Thailand’s Property Market Magnetizing Investors

Commercial property enquiries in Thailand have observed an uptick in current weeks. Hotel and Apartment buildings in Bangkok and Phuket have been most well-liked.

Constant strength has astonished numerous who expected a turn down in the property market in Thailand for the reason of the political turmoil. Hotels are reporting now that a peak season is predictable.

As the world's financial and property market persists to go down, Thailand's tourism hotspots appears to be a safe investment to numerous. The achievement of the Thai economy has stimulated the attention of international property investors.

The country's financial system got off to a brilliant start to 2008, with first quarter growth at 6% on the same period in 2007, and up 5.7% on the last quarter of 2007.

Also, after two years of political chaos - terminating in a revolution in 2007 - it seems the new government is lastly settling in, and has made financial growth its main concern, argues DSR.

The major course of the new administration's efforts is focused on producing domestic and regional investment, with global investment presently slowing subsequent to the constant liquidity crisis.

"Constant growth in Asia is outstanding news for property investment in Thailand, particularly in the budding markets of Thailand's islands of Koh Samui and Koh Phangan, where growth is mainly fuelled by strengthening regional tourism," said Liam Bailey, head of international research at DSR.

At the same time as buying property in the country is not easy - with authoritarian ownership criteria in place - it is probable for foreign citizens to obtain investments through the use of domestic businesses.

The Institute of International Finance (IIF) also sheds an optimistic light on the future of the Thai financial system.

The IIF has said intensifying inflation caused by the increasing cost of fundamental materials was the major challenge facing Asian economies. Though, the organization also established the trouble would collapse shortly and that concern over the trouble had been greatly inflated.

Moreover, the IIF also finds Thailand has the best possibility of weathering the worldwide storm, saying: "The most important budding markets in Asia are well-positioned to weather tentative and less encouraging global circumstances."

2008 Could Be a Good One for High-End Property Projects in Thailand

After a inactive first half of 2008, the Thailand property market has observed considerable growth in the third quarter of 2008, mainly in the luxury condominium and apartment estate segments, commercial property has continued to be strong which presents an even brighter point of view, according to Thanisarra "Honey" Sinprasertwong CEO of One-2-Property.

Thai Real Estate Association president Somchao Tanterdtham expects that the real estate market in Thailand would see growth of approximately 5 % to 10 % in the third and fourth quarters of 2008.

"In the first six months, the property market has not done well for the reason of economic volatility and price increases, which have elevated the level of ambiguity in the minds of customers," Somchao said.

Honey said the costs of a lot of real estate projects are likely to increase considerably in the next few years for the reason of strong price increases, elevated construction costs and the increasing costs of raw materials.

Lots of customers are ready to pay money for property in 2008 on the prospect that costs would go up in the next few years.

Commercial banks in Thailand will decrease their deposit insurance to around Bt1 million [per account] in the coming five years in agreement with the Deposit Protection Act lowering interest and security from bank accounts. A lot of locals have wanted different investment prospects, like investing in property and exchanges which makes available higher returns.

Buzz-Inc's (Owner of One-2-Property) Chairwoman , particularly Phuket and Bangkok said, "China's quick expansion has given a fresh market not only for tourism, however for property also, we have observed enthusiastic interest at Expo's in Hong Kong and from our Advertising from China and at present around 20% of hotel enquires are coming from Hong Kong and Shanghai".

Numerous property developments that had been built in the previous year are still convincingly priced as developers sustained lower prices then, however they are preparing to sell out as the market knows things will turn out to be more costly next year.

Firms Consider Ways to Attract Buyers amid Likely Increase in Interest Rates

With the minor achievement of the government's economic package and a hike in interest rates on mortgage loans expected, developers are considering a change in plan for the second half of 2008.

The trouble of home-buyers will increase around 5-6 % because of increasing rates and elevated apartment prices. This will reduce their interest in property investments in the second half of 2008. Keeping this in mind, developers are trying hard to look for new ways to stir things up on the sales front.

Land and Houses is preparing to stick to its policy of making available apartments at initially predetermined construction prices, in order to attract consumer. It has priced apartments at Bt 3 - 5 million. The developer hopes the low-cost Bangkok apartments and government tax incentives to increase sales and assist the company meet its sales target of Bt21 billion in 2008.

Land and Houses director and senior executive vice president Adisorn Thananun-narapool said elevated inflation and the predictable hike in interest rates were not the only aspects that would lower home-buyers' procurement power. Worsening buyer buoyancy will also play a significant role in keeping them from house hunting, he said.

Asian Property Development plans to decrease sales of condominium projects for which the company has required environmental-impact-assessment licenses. This is for the reason that condominiums take longer time to build. "This approach will protect consumers if the projects do not pass the assessment or there is requirement for any modification in building plans," a company source said. The developer is preparing to launch 10 projects worth a combined Bt18 billion in 2008, among which five worth Bt10 billion are condominiums along the Skytrain.

Preuksa Real Estate is concentrating on projects of Bangkok apartments in Bangkok's central business district and on the outer reaches of the city. The company is purchasing construction materials beforehand and speeding up projects, with the intention of keeping prices down.

Developer Plans To Invest In Bt 7-Billion Projects on Praditmanutham Road

Property developer KE Land is planning to put approximately Bt7 billion on four projects around Praditmanutham Road, which is situated under the Ekamai-Ram Indra Expressway, in the next 3 years.

The company's managing director Kaveepan Eiamsakulrat told that half the sum would come from the company's cash flow and the left over would be loaned from a bank.

The four projects are two retail centers, a detached apartment project and an office building. One of the retail centers designed is part of the second stage of the high-end Crystal Centre. The second project, the Bt 2-billion Crystal Design Centre, is going through construction and is likely to be complete by May or June of 2009. The combined operation space of the retail projects will be somewhere between 40,000 and 50,000 square meters.

Sale of the Bt1.5-billion luxury detached apartment project, Grand Crystal, has started. The apartments will most probably be ready for delivery in 2009. The office project will offer utilization space of approximately 20,000 square meters. The Bt 2-billion project will be complete by 2009.

KE Land has possession of approximately 200 rai of land on Praditmanutham Road. The two retail centers and detached apartment project will occupy only 42 rais. The company is making arrangement to take up three additional projects spanning 100 rais in the area. The rest will stay undeveloped.

Kaveepan said the company is paying more attention on projects that produce rental income for the reason that land prices on Praditmanutham Road are too elevated currently to develop apartment projects for sale.

"We are paying attention in developing condominium projects although are not planning any now as it is still too early to build up those type of projects on the land. However in the next 3-5 years, we will start on those type of projects on Praditmanutham Road," he said.

The company hopes rental income will produce around 70 % of its revenue by 2010. The remaining will come from the sale of apartment projects.

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.

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.