Thai real-estate developer to withdraw from Hulhumale’ housing project

Thai newspaper The Nation has reported that Pruksa, Thailand’s largest real-estate developer, is withdrawing its investment in the Maldives after suffering a US$3.2 million loss.

In an interview last week with Pruksa CEO Thongma Vijitpongpun, The Nation reported that the company was pulling out of the Maldives after making losses of Bt (Thai Baht) 100million.

In 2010, Pruksa formed a joint venture agreement with the Housing Development Corporation (HDC), formerly the Hulhumale’ Development Corporation, to build over 1000 houses in Hulhumale’. That company, Pruksa-HDC Housing Pvt Ltd, began construction of the first phase of the project, consisting of around 180 units, in August 2010.

Mohamed Sharah, the Assistant Director of Corporate Affairs, Marketing and Business Development, was unable to confirm whether the company had withdrawn from the agreement. Sharah also acts as Pruksa’s Company Secretary in the Maldives.

“We have not been informed [of the decision], the work on the first phase still continues and will be completed by July,” said Sharah.

The first phase, explained Sharah, consisted of nine blocks containing 180 apartments, six of which have been completed, with four already having been handed over to customers. The first phase is scheduled for completion by July.

There were some initial problems with the quality of construction work on the first two of these buildings which caused some delays to the project while work was redone to the standards required by the quality control officer.

The 180 units were pre-sold in Maldivian rufiyaa before construction. In a previous interview with The Nation, a representative from Pruksa anticipated a profitable venture.

“We started to pre-book our project in the Maldives last month for the first phase of 180 units. Demand is for more than that amount and as a result we believe our presales in the Maldives will exceed our estimate,” the company’s Chief Business Officer was reported as saying in June 2010.

However, Sharah explained that this policy had “caused significant losses” for the company due to problems with the local currency.

“They have faced devolution of the currency and a shortage of dollars in the Maldives,” he added.

The price of rufiya at the time when most of the units were sold was pegged at Rf12.85 to the US dollar. However, in April 2011, the government made the decision to introduce a managed floatation of the currency. This decision allowed the rufiya to be traded within a 20percent margin of its previous rate. The result has been the devaluation of the currency to a rate of 15.42 to the US dollar – which still remains next to unexchangable outside the blackmarket, where rates can top Rf 17-18 to the dollar.

That problem is likely to continue after the government’s budget deficit was predicted to reach 27 percent of the country’s GDP in 2012, according to figures recently released by the Majlis Finance Committee.

The International Monetary Fund (IMF)’s head of mission to the Maldives, Jonathan Dunn, recently told Minivan News: “As long as the government continues to inject substantial amounts of new spending into the economy, the foreign exchange situation in the country will not be resolved.”

The net result of Pruksa’s exposure to rufiya may account for the US$3.2 million losses the company CEO reported to The Nation.

HDC told Minivan News that 90 percent of the units were sold using the pre-booking system. The initial value of the apartments was reported to have been between Rf0.9million and Rf1.6 million.

The change in exchange rates in the period following these sales means that between US$1.8million and US$3.3million from Pruksa’s projected income may have been lost from the sale of these units alone.

During the same interview in The Nation, the CEO explained that the company was restructuring to a more profitable model, in part due to the losses suffered during last year’s flooding which afflicted much of Thailand.

However, it was mentioned that the company was considering expansion into the ASEAN nations of Malaysia, Indonesia and the Phillipines. The CEO also announced that projects in Vietnam and India, temporarily suspended in the first half of this year, would continue.

A representative of Pruksa in the company’s Bangkok office was unable to confirm the cessation of the company’s dealing in the Maldives. He did confirm that a representative of the company would be visiting the Maldives later this month, at which time more details would be made available.

The spokesperson was able to confirm that the most of the apartment sales took place 18 months ago and were transacted in rufiya.

“There were some problems with that,” the spokesman noted.

The Hulhumale’ project is regarded as the most ambitious urban development project in the history of the country. The reclamation of land and the internal migration of Maldivians to the island, which lies adjacent to the capital Male’, is seen as vital in the country’s long term plans for economic development of the nation and for the easing of congestion in the capital city.

“If Pruksa withdraws, the HDC will have to find new investment,” said Sharah.