Property development vs. construction

Young businessman with quickly growing business explains his move into property development despite construction's greater profitability.

Photo above of the loft style house designed for young workers aged 25-30 that is part of The Season, a housing project with 41 single and detached houses on a 9.5-rai plot on Phetkasem Soi 69, will have unit prices from 2.9 to 4 million baht for a plot sized between 42-54 square wah with a usable area of 140 to 150 sq metres.

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Economics

Young contractor makes the leap to development

Lower margins but less time required
15/06/2012
Kanana Katharangsiporn

A young engineer who started his construction business with only 100,000 baht six years ago has jumped into property development with the launch of a housing project worth 200 million baht on Phetkasem Soi 69 because the new venture is less of a headache than being a contractor.

Waranyoo Prombandankul, founder and CEO of property and construction firm Asian Real Estate Consultant Co, said property development is more attractive than construction despite the lower net margin.

Construction generates up to 50% net profit for renovation jobs and 20% for new construction, while property development has a profit margin of 15-20%. But construction is a customised job and consumes more human resources and time, even up to seven days a week.

"Development focuses on quantity, as you build only a few designs for one project," said the 27-year-old CEO who spent all of his 100,000-baht savings to start a construction firm.

"Construction and renovation require a design for each job," he said, adding the company had taken 20 construction and renovation projects worth a combined 500 million baht since starting.

Last year, the firm shifted to property development via a joint venture with a landlord to develop The Season, a housing project with 41 single and detached houses on a 9.5-rai plot on Phetkasem Soi 69.

Unit prices will range from 2.9 to 4 million baht for a plot sized between 42-54 square wah with a usable area of 140 to 150 square metres. Other projects nearby offer unit sizes of 70 sq m for around 3 million baht.

"We can offer lower prices as we do not have subcontracts, rather building by ourselves. Each subcontractor requires a profit of around 15%," he said.

The units will be loft style, which is a different design from other projects in the area, aiming for young workers aged 25-30. The design features higher ceilings, naked cement and use of many glasses and windows.

"If the project gets poor feedback from buyers, we will tone down the design in our next project," he said.

The company already sold 10 of its 30 detached houses in the first phase, launched in March. It expects to close sales of this phase by the end of the year, launching the second phase with 11 units sized 50 sq w. These units will be located on a green zone and the city plan requires development of single houses sized at least 50 sq w in such venues.

If the new city plan becomes effective this year, the company will redesign its second phase as the plot will be deemed a yellow zone, which allows detached houses smaller than 50 sq w.

"If the new city plan is delayed to next year we will not wait with our launch as we want to close sales of the project in March 2013," said Mr Waranyoo, a grandson of the owner of Chua Hah Seng Food Product Co, a manufacturer of sweet chilli sauce and chilli oil.

His next project is on 20 rai with a sales value of 400 million baht, also a joint venture with a landlord.

The civil engineering graduate from Chulalongkorn University uses a conventional method to build houses as he said pre-cast construction has leakage problems.

(Source: Bangkok Post, Economics, Young contractor makes the leap to development, Lower margins but less time required, 15/06/2012, Kanana Katharangsiporn, link) 

Construction Industry Vocabulary
 
construction - the work of building or making something, especially buildings, bridges, etc. การก่อสร้าง (See Wikipedia)

firm - a business or company บริษัม
construction firm

property development - the business of building on land and improving it in some way, usually buy the land, finance the deal and then hire builders to build on the land: "developers buy land, finance real estate deals, build or have builders build projects, create, imagine, control and orchestrate the process of development from the beginning to end. Developers usually take the greatest risk in the creation or renovation of real estate—and receive the greatest rewards. Typically, developers purchase a tract of land, determine the marketing of the property, develop the building program and design, obtain the necessary public approval and financing, build the structure, and lease, manage, and ultimately sell it. Developers work with many different counterparts along each step of this process, including architects, city planners, engineers, surveyors, inspectors, contractors, leasing agents and more", also known as "real estate development "(See Wikipedia)

housing project - a business project to build many houses in an area

launch - to start something เปิดโครงการ, เริ่มต้น, เริ่มทำ to start selling a new product or service to the public เริ่มต้น เริ่มโครงการ เริ่มวางขาย an event to celebrate or introduce something new การเริ่มปฏิบัติการ, การออกตัวของสินค้า
launch of a housing project

contractors - 1. companies that do building and construction บริษัทผู้รับเหมา; 2. a company that has a contract and arrangement with another company to do work or provide goods ผู้รับเหมา
contracting - hiring people or companies to do work for another person, organisation, company, etc

subcontractor - a company or person doing work for someone who has a contract to do work (contract within a contract)
subcontract - working as a subcontractor

leap - 1. to quickly start doing some new activity; 2. to make a large jump or sudden movement, usually from one place to another กระโดด
makes the leap to

young contractor makes the leap to development

profit - money that you make from selling goods and services after all your costs have been paid กำไร
profit margin - a percentage showing the relationship between the profit a company makes and the money that it obtains from sales revenue, often seen as a sign of the general efficiency of the company (See Wikipedia)

margins - same as "profit margin"
lower margins

lower margins but less time required

net profit
lower net margin

jumped into - quickly enter into some new activity or business
venture - a new activity, usually in business, which involves risk or uncertainty ธุริกิจเสี่ยงแต่สามารถทำกำไรได้

A young engineer who started his construction business with only 100,000 baht six years ago has jumped into property development with the launch of a housing project worth 200 million baht on Phetkasem Soi 69 because the new venture is less of a headache than being contractor.

single and detached houses - a house that is separate and not attached to others like townhouses, for example, are attached to the one next to them, what people normally think of as a "house"

plot - a piece of land used for a particular purpose
a 9.5-rai plot

The Season, a housing project with 41 single and detached houses on a 9.5-rai plot on Phetkasem Soi 69, will have unit prices from 2.9 to 4 million baht for a plot sized between 42-54 square wah with a usable area of 140 to 150 sq metres.

founder - a person who establishes an institution, business, or organization ผู้ก่อตั้ง
founder and CEO

attractive - 1. worth having or doing; 2. pleasant to look at น่าสนใจ
more attractive than - more worth having or doing than ...
 
Waranyoo Prombandankul, founder and CEO of property and construction firm Asian Real Estate Consultant Co, said property development is more attractive than construction despite the lower net margin.

a job - some work or a project that a company gets to do, a contract for work that a company wins; 2. some work or task that one worker does 

renovation - repairing and improving an old building, putting it back in good condition การฟื้นฟูบูรณะ
renovation jobs

customised - a product made special to meet the special needs of one customer
customised job - a special work or project to meet the needs of one customer

resources - things such as money, workers and equipment that can be used to help achieve something ทรัพยากร ทรัพยากรที่มีอยู่
human resources - workers and their skills in a company, that can be used to help achieve business goals ทรัพยากร ทรัพยากรที่มีอยู่
consumes human resources - uses up human resources

Construction generates up to 50% net profit for renovation jobs and 20% for new construction, while property development has a profit margin of 15-20%. But construction is a customised job and consumes more human resources and time, even up to seven days a week. "Development focuses on quantity, as you build only a few designs for one project," said the 27-year-old CEO who spent all of his 100,000-baht savings to start a construction firm. "Construction and renovation require a design for each job," he said, adding the company had taken 20 construction and renovation projects worth a combined 500 million baht since starting.

shifted to - moved to

joint - do some activity or project together ร่วมกัน ที่ร่วมกัน, ความร่วมมือกัน  
joint venture - a company owned and operated by two or more larger companies

landlord - a person or organisation that owns a building or an area of land and is paid by other people for the use of it เจ้าของที่ดิน

range - a number of different things that are of the same general type ขอบข่าย, ประเภท
range from 2.9 to 4 million baht  - something that is between these two numbers

unit - some real estate that is sold (apartment, condo,office, townhouse, house, etc)
unit sizes of 70 sq m

Last year, the firm shifted to property development via a joint venture with a landlord to develop The Season, a housing project with 41 single and detached houses on a 9.5-rai plot on Phetkasem Soi 69. Unit prices will range from 2.9 to 4 million baht for a plot sized between 42-54 square wah with a usable area of 140 to 150 square metres. Other projects nearby offer unit sizes of 70 sq m for around 3 million baht.

loft - a large upper floor in a big building or factory that has been made into an apartment (See Wikipedia)
loft style

ceiling - the top of a room over your head (protecting from rain and sun

naked - 1. with nothing covering it (example: concrete or wood without paint) 2. not wearing any clothes
naked cement - cement without paint, wood or other covering

"We can offer lower prices as we do not have subcontracts, rather building by ourselves. Each subcontractor requires a profit of around 15%," he said.  The units will be loft style, which is a different design from other projects in the area, aiming for young workers aged 25-30. The design features higher ceilings, naked cement and use of many glasses and windows.

feedback - information from customers given to a business about how useful their products or services are so that it can be improved

get poor feedback from buyers

tone down - make something less extreme or different or loud (thus making it more acceptable, agreeable and pleasant for people) (example: tone down the strong language and people will make people more comfortable)

phase - a period of time in a project  (with certain goals to achieve)
first phase

launched - began, started เริ่ม เริ่มต้นดำเนินการ

green zone
city plan

venues - places where events happen สถานนี่จัดงาน สถานที่ชุมนุม พบปะสังสรรค์

effective - starting; officially start to be used
effective this year

deemed - considered เห็นว่า ถือว่า
the plot will be deemed a yellow zone

"If the project gets poor feedback from buyers, we will tone down the design in our next project," he said. The company already sold 10 of its 30 detached houses in the first phase, launched in March. It expects to close sales of this phase by the end of the year, launching the second phase with 11 units sized 50 sq w. These units will be located on a green zone and the city plan requires development of single houses sized at least 50 sq w in such venues. If the new city plan becomes effective this year, the company will redesign its second phase as the plot will be deemed a yellow zone, which allows detached houses smaller than 50 sq w.

close sales - finish the process of making a sale (buyer agrees to buy and gives money, seller gives good bought) 

"If the new city plan is delayed to next year we will not wait with our launch as we want to close sales of the project in March 2013," said Mr Waranyoo, a grandson of the owner of Chua Hah Seng Food Product Co, a manufacturer of sweet chilli sauce and chilli oil. His next project is on 20 rai with a sales value of 400 million baht, also a joint venture with a landlord.

civil engineering - engineering that deals with building large buildings, bridges, roads, etc (See Wikipedia)

conventional - the usual and accepted way of doing something; commonly used, standard way of doing something; ordinary, usual or normal ธรรมดา ตามแบบแผน
conventional method

cast - forming an object into a shape by pouring a liquid into a mould หล่อ (See Wikipedia)
cast-iron -  เหล็กหล่อ (See Wikipedia)
cast steel -  เหล็กกล้าหล่อ

pre - done or happening before something else 
pre-cast construction

leakage - when water passes slowly out of a container meant to hold it (needs to be stopped)
leakage problems

The civil engineering graduate from Chulalongkorn University uses a conventional method to build houses as he said pre-cast construction has leakage problems.