Companies are Moving to Tourist Centers to Attract Buyers

Companies are moving to tourist centers to attract buyers. This move comes as local requirement is expected to fall in 2008.

With requirement for Bangkok Apartments and Bangkok Offices likely to slow this year, developers are turning their focus to foreign buyers, with projects at tourist centers. Most companies are moving to Pattaya, Phuket and Hua Hin. The move is part of an approach to deal with business risk cropping up due to the predictable fall in local demand.

Developers are presenting fresh projects at tourist hot spots at costs higher than Bangkok apartments and Bangkok offices.

Key Development plans include two luxury condominium projects of value Bt6 billion in Pattaya and Hua Hin in 2008: the Marrakesh Hua Hin Apartments and Reflection Jomtien Beach Pattaya.

The company has prolonged its investment into the tourist hot spots for the reason that it views a strong demand, particularly amid foreign buyers. Foreign buyers have shown strong interest in making these places a second home and are eager to purchase property. The developers look forward to foreigners to rise up about 49% of the units in projects based in Pattaya and Hua Hin.

The demand for apartment and office projects at tourist places close to Bangkok has seen strong development,. This is the cause why companies are investing in those areas, with projects concentrating on the middle to upper markets.

Condominiums are the most preferable property for foreign investors, for the reason that Thai law permits foreigners 49 % possession of these types of projects. The left over 51 % of the units have to be possessed by Thai nationals or Thai companies.

A research by Colliers International reveals condominium costs on Koh Samui are the highest, ranging from Bt 125,000 to Bt 130,000 per square meter. After that comes Phuket, with costs ranging from Bt 77,000 to Bt 106,000 per square meter. Costs in Hua Hin were between Bt 66,000 and Bt 80,000 per square meter.

Developers Pay Attention to Save Power Theme

Developers are paying attention to the energy efficiency as government pushes fresh standards.

As the Energy Ministry is preparing to hit the power-save button on fresh Bangkok apartment and Bangkok office projects, developers are paying more attention towards environment-friendly apartments that helps to maintain electricity consumption low.

The ministry is preparing to set up innovative energy-saving standards for apartments and offices with a coverage area of 2,000 square meters or more. For instance, construction materials utilized in walls, roofs, doors and windows will have to pass the heat-ventilation standards test at the same time as the air-conditioning and lighting systems will have to contain energy-saving systems installed.

These are components of 11 energy-saving actions declared by the ministry in April 2008. The measures are likely to push developers to make the change to energy-efficient projects although it may involve a 5%-10% hike in construction expenses.

Firms are now preparing publicity operations about the energy-efficient theme to attract home-buyers. They are likely to include ecological and energy-saving deliberations into their brand-building plans in 2008.

Developers are worried regarding power consumption and are eager to design Bangkok Apartment and Bangkok office projects meeting the requirements to energy-saving standards regardless of the extra construction prices.

The energy-efficient label will be a new marketing device to endorse projects as developers will concentrate on home-buyers who are ready to pay additional price for such properties. Utilizing energy-saving construction material and design will happen to be a major distinguishing point at the time of selling projects.

According to a few developers, they can also save energy by making apartments keeping the direction of the wind and the sun in mind. Building a wind-facing apartment, would definitely keep air-conditioning necessities to a least and help save energy.

The government has been approaching the cause for a while now by arranging competitions for energy-efficient apartments and offices. And the developers are now looking forward to the competitions as a chance to endorse themselves if they win.

Oil Crisis Affecting Real Estate in Thailand

This is not the first time that an oil crisis is affecting the world economy. Though, it is the first time that the inflation-adjusted cost of a barrel of crude oil has broken a record of rising above US$120 (Bt 4,014). Number of professionals look forward to a figure above $150 per barrel in the second half of 2008, indicating a world downturn.

Even though the government several efforts to encourage the real estate sector in the beginning of 2008, the downbeat impact from higher inflation, rising interest rates, increased material costs and loss of customer buoyancy as a result of the oil crisis and political unsteadiness will take the sector into negative territory.

Increasing construction expenses will show the way to lesser margins for developers who have sold their projects in 2007 and have not started construction because of stricter ecological rules. A number of developers may make their mind up to return deposits to their consumers. On the other hand, home-buyers will get a chance to purchase lower-cost apartments when they search for projects that are impending completion.

Looking at the optimistic side, the Asian economic crisis shows the way to banking reforms. Bank of Thailand observed the real estate sector very closely and commercial banks cautiously approved loans in the past few years.

The major developers have become stronger in comparison to the circumstances prior to the last crisis. Minor developers have turn out to be weaker. As a result, mergers and acquirements might be the way out for their endurance after this crisis.

Bangkok Becoming The Most Preferred Location

Most of the freehold land in recent times purchased in Bangkok's central business district has been for Bangkok apartment and hotels developments rather than Bangkok office buildings.

In the coming four years, office space will be restricted and rents are likely to keep on increasing. The requirement for offices would perhaps be much elevated if Thailand endorses itself as striking location for companies providing services to the local financial system and developed Bangkok as an appropriate city for their regional headquarters.

One of the drivers of requirement for Bangkok office space is requirement from multinational companies (MNCs). Other Asian cities, like Singapore, Hong Kong and Shanghai, have taken huge advantage from this type of demand, both in terms of profit to the real estate sector and in terms of jobs created for local people. These countries have set up strategies that offer incentives to support MNCs to use their countries as a place to set up a branch to provide the local financial system and conduct local and international operations.

Thailand's plentiful land and major ports, and its developments in infrastructure and transportation, together with the mass transit systems, in addition to its capability to present value in terms of quality of office and apartments against price, make it an appropriate place for service industries with a manufacturing base.

There are several causes why a company prefers to establish operations in a specific country instead of another. One is convenience; Thailand, mainly from the time of opening of the new airport, is as effortlessly accessible as any other country in the area The size of the local financial system also plays a key role and Thailand has developed very quickly over the past two decades, although it follows regional competitors, like Singapore and Shanghai, in terms of infrastructure. There is one more reason i.e. government incentives. A few countries, like Singapore, provides a strong package of profits to any company that establishes its regional headquarters there, or have a desire to give services to the local financial system. These profits comprises of lower taxes, easier approval for the employment of foreigners (work-permit rules and visas), restricted bureaucracy and others. Actually, these countries make it simple for companies to establish an office in their country.

Property Market in Bangkok and near by Areas is about to Fall

The property market in Bangkok and nearby areas is about to fall 7.2 % in 2008 compared to 2006, because of the hike in cost of construction and a fall in customer's purchasing power, research by Kasikorn Research Centre revealed.

The research reveals that even though the government launched tax package to enhance property requirement on March 28 and many commercial banks established financial packages to increase their mortgage-loan business in the first half of 2008, demand for Bangkok apartments and Bangkok offices has continued to go down.

The government's tax package, which abridged special business tax, transfer tax, mortgage fee and transfer fee, did not have a positive effect on the real estate market for the reason that home-buyers are in front of far more negative issues, like hike in cost of living due to the oil price increase and costs of several goods getting higher.

Home-buyers' income is also likely to go down for the reason of the country's elevated inflation, which has touched a double-digit figure in 2008.

The research says that demand for Bangkok apartments and Bangkok offices will stand at 67,600 units in 2008, a fall of 7.2 % from 72,808 units recorded at the end of 2008.

Separate apartments, double apartments and townhouses are likely to fall 9 % from the 32,741 units in 2007 to settle at 29,700 units. Property market will also have to face a fall of 16.8 % from 25,251 units in 2007 to 21,000 units in 2008.

On the other hand, the condominium market will record a 14 % growth, from 14,816 units in 2007 to 16,900 units in 2008.

Demand for condominiums has recorded escalation regardless of the hike in oil-price as many home-buyers have decided to purchase city condominiums to cut down their transportation costs. Though, home-buyers have to choose projects based on whether they present ready-to-stay condominiums, as different from that are partially completed.

This is for the reason that property developers are likely to increase condominium-project prices after costs of major construction materials, like steel, have risen considerably.

Rising Markets Top Transparency Index

Rising markets have considerably enhanced their levels of real-estate transparency, as per the most recent Global Real Estate Transparency Index from Jones Lang LaSalle, a proficient services company specializing in real estate, and LaSalle Investment Management, its global real-estate-investment management subsidiary.

The survey revealed that in 2008, eight countries moved up a complete transparency level from the time of the last survey in 2006. Dubai, Romania, Ukraine and Russia showed the major development in transparency over the past two years. Among the 81 countries covered by Jones Lang LaSalle's Global Real Estate Transparency Index, Thailand is in 45th, place after South Korea, and continued to be among semitransparent countries.

The index, which offers a precise structure for evaluating the level of real-estate transparency in 82 markets all over the world, reveals that almost half of the countries surveyed in 2006 confirmed a major development in their transparency score.

Transparency levels are enhancing internationally as governments look forward to make more efficient regulatory and legal problems to support cross-border movement of capital and corporate services.

If we have a look into the past, the Australian and American real-estate markets continues to be among the most transparent in the world. With the addition of fresh variables connecting to the excellence and frequency of valuations, service-charge transparency and financing transparency, Canada now ranks as the world's most transparent commercial.

LaSalle Investment Management global strategist Jacques Gordon said a lot of cross-border investors were paying attention on more established, open and transparent real-estate markets like UK, Canada, Netherlands and Hong Kong.

Opportunistic investors will think about rising, less established, less open and semitransparent markets, although will demand higher returns to reimburse for the higher risks connected with lower transparency. Only the major opportunistic investors will think about semi-transparent markets in Eastern Europe, Latin America and Southeast Asia.

Opaque real estate markets, like Algeria, Belarus and Cambodia, are still very challenging for investors in addition to corporates.

Land Prices of Siam Centre area are Likely to Fall

Land prices in the area of Siam Centre are likely to fall around 40-50% if the Bangkok Metropolitan Administration grants a directive ruling out the construction of new high-rise apartments or addition of floors on existing Bangkok apartments within a 300- 500 meter radius of the Sa Pathum Palace.

The directive rules out Bangkok apartments or Bangkok offices higher than 23 meters or 7-8 storeys in areas 500 meters away from the palace: drawn out from Phetchaburi Road to the eastern railway station, Ratchapralop Road to Rajdamri Road, and the Police Hospital to Rajamangala Institute of Technology on Uthen Thawai campus ending up at Banthadthong Road.

In areas 300 metres from the palace, apartments or offices not higher than 16 meters will be permissible. They include areas north of the palace, starting with Soi Phya Nak on Phetchaburi Road; areas which are in between the Indonesian Embassy and Alochon canal to the east of the palace; the extension between Alochon canal and Rama I Road, situated in the south of the palace; and, western properties on the Alochon canal to Phetchaburi 12 route all the way through Soi Kasemsun 2.

If the directive comes into effect, fresh projects of Bangkok apartments and Bangkok offices will be affected. Construction of floors further on existing buildings is also not permissible, a Bangkok Metropolitan Administration source informed. He said the directive has been accepted by the Bangkok Metropolitan Council and is pending for the governor's nod.

Harrison vice president Kitisak Jampathippong said if the directive is sanctioned, cost of land in the areas in which it would be effective would get lower by 40 - 50 %. Currently, the costs are somewhere between Bt 300,000 - 400,000 per square wah. Places close to the Siam Centre and MBK Shopping Centre command costs between Bt 600,000 and Bt1 million per square wah. The directive would stop high-rise apartment projects in the area, which may result in decreased demand.

Value of Real Estate Market in Thailand Decreasing

The value of the local real estate market in Thailand is expected to fall down to some extent of 10% in 2008, mainly due to lesser self-assurance among home-buyers and a bit increase in the Thai economy, as per research conducted by a number of property agencies indicates.

Sopon Pornchokchai, the managing director of the Agency for Real Estate Affairs, explained that the predictable decrease in requirement for new apartments was because of home-buyers' apprehensions related to the country's security. He said they did not feel liable to visit new residential projects to search for a new apartment at this point of time.

For the time being, construction has been postponed on approximately 111 new apartment projects that were formerly announced would launch in 2008, as the concerned companies are waiting to make out what the local political and economic situation will be like.

Sopon considers that the market insecurity will make the local real estate market to fall down to 10% in 2008 in terms of cost and 5% in terms of unit numbers.

The local real estate market has confirmed 66,510 units worth a total of Bt174.11 billion sold in 2007. Among that total, 21% were separate apartments, 27% town houses and 52% condominiums.

On the other hand, a research by international real estate advisor Knight Frank Chartered (Thailand) shows that requirement of budget condominiums will keep on increasing in 2008 also compared to other real estate sectors.

The research shows that new condominiums situated near mass-transit systems and costing at less than Bt2 million a unit will benefit from stronger requirement in comparison to luxury condominiums.

Knight Frank Chartered notified in the research that condominium projects located along Rama III, Sukhumvit, Ratchadaphisek and Sathorn roads would be in higher demand in comparison to ones situated in other areas.

Risk Management is Becoming a Key Strategy in Real Estate Market in Thailand

Michael Duffy, Head of Project and Development Services at Jones Lang LaSalle suggests a industrious and balanced advancement in all segments of the development industry in Thailand, with a particular attention on risk management.

A broad understanding of risk and liability is necessary to the success of any big apartment or office development. Developers and their related investors have to permit suitable possibilities applicable to the present economic situation in their viability and valuation models, designers have to apply technology suitable to Developer’s budgets, and Contractors should apply attentiveness in their rates and contract conditions to guarantee enough cash flow to finance productive delivery of construction.

Attentiveness and risk management is particularly important for projects that are financed by off-plan sales, based on sales valuations determined by guesses of construction prices. It is necessary to allow practical eventuality for the inflationary period between sales launch and eventual construction.

Recently declared consumer-protection rules highlight the significance of price conscientiousness. The rules will check the flexibility for Developers to reduce stipulation of materials during construction in an effort to cut the costs – the stipulation presented in original sales copy must be admired, in spite of price increases. The quick hike in material costs, determined by the soaring oil commodity prices, is a universal fact, and this tendency is unlikely to be overturned in the short to medium term.

In the present situation of tighter credit controls, increasing interest rates and common inflationary pressure, the tendency to higher material costs is an expected truth. Developers are suggested to invest in specialized project and risk management with the intention of efficiently alleviating their exposure to the current inflationary forces.

Increasing Cost of Raw Materials: Major Problem for Developers

Developers and apartment and office construction contractors of Thailand are facing trouble due to the quickly increasing costs of raw materials. Construction costs have risen by approximately 10–40% every year, depending on the kind of development and value. At the same time as construction costs intimidate to increase more considering the constant fuel price crisis, real estate developers are looking for more options and strategies to decrease risks.

Increasing construction prices have become a major problem for many companies in the real estate industry. The industry is getting very much troubled by the quick increase in construction prices. Steel prices single-handedly have doubled since 2007, and other construction materials have increased to the limit of bandwagon as the fuel price rise continues.

All companies suffer in this rising economic situation.

In the usual case of fixed-price contracts, the builder is gratified to take up the raised material costs, leading to cheap limits and controlled cash flow, leading in intense cases to contractor liquidation.

Normally, at the time when a developer hires a main contractor for a new apartment or office development project, a fixed cost and budget is set, whereby the contractor takes liability for any threats incurred by rise and fall of construction material costs. The less perceptive contractors will in the end suffer losses and cash flow dearths, and will be forced to non-payment, leaving their developers with partially completed buildings.

In the special case of developers admitting the risk of increase in material cost, it had a serious impact on budgets, project financing plans and the entire financial viability of a development.

In every case, the impact of the increasing construction costs will in the end be transferred to customers. In spite of the challenging economic situation where customer self-assurance is low, condominium and house costs still continue to increase. This increase can be blamed on increasing construction prices more willingly than on market buoyancy.

Downward Movement of Bangkok's Property Market

The property market of Bangkok is moving downwards; which can be understood by the fact that there is a decrease in the number of construction permits in the first quarter of 2008 declared the Real Estate Information Centre (REIC) on June 5.

Mr Pongsak, the spokesman of REIC said construction had been turned down or a number of projects had been delayed in most sectors, because of the number of land subdivision permits, housing construction permits and housing completions.

In the first quarter of 2008 the number of land subdivision permits in Greater Bangkok reduced by 21% year-on-year in terms of units to 8,530, and by 24% in terms of projects to 63 projects.

Total low-rise office construction permits nationwide are 30,992 units, which decreased by 22% from the same period of 2005, at the same time as the construction area reduced from 13 to 5.38 million square meters. Total high-rise apartment permits decreased by 74% from 950 to 243, and construction area reduced by 29%. On the other hand, low-rise apartment construction has increased by 6.3%. Although the total high-rise apartment construction permits minimized to 76% i.e.128 buildings from 532 and the construction area reduced to 50%.

The cost of apartments in the Greater Bangkok increased by 5%, for townhouses by 4.5% and for land by 2.9%. Recently launched projects totaled at 15,733 units, increment from 14,665 in the first quarter of 2005. Among this number, 5,494 were condominiums, which has increased from 4,727 in the same period of 2007.

Units which cost between 1-2 million baht were 2,410, with 1,334 units costing from 500,000 -1 million baht.

In the single apartment sector, 3,643 units were launched, which has less by 4,685 in the same period of 2007. There were 1,299 units costing between 5-10 million baht, and 1,207 costing around 2-3 million baht.

The maximum number of apartments launched was costing1-2 million baht, which is 44% of the total units launched in 2008, followed by 17% at 2-3 million baht and 15% at 500,000 to one million baht.

Branded Apartments Entering Thailand's Real Estate Market

Well-known branded apartments are at last discovering their way into Thailand's real estate market, and they are rapidly drawing the interest of investors from other countries as a result of high levels of buoyancy they instigate and the influential status they offer.

Basically, world famous brands - generally five-star hotels in Asia - are getting associated with owners and property developers to deal with various components of residential projects to support the venture.

Buyers are paying attention to these famous branded apartments due to the safety, reliance and gratitude they posses; the reimbursements that come from their controlled rental and global distribution systems, and the better returns they can offer.

However comparatively new in Asia and Thailand, branded apartments are not so much unknown to the world real estate market, with Thailand's leading neighborhoods presenting eye-catching destinations for these kinds of improvements.

Nobody had ever seen earlier any venture offerings similar to this and these apartments are often sold very quickly. People are ready to pay a high payment for the name and the brand. It has truly set the market on fire.

Developers are a significant part of these housing projects, and hospitality brands have to be really very alert in choosing the right one, as there is a possibility of damaging their name and fame if the property doesn't meet the expectations of the brand's standard. They have to be persuasive and make certain that they will deliver a housing product that is as per the standard of the brand name.

Property dealers put on great importance on a developer's track record, and have raised their due assiduousness to stay away from developers who are amateurish in their move towards the international property market.

Branded apartments also draw demand because of the reliability linked with the concerned brands. This builds self-assurance amongst sponsors who are bearing in mind an off-plan purchase.

Bangkok's Real estate Market Overview

Bangkok is the capital of Thailand and also the biggest city of the country. Moreover, it is the fastest developing city in the entire region of Southeast Asia.

The diversified aspects of Bangkok's profit-making portfolio all together gained a GDP of approximately US$222 billion in 2007 which is around 45% of Thailand's total GDP.

Bangkok represents a much expanded and wide ranging real estate market. In Thailand, Bangkok is the biggest attraction for the tourists. Bangkok's property market runs mainly on the hospitality division. Organizations like the Peninsula Bangkok, Shangri-La Bangkok and the Oriental are good examples of the global hospitality market. So, Bangkok is the most profitable investment region in view of hospitality sector.

Bangkok's real estate market mainly apartment and office sector is certainly a traders market at present as there is a scarcity of fresh supply. The suburban property market can be categorized into three wide-ranging sections. The first is the Central Business District (CBD), in which one can get condominiums and second hand apartments.

The second category is near the border area, which is connected to the CBD by beautiful high expressways approximately 20 meters over the ground. Apartments and offices in this area comprise elaborately designed suburban villages or housing estates. These planned areas are characterized by a higher grade of surroundings and pollution free atmosphere are mostly chosen by emigrant homebuyers.

The third category comprises of suburban multi-storied condominiums and apartment buildings.

At the same time as the suburban property market of Bangkok keeps on raising its rates, there is one sector that appears to hit the norm and it is the second hand property sector, which Bangkok's Government Housing Bank is aggressively supporting with some really profitable incentives. Recently a second-hand home fair was organized in Bangkok in which extraordinary interest rates inclusive of noteworthy discounts were made available to the Non-performing Assets.

Bangkok Office Market in Demand

Demand in the Bangkok office market had increased outstandingly in comparison to 2007. This was shown by the increased number of lease transactions listed over the first four months of 2008. Though, the largest part of these transactions were determined in secondary grade buildings or in secondary places, representing renters increasing understanding on the subject of occupancy prices, as stated by Jones Lang LaSalle, a proficient services firm specializing in real estate.

Caroline Murphy, Head of Marketing at Jones Lang LaSalle, said “Following the development of the new government a vigilantly optimistic attitude for Thailand’s economic growth in 2008 has succeeded. Motivating steps from the new government have boosted assurance levels very high. As a result Companies have started business development plans and are thinking of rearrangement. Several companies are also trying to take benefit of near term tenant-favorable market stipulations because of awaiting completion of a major number of new buildings enhancing preferred area accessibility in the market. This is quiet different from the past 2 years where supply limitations offered restricted prospects for medium to larger sized office occupiers to change place.”

As per the recent research by Jones Lang LaSalle, the entire stock of office supply in Bangkok is approximately 7.5 million sqm. The usual vacancy rate decreased from 14.1% in January 2007 to the current rate of around 13.6%. Prime grade office rents were in tune decreasing to THB 652 per sqm per month till April 2008 from THB 656 per sqm in January 2008. Moreover, standard rents for non-prime grade office space decreased slightly to THB 508 per sqm per month in the first quarter of 2008.

Encouraging rent conditions for renters are being obtainable to occupiers with stipulations having been relaxed to some extent in the recent past. With fresh supply moving inside the market in the coming 12 months, attractive prospects to lock in value on both fresh and on hand high quality space are abundant.

However, the effect of the US slowdown on the worldwide economy, increase in the steady fuel price and afterward the increase in the cost of living continues to be the greatest anxiety. Therefore, companies are very alert at the time of expansion. The greatest issue in the expansion remains management of occupational prices.

test

this is a test