Ratings agency Fitch Ratings has said the recent string of mergers and acquisitions (M&A) among small- and medium-sized property developers in Thailand, and strategic alliances among the larger players, will not post a serious threat to the country’s five largest residential property developers.
The top five developers’ well-established brands and their large operating scale will ensure that they maintain their competitive advantage against the merged players. However, the smaller players who do not have strong niche market positions will face greater competition from these merged companies, which will have larger size and access to liquidity support from their new parents.
In the last few years, the M&A activity in Thailand’s property market has been driven by conglomerates with vacant land, or with plans to enlarge their property development business.
These conglomerates have acquired small- to medium-sized residential property developers. For example, the property arm of brewery Singha Group acquired listed Rasa Property Development and rebranded it Singha Estate; Property Perfect acquired listed Thai Property and Grand Asset Hotel and Property; and Golden Land Property Development, a subsidiary of TCC Group, is taking over non-listed Krungthep Land.
Fitch expects these merged entities to have a limited impact on the top ranked residential developers’ business and financial profiles over the next two to three years due to their much smaller size and weaker market position.
It estimated each of these merged entities’ revenue to be less than THB20 billion per year, compared with the top five developers’ annual revenue of between THB20 billion to THB40 billion each. In addition, the top five developers’ revenue accounted for about 55 percent of total revenue of listed players in 2013.
Some of the top-ranked property developers have also formed strategic alliances, which will strengthen their positions in high-rise housing and intensify competition in the condominium segment.
Examples of alliances include a partnership between Sansiri PLC and mass rapid transit operator BTS Group Holdings PLC to build condominiums near urban rail stations; and a tie-up between AP (Thailand) and Japan’s Mitsubishi Estate Group to build condominiums.
However, Fitch expects the other market leaders to remain strong as they focus on different segments and have reasonable flexibility in their product mixes. The increasing supply of condominiums by leading developers is likely to put more pressure on smaller condominium developers, which would require strong niche strategies or well-established brands to maintain their positions in the market.
Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.
