Thailand Property

Bangkok City Skyline

Thailand has been a popular destination for tourists and expatriates for over three decades.  Over this period  it has experienced an extended property boom, which has been particularly concentrated in the Bangkok Metropolitan Region (BMR).  The BMR contains 17% of Thailand’s population and accounts for 44% of its GDP.  Household incomes there average 42, 000 baht, nearly double the Thai national average, and demand has grown along with supply as Thailand urbanized.

The recent trend has been for developers to look further out from the centre of Thailand’s economy, finding provincial sites.  One reason for this could be a slowdown in the BMR property market as it reaches saturation.  Typically 80-100, 000 new units are sold each year, but the absorption of new housing units has flattened off at 35-40% and inventory levels are struggling.

As in many Asian markets prices are rising faster than income growth.  Although Bangkok is no Hong Kong in this regard, it is experiencing an affordability problem.  As in Hong Kong the response from developers has been to downsize already small living space, but many Bangkok apartments are already 20-30m2.  Additionally, a smaller number of condominiums than expected were built in 2012 and the numbers are expected to fall further this year.  Of those built, 54% were in suburban areas of Bangkok and the trend for decentralisation is expected to continue both locally and nationally.

While the mass market may be saturated there is still strong demand for highly desirable locations along the proposed skytrain route, and competition in this market is intensifying.  As it does so, developers are climbing aboard the bandwagon and presenting their products as tailored to a luxury-oriented foreign market, in line with the conclusions on the importance of branding drawn by Rinchumphu et al in the International Real Estate Review.  Other developers devote themselves to the foreign market which they claim is booming.

Another reason for the withdrawal of developers from the BMR could be the blows to consumer confidence caused by the 2011 monsoon floods and the recent political unrest in Thailand.  The floods in particular pointed up a key concern for the BMR area: it’s located around the mouth of the Chao Praya River and is very vulnerable to flooding.  It’s also built on an alluvial flood plain.  As a result of aggressive groundwater extraction, Bangkok was sinking at a rate of 10cm yearly in the 1970s, and even now is sliding into the Gulf of Thailand at about 1-3cm yearly.

Additionally the sea level in the Gulf is expected to rise between 19 and 29cm by 2050 as a result of global warming, leaving BMR residents with the unwelcome prospect of a 4m descent by 2050.  The World Bank expects Bangkok’s flooding risk to increase fourfold by mid-century, and experts agree.  ‘In 50 years,’ according to Mr. Anond Snidvongs, a climate change expert at Chulalonkorn University, ‘most of Bangkok will be underwater.’

There are further troubles ahead for the Thai contruction industry, too.  The Thai government is currently drafting the third round of the country’s zoning laws.  Based on information collected in 2004, these reallocate much suburban land to agricultural purposes, and have been attacked for being out of date and restrictive to development.  The Thai Industry Minister Prasert Boonchaisuk said at the start of the month that he had asked the Interior Ministry to reconsider its plans.  In an especially harsh blow for urban Bangkok the new plans will include restrictions on the height of new buildings, slowing condominium production further.

The Stock Exchange of Thailand (SET) has risen recently and there are other promising signs including the Thai government’s commitment to a gigantic, nationwide infrastructure project that will see $77m spent in the next decade and will include several new mass transit systems, opening suburbs to development.  However, the old model of strongly centralized urbanization in the BMR is probably gone permanently, despite sales talk to the contrary.  David McCauley, the ADB’s chief climatologist, puts it more bluntly: ‘There is no going back.  The city is not going to rise again.’

Photo credits: Mike via Flickr

Mid to low-price Bangkok condominium developers will be under pressure this year as liquor tycoon Charoen Sirivadhanabhakdi enters this highly lucrative housing segment.

TCC Capital Land announced plans to launch its first non-luxury development, offering units from around £21,000 in Soi Sukhumvit 101/1.

TCC Capital Land is a joint venture between Singaporean-based CapitaLand and TCC Land, which is Charoen’s property development division. The middle-market condominium segment will be handled by S&S Residential.

“A large property firm is negotiating to form a joint venture or buy a major stake in a smaller company, which focuses on lower-middle-income-market condominiums,” said an un-named industry source.

“The buyer wants to strengthen its competitive edge against others, particularly TCC Land, which owns a land bank worth up to Bt100 billion nationwide.”

A lavish Gala Dinner was held at the Royal Orchid Sheraton in Bangkok on Saturday night, to announce the winners of the 2007 Thailand Property Awards. More than 350 of Thailand’s real estate elite were in attendance to celebrate the award.

A three phase process is used to determine the winner in each category:
First, the real estate industry were invited to nominate companies in the 12 categories. Nominees could not nominate themselves, nor nominate in a category where there may be a conflict of interest. This phase closed on 31st August with over 260 nominations received.

The Bank of Thailand admitted it had intervened in the currency market late last week, after a sudden weakening of the Baht, caused by foreign investors shifting their money out of Asia, worried that Citigroup would be downgraded when the full effect of the US sub-prime mortgage crisis took hold.

One potential upside of the situation at the moment is to make Thailand’s property market a far more attractive investment opportunity. The baht reached 34 baht to a US dollar this week. Combined with political uncertainties over the upcoming election causing softening prices the Thai property market seems to be shifting into overdrive.

Clayton Wade, managing director of Premier International, a Thailand-based residential and commercial property consulting group, made some interesting comments in a recent interview with The Bangkok Post. “With the recent downturn in economic indicators and consumer confidence, many local investors have switched money from the stock market to a more secure sector – the Thai property market.”

An unwelcome combination of political uncertainty, soaring oil prices and high interest rates is forcing developers of top-end Bangkok housing estates to cut prices and reassess business strategies.

Industry insiders forecast that developers of luxury housing will likely cut prices by 5 to 10% in the second half. The price cuts would affect units valued at Bt7million and up.

The shrinking demand for housing has led to oversupply, with many developers have been forced to freeze projects. Commercial banks have also become more cautious in offering mortgage loans.

Visanu Thepcharoen, chief executive of luxury developer Nusasiri Co Ltd, said the company had frozen new housing projects and shifted its focus to ensuring current projects were ready for buyers to move into as soon as possible.

He said that 340-rai project on Rama II Road has been frozen, adding that Nusasiri had seven luxury housing projects in Bangkok with average prices of more than Bt10 million per unit.

He said that political and economic uncertainty has been shrinking demand, particularly for units prices Bt10 million and up. Nusasiri’s monthly sales of luxury housing units has dropped from about Bt500 million to about Bt200 million.

He added the company had frozen spending on public relations and marketing and would focus on promotional events within a six-kilometre radius of each housing project.

The company has adjusted its strategy from pre-sale activities before building the houses to making fully finished houses at existing projects and then selling them to customers, he said. Visanu added the company still has unsold housing units at some locations, including 10 units in its Udomsuk project, about five units in its Bang Na project and about 30 units in its Sathorn-Pinklao project.

Visanu said the company will also shift its focus to developing its new hotels and serviced apartments in Pattaya and Phuket, which are expected to generate higher and more immediate returns.

Land & Houses Plc, (LH) the country’s largest residential developer, has cut its 2006 revenue growth target to zero from 10%

“LH expected consumers to continue tightening their belts for the rest of the year,” said Adisorn Thananan-narapool, senior executive vice-president. “First-half sales were lower than a year ago.”
Fourteen analysts polled by Reuters Estimates forecast a 2.5% dip in the company’s 2006 sales to 22.2 billion baht, but an 8% rise to 23.9 billion baht next year.

In the first quarter, LH reported a larger-than-expected 33% fall in net profit.

Mr Adisorn said that LH would proceed with eight or nine new projects this year, mostly detached homes, worth a total of Bt10 billion and funded with cash.

Source: Asia Property Report

Pattaya Originally uploaded by yangon.

Pattaya is the jewel in the eastern development crown, but it’s by no means the only diamond in the rough. Developments in locales such as Jomtien, Sahathip, Pratumnak Hill and Mabrachan Lake are providing good investment opportunities…

… And with a new international airport opening just 40 minutes away, one could say that the sky is the limit for the sheer size and scale of future Pattaya property developments, and the international agents that wheel and deal them.

Spotlighted in countless local and international publications, the potential for property investment on the eastern seaboard is attracting an increasing amount of attention. With the bursting of Thailand’s property bubble in 1997, the market was pretty cool for several years thereafter, but the past half-decade has seen some tremendous growth potential.

“International agents are very interested in this area,” said Roland Steiner of Siam Royal View Projects. “The problem is that most projects are too small for an international agent to get involved with. They have a long lead time for sales and typically, good projects are sold out before those agents have had a chance to respond.” Mr. Steiner went on to say that this trend was telling: the internet remains the primary tool for overseas agents to research potential investments, but even the bang of instant knowledge at their fingertips doesn’t seem to let them in on the game fast enough to scoop the locals.

Henri Young from Raimon Land agrees that international agents are starting to take a greater interest in the area. “Overseas agents are only just starting to pick up on this market,” he says. “Previously, they channelled their efforts towards Phuket, but the positive press, scale of projects and potential for growth has lured them into the market. This should help educate and attract more international prospects.”

That being said, with the economy emerging from a long slumber, developments in the region will most definitely start to grow in size, as will the time and money spent by foreign agents in ensuring that they’re able to stake their claim. David Gray of East Coast Real Estate echoes the sentiment.

“The area is starting to attract a lot of attention, especially from big agents like CBRE, Jones Lang LaSalle and others,” he explained. “Many of them are doing business in this area but don’t yet have offices here, which will change over the next little while.”

Walking around the town, it’s easy to see that there’s a large contingent of companies ready to dive into the lucrative, expanding market. Sales agents and property companies are nearly as easy to spot as 7-11’s. It’s clearly a market rife with companies waiting for the coming influx of cash.

It was to be expected after all, for every success story in Thailand, be it movies or fashion or restaurants, there are five others that crowd onto the bandwagon, often without meeting the minimum requirements that others spend so much time attaining.

“When we started here ten years ago, there were three main property companies, ours included,” says Gray. “But now, there are over 120 of them, all jockeying for slimmer and slimmer pieces of the pie.”

Engaging in casual, chew-the-fat type of conversation with people involved in the area’s industry leads one to believe that of this large number of property offices, few are capable of navigating the treacherous waters of the property market. Probably about 90 percent of the companies in the area are seen as “cowboy” entities, there to get as much as they can, as quickly as they can. In this regard, the ingress of international “big boys” setting up shops in town will probably be looked upon as a blessing.

In response to this question, Gray says: “In order to compete with these guys, you need professional service that offers the right properties, the right contracts, the right prices and the right commissions. I think that within the next few years, many of these smaller, less professional operations will be gone. It will give the industry the professional edge that it needs to maintain in order to thrive.”

Indeed, ten years ago when Gray set up East Coast Properties, the market for lavish, expensive condos simply didn’t exist. Pattaya was a boom town, but the property influx that was to define it for the new century was years away.

“A new breed of developers has appeared with the emergence of the high-end Pattaya market,” said Steiner. “High end constitutes properties that cost 10 million Baht or more. This market segment did not exist 5 years ago.”

One of the clearest examples of the new trend in high-end living is La Royale Beach, a new project being managed by Wise Power Group. The 34-story tower on the Jomtien side of town boasts its own private beach, jogging track, underground parking and a host of other tweaks and amenities that make it a first class property. And the view is excellent.

“I’ve worked with many five and six star hotels and top-tier condos in Hong Kong, and I have a lot of experience with what works, what doesn’t work and what tenants expect,” says Wise Power Group Chairman Eric Lai. “I made a very conscious effort to take what I’ve learned and apply it to La Royale to make sure that we develop nothing less than a first-class environment.”

Gray, whose East Coast Real Estate is the sole vendor for La Royale Beach, says that it’s his single biggest project right now. “We’ve sold over 75 percent of the units there, which represents over 1 billion baht for that project alone.”

This is only the latest of what will surely become a trend in first class properties catering to those willing to dig deep to buy that kind of lifestyle but will sales levels eventually come back down to less lofty heights?

In Steiner’s opinion, things look like they’ll stay peachy into the near future. “The condo market anywhere is very cyclical due to oversupply situations, which makes it more competitive and risky,” he said. “Smaller houses in the 2 to 6 million baht range are being stamped out 100 to 300 units at a time, so oversupply is definitely possible in that market. But many high-end projects are quite small 5 to 30 units  which are bought and then built, so it’s hard to have an oversupply in this situation.”

But Pattaya isn’t a self-supporting economy, sequestered from the rest of Thailand; the two are linked. Keep in mind that over 80 percent of housing units in this area are bought by Thai buyers, who are a product of the economy. Growth here is a direct mirror of economic growth in general, and we all know how quickly that can change.

Driving down the first beach road in Jomtien it’s strange to think that in several years, the entire area will be likely be spiked with high-rise condos offering views that would make Donald Trump pine for a spot on the waiting list.

“I think that Jomtien will be the next “hotspot” for the region, if they do it right,” answered Gray when asked where developments will start springing up next. â”If they go in with the right planning and infrastructure, you’ll see big developments there for years to come. It’s got 7 km of beach and miles upon miles of land that’s just empty. There is huge potential.” Grey went on to suggest other prime areas around town include Pratumnak hill, which is mostly smaller, residential developments, and Mabrachan Lake, as it has easy access to motorways amid a tranquil setting. He explained that these two areas simply don’t have room to support massive, sky-scraping towers of steel and glass – and that may be a good thing.

In spite of everyone’s love for luxury, there’s still only so much a person can use. Gray, despite representing many of these large pieces of property, sees a time when buyers will tire of them and look to invest in smaller, cosier places to live. “I think that’s what we’ll start to see more of eventually, because many of these huge spaces are just too big,” he said. “You don’t need an extra 20sqm of space for a sofa.”

This is a fair assumption to make. Although several massive projects have already been planned for Jomtien, one can imagine that land prices out this way are still reasonable enough to warrant smaller, more personal spaces that still provide a return on investment. An example of this on Pattaya beach is the View Talay Condominium project, a 26-story condo offering mainly studio and one bedroom units that many think will be quite successful. Steiner seems to agree, echoing Gray’s comments when he says that the market in Pattaya is being driven by a growing Thai middle class, taking up most of the properties in the 2 to 6 million baht range, and they’re growing fast.

Mr. Young and Raimon Land has bet big that the Wong-amat beachfront will be a desirable location that will draw investors to North Pattaya for their Northpoint development. “Wong-amat offers a more peaceful alternative to Central Pattaya and Jomtien with a distinguished heritage, relative proximity to Bangkok and superior beachfront,” he said. He also adds that the Raimon Land research shows that demand will stay high for some time to come.

“Our pre-sales interest in Northpoint indicates that several qualified buyers are scouting the market,” he said. “Also, geographically speaking, there are still some good sites in and around Pattaya and while niche and price driven locations will continue to emerge, the main draw card will still be the city itself.”

The biggest change that the region has ever seen will arrive shortly, with the opening of the Suvarnabhumi International Airport. Depending on whom you believe, the airport will either open this June, this July or this December, but no matter which month it is, it will undoubtedly have a tremendous effect on the area, transforming it nearly overnight. Mr. Young recently toured the facility and came away impressed. “Our tour revealed a tremendous facility with a credible ‘wow’ factor. We’re looking forward to its opening.”

But it’s not just Pattaya that will profit from the new airport. The surrounding areas will get an injection of cash and opportunity as well. Steiner says that with the new airport, buyers will be ready to venture down not just as far as Rayong, but Maptaput and Laemchabang ports.

He also sees Koh Chang benefiting from the new air link and is hoping to take advantage of the island’s proximity to the airport with Siam Royal View’s development there (as well as the one in Pattaya). “It’s conceivable that you could be in downtown Pattaya faster than you could be in downtown Bangkok. Just compare the lifestyles,” he says with the authority of someone who’s maybe had a bit too much of big cities.

Gray agrees that things will change drastically once the planes start landing. “You have industrial ports, deep sea zones, tourism and schools. I think a lot of companies will relocate from Bangkok to here. With the planned high-speed rail link it’ll make the whole commute a pretty painless experience.”

“It will be faster to get to Koh Chang from the new airport than it will be to get to Patong beach from Phuket airport. You can also get flights to Trat from Bangkok 3 times a day, and they’ve just announced a Samui-Trat flight, with Phuket to follow,” explained Steiner. “The effects of the airport will be explosive.”

But when people see big potential, they tend to have big ideas, and developments don’t come much bigger than the 91 storey Majestic Tower, a new skyscraper that will have its official launch sometime next month. There is surprisingly little information to find online, but queries to the listed developer (Siam Best Enterprises) end with an email that says: “According to our architects this will be the tallest residential building in the world and we spent considerable time engaging world renowned experts in the field of property construction.

It has been in the planning for almost a year and we anticipate the official launch will be within the next six weeks.” Undoubtedly, the building will change the Jomtien landscape (and probably Koh Chang’s too you might be able to see the behemoth from the faraway island), setting the bar pretty high for others to follow.

Thankfully, the effects of the ’97 crash have been studied and lessons have been learned. “It’s important for potential investors to remember that the crash of ’97 was not actually a real estate crash, but a currency speculation crash,” said Steiner.”There was exorbitant over lending by banks at the time, but if you try to get a loan now, you will feel the mechanisms that prevent serious overheating.”

Gray, who came to Thailand shortly before the market fell, agrees with this statement. “The banks used to give money to anyone he’s your brother or he’s your friend, have some money. But they’re much more careful now and it’s much more stable.”

Nevertheless, skittish nerves about all the activity on the eastern seaboard are hidden not too far under the surface. There are a few projects around that trigger raised eyebrows when their names cross the table. For obvious reasons, people don’t want to go into too much detail, but the best advice that anyone can take is to research where a project’s financing is coming from and how it’s structured. There have been projects in the past where the money has flowed in, the construction has started and then  poof. A half-finished building and a few unscrupulous individuals who flee the country with suitcases full of cash. Being forewarned is being forearmed. Having a real estate lawyer familiar with Thai law go over things probably wouldn’t hurt.

But, with prices rising an average of 30 to 40 percent each year for the past several years one of the highest rates in South East Asia  the future is definitely looking bright for property investments. Many people are taking advantage of the market by investing in short term properties – getting in and out with a small but easy return. “One guy I know bought a property for 9 million baht, and sold it for 12.5 a few months later,” said Gray. “That’s not too bad.â”

Source: Property Report Asia