need bank financing but when it comes to units costing 1-2 million baht a unit, up to 30% buy in cash. People from the provinces are notable in this regard.

Buyers are also cautioned not to expect the value of their units to double in 10 years, unless they're in a prime area.

Rather than hoping for capital appreciation, Mr Opas says buyers should look to obtain decent rental returns. ''For example, if you have one million baht today and you put it in a fixed bank deposit this you will get a little over 2%. But if you buy a condo in a good location where there is high rental demand, the monthly rent could be a lot more, it could return 5-6%, which is better.''

Source: BangkokPost.com