Thailand Market Uncertainty Unlikely To Cut Capital Values

From the Bangkokpost

Don't be put off by Thailand's political and economic woes because a property turnaround may be just around the corner, says Robert Collins, managing director of the property management firm Savills (Thailand). While the string of bombings in Bangkok on Dec 31 sent shudders across the nation, Mr Collins observed that such incidents are a global phenomenon, even though they may be new to Thailand.

''It doesn't really affect the need for housing. Population growth needs catering to,'' he said.

Increased market fragmentation also means that events such as the Bangkok bombings do not affect Phuket and other resort destinations.

Even so, Mr Collins admitted that the Bangkok market has slowed and Savills itself has seen a decline in sales.

''But we are not seeing prices drop sharply and in some premium sectors prices are actually rising. So the premium high-end of the Bangkok market is still performing well.''

Mr Collins said he had heard that some project developers were delaying their launches, but nothing has been scrapped yet. ''Again it comes back to the wait and see situation we are seeing right now, it comes down to marketing expenses. There is no point investing millions of baht in advertising if the bulk of buyers are interested but will wait six months to see how things pan out.''

Savills' international marketing drives reveal that foreign investors have also taken a 'wait and see' approach, as ownership rules need clarification.

''If anything, we foresee pent-up demand. As soon as Thailand is back on an even keel, a very significant volume of transactions will happen again.''

Savills' roadshows to London, Dubai and Hong Kong this year also found that the shaky situation is a buying opportunity because domestic buyers will delay purchases.

''They can see that the fundamentals are strong and the region is economically strong, so a financial meltdown is unlikely. And we are still able to conclude transactions in projects that are priced well and have hassle-free ownership structures _ those projects continue to sell very well even in the light of the wider economic picture.''

For Savills, the most saleable items have been freehold condominiums in Pattaya and long-lease villas in Krabi.

''Krabi is very popular. It's cheaper than Phuket but that won't last forever.''

Krabi's prices are half of Phuket's with a very appealing entry level of three to six million baht. At the premium end the entry level is 20 million baht.

However, villas costing three to six million baht in Krabi would probably not be on the beach. This may not be significant though because of the town's attractiveness and the spectacular karst scenery nearby.

Mr Collins has also heard of some interesting five-star hotels coming up in Krabi, and some of these will probably sell residential space as well.

''It's a very significant trend taking place across all resort markets in Thailand for new developments to be branded by five-star hotel groups.

''That trend is going to have an impact on existing supply of projects that are not branded. You can see a whole new pricing structure coming into play for projects branded by desirable hotel groups.''

While these hotel-linked residential developments are not necessarily better than those that are not, they do give the assurance of good service and management control. Buyers can also be confident that the companies backing the projects have little risk of bankruptcy.

However, Mr Collins warned that buyers of this type of property could expect to pay more.

Although property is viewed as a secure investment, Thais have typically avoided buying outside of Hua Hin and Pattaya. Mr Collins speculated that the market's leasehold structure could be a factor. He recommended that Thais investors would be advised to consider joining a long-lease cycle, rather than buying the land outright. This would allow Thais to tap into the foreign market if they intend to sell the property in the future.

Harking back to the economic meltdown of 1997, Mr Collins observed that upping the foreign quota in condominiums to 49% encouraged many foreigners to buy condominiums, which helped the recovery process.

Although the market has not collapsed as it did in 1997, foreign investment in the Thai real estate market is certainly helping prop up other sectors of the economy and Mr Collins suggests that this process should be encouraged.

''I am not suggesting that new property laws need to come into place and I think what we have actually works very well. I think we should continue to encourage that foreign buying within the boundaries set by the government.''