Condominium developers are facing the dilemma of soaring construction costs and a weaker baht against the dollar. However, since oil prices are driving demand, particularly for city units, they will not be as badly hit financially as they were 11 years ago, an expert said.

Thai Condominium Association president and Supalai deputy managing director Atip Bijanonda, on the sidelines of a seminar held last week, said that compared to the construction of low-rise housing developers of condominiums were shouldering much higher costs, particularly due to soaring steel prices.

He said that for condominiums, one square metre of floor area requires 60 kilograms of steel while little is required for a low-rise house, which uses a small volume of steel for posts.

Some steelmakers expected steel prices to surge 10 per cent in the third quarter due to rising global demand and tight supply of billet and scrap. According to Thailand's Iron and Steel Institute, the billet price has risen from US$615 (Bt20,561) per tonne at the beginning of this year to $890 in April, while rebar prices surged from $660 per tonne to $925. Scrap remains at a relatively high price of $650 to $700 per tonne.

Condominium developers are also fretting that the baht could further weaken against the dollar, after the currency fell to a six-month low of 33.425 last week.

Atip said that unlike low-rise housing development, for which nearly all materials are locally sourced, over half of the cost of high-rise condominium development is dependent on imported components such as lifts and elevators.

Last Tuesday, Jardine Schindler (Thai) raised prices for elevators and escalators/moving walkways 8 per cent and 6 per cent, respectively, with immediate effect, citing higher production and shipment costs.

The developers' outlook for their business also suffers from the combined effects of consumers' lower purchasing power as inflation eats into disposable incomes and the hike in interest rates by the central bank.

Still, Atip believes all those negative factors will not turn Thailand back to the conditions faced in 1997, when a large number of condominium buildings were left unfinished due to liquidity problems.

"Buyers know that housing prices are rising and they understand why. They could delay buying residential units but demand will still be there, as they have jobs [hence purchasing power] and still want to own their own homes," he said.

He also countered some developers' pessimism that half of the city-condominium projects would remain unsold. Supporting his belief is the scarcity of city land plots and demand from buyers who want to live along the electric-train routes to reduce their fuel bills.

Atip said Supalai wouldl be raising unit prices to cope with rising construction costs, but small portions of increases would be implemented every quarter so as not to scare away potential buyers.

      At a glance

n Soaring construction costs and a weaker baht have often been cited as factors that could adversely affect the condominium market.

n The rising cost of fuel has offset these factors and buyers are looking for condominiums close to the mass-transit system to cut down on the cost of the daily commute.

n Though the price of units is rising, buyers understand the reasons. They may delay purchases but demand will persist.

n The fear that half of all city condominiums will be unsold is unfounded because there is a dearth of city plots and enough buyers.