Thailand property market outlook

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Thailand property market outlook 
Bangkok Post: 12 Jul 2009
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THE FIRST SIGNS OF RECOVERY

Some property markets in the region are beginning to pick up

The significant upturn in three key regional property markets over the past couple of months has not helped Thailand, says Robert Collins, managing director of Savills (Thailand) Ltd.

Hong Kong, Vietnam and Singapore have begun to experience a property upturn mainly because of a more positive outlook on their economic environments.

Although there are concerns that the optimism could be just a short-term bubble, it is noteworthy that these three markets adapted far more readily to the downturn last year and are therefore more receptive to positive news.

"This is all helped by more positive lending policies by the banks so the investors and end-users are able to borrow money and stimulate the property market again," said Mr Collins.

While the Thai property market is still stumbling along, he says it could indirectly benefit from rising prices elsewhere in the region.

For example, values of top-end products in Singapore are almost back to where they were late 2008 and this in turn makes Bangkok look good in terms of value for money.

"But it means that Bangkok will enjoy a very slow curve to recovery over an extended period of time rather than a fast track to recovery."

Even though prices in Bangkok have slipped by 10-15%, they have come down very slowly. Mr Collins believes that if they had come off by 30% the Thai market would probably be on the verge of recovery because a lot of buyers are sitting on money waiting for a good opportunity.

"Those people are buying in Hong Kong, Singapore and Vietnam because it's value for money there, they are not buying in Bangkok aside from a few isolated cases."

The few good deals that have taken place in the Thai capital have not enabled developers to establish a pattern as to where the market actually lies.

Mr Collins expects the Thai market to enter a long phase of a weak trading environment. The 10-15% drop in prices takes the market close to the bottom with another equal plunge unlikely and this means it is indeed a good time shop around.

"If you're looking to get into the market, now is a good time to buy with the other key economies in the region picking up. It's not likely that the Thai market will slip further."

However, he pointed out that Thai property investors need to hold properties for longer before realising profits compared with the other three Asian markets.

Both office and residential prices in Hong Kong have staged a dramatic recovery after a period of particularly rapid adjustment late last year. Strata-title Grade A office prices have risen by 25% year-to-date while luxury residential values are up by 15%, according to Savills.

The reasons include ample liquidity in the Hong Kong banking system but also in China where loan growth has been dramatic. Personal balance sheets are in good repair and households have avoided becoming financially overextended, having learned form the 1997-98 crisis.

"As long as interest rates remain at low levels [deposit rates stand at 0.001%] and quantitative easing ensures ample liquidity, it is hard to foresee a cooling of the rally before year-end," said Mr Collins. "If, however, interest rates were to begin to rise before recovery had really begun to set in, then prices would soon begin to adjust downwards again."

Turning to Vietnam, he noted that the Vietnamese stock market has been showing gains with the VN-Index doubling to more than 500 points in the period from March to June 2009. The Stock Exchange of Thailand, by comparison, is up by about 30% for the year so far.

"We have observed an increase in demand for high-end apartments in both Ho Chi Minh City and Hanoi markets. The resort market in Danang has also proved popular with local investors and shows signs of becoming a competitor to the Thai resorts over the coming years."

In Singapore, meanwhile, it appears that cash-rich, high-net-worth individuals and companies are becoming increasingly active in the property market. Their interest is focused on mid-scale developments with affordable prices as credit remains tight.

"Together with buoyant sales in the primary residential market, these current deals done in the investment sales market may suggest a renewed confidence in Singapore's property market," said a Savills report.

"However, as there is no conclusive evidence of any firm economic recovery beyond early encouraging signs of an imminent bottoming out, we remain cautiously optimistic on the investment sales market in the near term."

Regional expatriate investment that could have come to key Thai resort markets, namely Phuket and Samui and to some extent Pattaya, is now being diverted away but the flow is not going to any one destination.

The opening of the Hyatt Regency Danang Resort and Spa in Vietnam's third largest city has been very successful and is expected to lead more developments there.

"That will draw some of the Hong Kong money because it's a new frontier and it's possibly more fashionable to get into Vietnam at this point in time than the tried and tested Thai resort markets," said Mr Collins.

The Philippines is also getting some trade from Hong Kong but not the super high-end properties with buyers mainly going in for low- to mid-market condominiums in Cebu. This is absorbing some of the money that traditionally would have gone to Pattaya.

It is also certain that Malaysia's "My Second Home" programme will attract buyers looking for freehold properties that will always be more desirable than leasehold.

"So rather than there being one particular destination that will cause the most diversion away from Thai resorts, I think it's a mix. And if we add all those destinations together then it comes to quite a sizeable number that is being diverted from the Thai market."

Mr Collins also mentioned that foreign developers who dabbled in Thailand have either moved on or are exploring other markets in the region, with Vietnam and Malaysia attracting the most interest.

"Thailand certainly has more competition going forward than it had previously."
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IT'S THE RIGHT TIME FOR CONSOLIDATION

Business is still ticking-over, but extending the present tax breaks would help the industry

Hong Kong architect Eric Lai is one of many developers who are walking on eggshells in the present difficult economic environment and playing it safe. Mr Lai is now working on his third project in Thailand, La Royale high-rise condominium on Jomtien beach in Pattaya, after making a big splash in the capital with SV City and Empire Tower.

Mr Lai said his focus now is on consolidating and transferring the units in the completed beachfront tower and repaying the bank loan, and not on looking for land for future projects.

"At the moment there isn't a lot of big news in the market and you can't expect developers to make a lot of moves," he said in an interview.

Despite the economic and political gloom of recent months, Mr Lai's company, Wise Power Land, has managed to transfer 41 units in the tower out of the 116 it has sold. The tower has 165 units in all, but the company is reserving 15 of them.

Mr Lai has used the money generated from the transfers of 41 units to repay as much as 55% of the loans he has taken out for the project, and now owes around 200 million baht. The project has been valued at three billion baht and the 116 units sold so far amount to 1.4 billion.

He considers himself fortunate in that most of his buyers are still cash-rich and are real end-users, not investors or speculators who often back out when the going gets tough. The timing of the project was also very fortunate in that most of the units were sold before the economic crisis erupted last year.

However, other developers in Pattaya have been less fortunate and some of have halted or postponed their developments. "I think it's really affecting Pattaya. As far as I can see only a few projects will be completed. Others, I think, will be held up for quite a long time."

While sceptics question how many real buyers are in the market, Mr Lai says there is interest but it is in finished developments with titles ready for transfer.

"They are not going to take any risk. Prior to this I think quite a lot of them thought paying installments was almost like saving for the future, but now they will probably look at what is ready, pay and secure the unit."

Wise Power Land has also seen a shift in its buyer profile over the past two months. The previous mix of mainly Scandinavians, Britons, some Americans and a few Thais is shifting to mainly people from Hong Kong.

"One interesting thing is that lately we have started selling again, even without advertising, but mainly lower-priced, small units."

The few sales that took place from mid-May onward occurred despite uncertainty about whether the government would extend for another year the reduction of the special business tax from 3.3% to 0.11% and transfer fee from 2% to 0.01%. The extension was announced in March but implementation was delayed to mid-May.

"So several hiccups made it quite difficult for developers to transfer property on time. We had to tell customers, 'Sorry, you have to wait for a while."'

Mr Lai hopes to launch La Royale's second phase in September or October, marketing a few villa apartments on the beach in front of the high-rise tower. The company is keeping similar low-rise apartments at the rear to generate rental income.

Not wanting to do too much in this shaky environment, the company has put its project on the Malaysia's Langkawi island on the back burner. Called Perdana Residences, this is a five-storey U-shaped resort hotel that is being converted into condominiums.

An encouraging sign that the current economic gloom might be lifting is that the property market in Hong Kong has improved lately after prices dropped substantially last year.

"Surprisingly, the Hong Kong property market has recovered quite a lot compared to early this year, it's not like before as yet but it has recovered quite a lot."

Where Bangkok is concerned, the market does not seem to be improving, but price declines have been modest. Even in Phuket, some transactions are taking place.

"A few months ago it was almost zero, but now it has come back to life and turned into a buyers' market. There are people buying there, but they are selective."

Mr Lai urged the authorities to consider further extending the special business tax and transfer fee waivers to help the property market get over the current rough patch.

"In general the government only has limited ways to stimulate the property market. For the local market, one way is for the banks to make it easier for buyers to get low-interest loans. But for foreigners I don't think they can do much except making it easier to get visas." He points out that Malaysia has surged ahead of Thailand in this area with its "Malaysia My Second Home" programme that gives qualified foreigners a lot of benefits and makes obtaining a long-stay visa of up to 10 years a very simple affair.