Monday, November 10, 2008

Thai property market slows but won’t crash

Source : Sunday Times - 2 Nov 2008

If there had been optimism in the Thai property market, the global financial turmoil has swiftly turned the sentiment around.

Most property markets around the world have been hit and Thailand is no exception.

Worse, the domestic political turmoil and reports of recent unrest may have added to the worries of property investors.

Indeed, prices of luxury homes in Thailand - which were popular with affluent foreigners - look set to fall. But while demand and prices are likely to slip, analysts and property experts based in the country say they do not expect the market to crash.

What this means is that those who are looking for a retirement home may want to wait, while those who have already bought property there may want to hang on and ride out the crisis.

A recent Citi report said the third quarter was the start of a cyclical downturn in the Thai residential property market, as sales slowed.

New launches, for instance, plunged by 55 per cent in September compared with last September’s as the political turmoil, weaker consumer confidence and uncertain economic outlook took their toll, it said.

However, the sharp drop in new condominium launches in September was not a sign of a collapsing condo segment as condos remained the fastest selling segment in the third quarter, it said.

Also, analysts do not see the political turmoil hitting the market severely. Mr David Simister, chairman of property consultancy CB Richard Ellis (CBRE) Thailand, said the Thai political situation may be messy right now, but this is not new and will not result in the market crashing.

The Thai political arena has been troubled for well over three years now, long before the overthrow of the Thaksin government, he wrote in a report.

In a recent report by Asia Plus Securities in Thailand, analyst Gift Srisomburananont said: ‘A repetition of the real estate bursting as in 1997 because of speculative demand seems unlikely as most purchasers of luxury property pay cash.’

Thailand, unlike most Western markets, is not directly driven by the availability of debt finance, said Mr Simister.

Savills Thailand’s chief executive, Mr Robert Collins, told The Sunday Times: ‘The Thai market is almost totally insulated from local bank lending exposure in the luxury, high-end villa and condominium sectors as Thai banks have not been lending to foreigners since the previous downturn in 1997.

‘This is providing a high degree of resilience compared with alternative regional centres where local lending was previously far more readily available.’

In Thailand, foreigners are not allowed to own land but they can buy a condo unit, albeit only up to 49 per cent of a development’s saleable area. Based on a third quarter CBRE survey, out of 3,217 condo units in Bangkok sold to foreign buyers since mid-2005, Singaporean buyers accounted for 12 per cent.

Singaporean property agent James Tan invested in a $190,000 two-bedroom unit in a low-rise apartment block in Bangkok with capital appreciation in mind six years ago. He said he made a small profit but it was not worth the costs involved.

‘Back in 2002, the only bank that could offer me a loan was United Overseas Bank. I did make $20,000 a few years later, but that’s not counting the travel costs, interest costs and time taken to do the whole deal,’ he said.

‘I made three trips there just to sell it. It’s much easier to invest in one here in Singapore.’

But Mr Darren Thomson, who invested with a long-term view and saw his grand six-bedroom house in Hua Hin as a possible retirement home or a gift for his half-Thai son, had a more pleasant experience.

The president and chief executive of Manulife Singapore said he spent close to 22 million baht to build it a few years ago and paid in cash as the banks are strict on lending. (He does not own the land on which his house sits as that is not allowed in Thailand.)

But the process was smooth and the property’s value has since appreciated. He is not troubled by the political turmoil as he sees his house as a ‘long-term asset’.

‘Thailand will always be a destination for foreigners to live,’ he said.

For now, Mr Collins said he expects to see some Thai locations come under price pressure, notably the Pattaya high-end condominium sector and the Bangkok mid- to high-end condominium sector.

A luxurious two-bedroom apartment in Bangkok can cost around 140,000 baht (S$5,900) per sq m to 210,000 baht per sq m currently.

New launches will continue to slow down and, in some areas, there may even be a dearth of products for sale, said CBRE’s Mr Simister, adding this is a situation that could continue for another 18 months before things brighten up.

Still, Singapore-listed Banyan Tree Holdings recently held an exhibition to market its Banyan Tree Residences located around the globe, including its apartments in Bangkok and resort homes in Phuket.

Mr Eamonn Colman, assistant vice-president of Banyan Tree Residences, said most of the interest expressed during its sale exhibition here was for the Phuket properties.

No sales figures for the recent exhibition are available as Mr Colman said they are still following up with a number of interested parties.

But so far, ‘the majority of our buyers are Singaporeans who are shopping for vacation homes for their families and therefore have a longer-term view with regard to their investment purchases’, he said.


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