According to research from Phatra Securities Pcl, top real estate developers are likely to show revenue growth over the next two years, despite considerable market risk. Growth should be supported by market share gains by bigger developers that have diversified both in products and locations to cope with lower demand.

Phatra suggests the unfavourable operating environment will limit newcomers into the market and weaken the capabilities of smaller developers to develop new projects. Phatra sees weaker developers selling land back or cancelling projects due to constraints on cash flow.

In its analysis, Phatra cut revenue projections this year for residential developers by 4% on average and by 11% for next year. The revisions mainly to take into account the effects of lower presales and margin pressure from rising oil prices, higher construction costs, interest rates and political risk.

Phatra’s report predicts that the growth of property companies will fall to 6% on estimated 2009 performance, from 42% on estimated 2008 performance. Phatra said developers underperformed the market in 2004-05, mainly because of negative earnings growth from the expiry of tax incentives, coupled with lower margins from price competition. However, the sector started to outperform the market in 2007, on the back of a positive earnings outlook.