Investing In Thailand's Property Market Is No White Elephant

The Thailand's property market has undergone strong inspection over the past 2 ½ years. The shocking Tsunami in December 2004 and military revolution in September 2006 definitely gained the ‘land of smiles’ global consideration though the Thai government and its people have worked hard to utilize this attention optimistically. Far from being a white elephant (which are by the way sacred and a symbol of wealth in their native SE Asia), there is constant curiosity in Thailand as an investment prospect.

Thailand has gradually improved its former economic vitality, strengthened by improved government spending, sensible export growth, real GDP growth of 4.5% (in 2005) and considerable inflows (US €7.9 billion in 2006) of foreign direct investment. Current economic growth in Thailand registered a healthy 4.3% increase in the fourth quarter of 2006 with outcrop of a solid 5% growth in 2007.

A significant economic growth sector has been tourism which accounted for a remarkable 9% of Thai GDP in 2005 as per the Bank of Thailand. The number of tourists visiting Thailand has nearly doubled over the last decade with the Tourism Authority of Thailand (TAT) estimating constant growth of 7% for 2007, to an expected total of 14.8 million tourists, earning Baht 547 billion in the complete process.

A solid economy together with a prominent reputation as a beautiful tourist destination is having an optimistic influence on the Thai property market, providing some outstanding and wide-ranging prospects for the international property investor. Resort developments like in Pattaya, are proving mostly well-liked not only with international buyers however also Thai residents, the flourishing ex-pat community and the rising Asian middle classes particularly the Chinese for whom Thailand is the 4th most well-liked destination for foreign travel.

The real estate market in Pattaya is flourishing with Thai nationals purchasing first ‘western style’ homes here in addition to foreign nationals purchasing second or retirement properties. Several experts consider the city to be experiencing a second cycle of expansion as more and more higher end luxury developments like the 91 floor Ocean 1 Tower and other housing communities spring up in Pattaya. The Thai property market is flourishing very much and investing in real estate in areas like Pattaya is not at all a problem or white elephant.

Future of High rise Property Projects on the Edge Remain Undecided

Regardless of the optimism in the real estate market, there are at present a large number of high-rise property development projects left on the edge. At the same time as a few of them have the prospective to continue construction, it is estimated that several will see no movement in the near future.

A large number of high-rise property development projects were initiated and completed in Bangkok from the property market crest in 1994. Though, construction of most of these projects comes to an end when the economic crisis hit the roof in 1997. At the same time as a number of them have restarted construction over the past recent years in response to better market conditions, lots of them have remained left incomplete since then.

The finding of a recent study reveals that there remain 48 high-rise projects, whose construction is in progress and then has been put on hold from 1997 till now. The findings also show that the office and condominium sectors have seen the utmost supply on the edge, with 43 projects having stopped construction for over five years.

As only some parties have discovered the technical authenticities for these long-time skeleton buildings to restart construction, there are many issues that both developers taking into account re-establishing their projects and investors in view of taking over poised projects will have to take into account in terms of viability. For example, along with high-rise property projects that have been left incomplete for several years, it is hardly feasible that parts of the building structure and a number of built in systems that have been installed by now may be damaged by the atmosphere and due to the shortage of maintenance. Changing new systems can take additional time and be more expensive than installing the similar systems in a fresh project. The possible marketability of the projects by the time when they will be finished is another key subject to think about.

Real Estate Market of Thailand in Ten years

The real estate market of Thailand has shown a strong upturn in the past ten years and as the economy of Thailand was hit by financial crisis in 1998. Whereas property assets have valued from lows posted in the consequences of slump in the late 1990’s, rental and capital values in a number of sectors have by now increased above pre-crisis crests.

The property market of Thailand has gone through a long journey. The industry has seen both the best and the worst, from the superior levels reached in the early 1990’s to the lows suffered following the financial crisis in 1998. Many sectors have by now bounced back to levels never seen earlier.

The impact of economic reduction in 1998 on the property market was ruthless as it happened at a time when lots of real estate sectors were already oversupplied. What made it poorer was that fresh projects continued to be developed in those days motivated in large part by assumption rather than to accomplish real end user demand or meet long-term investor necessities.

Compounding a sharp reduction in demand (e.g., the shutting down of 56 finance companies), a profusion of office space supply further spoiled market circumstances. In spite of the postponement of a lot of large-scale office developments, over 270,000 sqm of new-fangled office space entered the market in 1999, pushing the average vacancy rate to about 40%. Consequently, rentals keep on sliding.

On the other hand, it was not until the end of 2001 that office rents decreased at an average rate of THB 376/sqm/month. Office rents lastly began getting better in 2002 and are now averaging THB 666/sqm/month, or 2.5% above the maximum level in 1991. The overall common vacancy rate for Bangkok office buildings is now about 13%.

The Bangkok retail market was among the real estate sectors toughest hit by the economic crisis. Market circumstances in the sector critically declined in 1998 as buyer spending and demand dropped, and leasing activity withered. The decrease in demand for retail space in 1998 resulted in elevated vacancies at Bangkok’s retail centers.

Property prices rising in Rayong Market area of Thailand

For the time being, the silent seaside town of Rayong is most likely known as much, possibly not always reasonably, for pollution as it is for property. Though, its thriving real estate market is starting to attract investors' attention.

Over the past three years, takings have definitely been inspiring. In older buildings, costs for a few condo units initially attained in non-performing asset sales have by now doubled.

A 36 sq m studio unit at the towering V.I.P. Condominium positioned at Mae Ram Phueng Beach that was promoted in 2005 for 500,000 baht is now costing 900,000 baht. After renovation, a 70 sq m one-bedroom unit has increased from one million to 2.5 million baht.

One of the champions in this movement is Jens Brochner Nielsen, CEO of D2 Real Estate, who says demand for this type of properties now far exceeding supply.

''Over the past two years we have sold around 120 units in the V.I.P. Condominium, and there is nothing for sale at this time,'' he said. ''It's correct that owners will put up these condominiums again for sale in the resale market however there are no NPLs anymore.''

He says the development's reputation replicates how far the well-liked observation of Rayong varies from the truth. In his analysis, pollution from the Map Ta Phut industrial estate is less persistent than normally assumed. The region's eastern side is generally agricultural and "very clean''.

Even the seabed of Mae Ram Phueng Beach, where plenty of high-rise condominiums are situated, is confined and dirty water cannot be released there.

However also key to Rayong's demand is a cost point that remains low in comparison to other resorts _ in spite of the rises of the past three years.

''Costs have certainly increased in Rayong although they have not reached the top so far and even if we go into a slump _ when costs generally decreases in Thailand _ in Rayong they will remain steady,'' said Mr Nielsen.

Owners Cautious Of Lowering Costs for Properties

A broadened bid-ask spread has came out in major real estate markets across Asia, because property owners, hold up by solid market fundamentals, remain unwilling to lower their asking rates, as per CB Richard Ellis' Asia Pacific Investment Market Report for the second quarter of 2008.

Even though Asian markets have been pretentious by slowing economic growth and disturbed capital markets, economically sound institutional investors, together with pension and independent wealth funds, stay active across major cities in Asia, and direct commercial property transactions in Asia were up somewhat year on year in the first half of 2008, as per the company.

Numerous large transactions were accomplished in Thailand, with the center of attention squarely on hospitality properties and the countries major resort markets, where investment response remained healthy on the back of continued growth in the hospitality and tourism sector. Many hotels in Phuket changed hands, with a few to be modernized and rebranded. Land transactions incorporated the sale of a freehold plot for about Bt1 billion on Koh Siray, and this trend will keep on like this because a number of investors realize large capital gains from holding properties for the past 2-3 years.

Investment movement in the Bangkok property market, in contrast, was highlighted by getting hold of a plot of land in Sathorn for Bt1.4 billion by AIA, representing that investors retain buoyancy in the sector's prediction. Other prominent transactions in the capital incorporated the sale of many hotels and commercial properties.

Regionally, Japan persistently attracts most of the investor's interest, accounting for more than 30 % of Asia's biggest investment transactions. Banks and financial institutions have been cutting lending activities in 2008 in Japan. Extremely leveraged investors as a result sought to decrease liability by bringing assets to the market and this resulted in a recosting of residential, suburban retail and fringe offices properties. Though, asset pricing for the best situated and utmost quality properties remained comparatively firm.

Global Economic Slowdown Affecting Commercial Real Estate In Thailand

Regardless of the constant sub-prime crisis in the US real estate market, the straight impact on Thailand’s economy and real estate markets has been negligible. On the other hand, apprehensions are increasing as few economists consider that the slump in the US economy has not yet reached the base, and the degree of its impact is yet to be discovered.

These concerns are replicated by a more careful business approach implemented by both local and international companies in Thailand. Especially, large international companies have turn out to be extremely sensitive about possession costs. Despite the fact that the leasing activity in Bangkok in the first quarter of 2008 was upbeat, most of leasing transactions were intense in buildings offering monthly rentals less than THB 500 per sqm per month, at the same time as the average rental of Grade A space in the central business district (CBD) is more than THB 650 per sqm.

Government policies have not showed effect till this time
In view of the fact that the coalition government was formed, a number of economic incentive policies have been introduced. A few of these policies are straightforwardly encouraging to the property sector, like the abolition of the 30% reserve on foreign capital investments, approvals of mass transit projects and property stimulus measures concentrating on associated tax reduction on property sales transactions.

Though, effects from the majority of these policies have not yet been appreciated. There may be some time delays between the execution of the authentic policies and their effect on the economy and the property market. As a result, we suppose that the impact will ultimately be seen over the next quarters.

In addition to this, the government should thrive to reduce impacts from the fuel price crisis and deal with risks from the global economic recession; we can look forward to considerable improvement of the demand in the property market in the second half of 2008.