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Raising Funds from the Rising Sun

10 Jan 2018

2017 has seen a wave of foreign investment in the Thai property market in the form of project-by-project development joint ventures. Historically, foreign ownership restrictions and the availability of local funding meant that there was limited foreign investment in the Thai property market, but tighter lending conditions and increased development costs due to rising land prices have forced Thai developers to look to overseas investors for funding.

We have seen major players join hands with Japan-based companies, such as Ananda Development partnering with Mitsui Fudosan, AP with Mitsubishi Estate Group, Sansiri with Tokyu Corporation and Origin Property with Nomura Real Estate Development. Other developers, like Charn Issara Developement, have partnered with China-based companies, Junfa Real Estate and Tianyuan Construction Group, for its project in Phuket and Chiang Mai.

Most of the joint ventures are with foreign real estate developers or construction companies. Teaming up with foreign companies not only gives Thai developers more ammunition to invest in new projects, but also let them capitalize on the know-how and the technology that their partners could offer. Implementing new innovations can either increase the quality and value of the project, commanding higher prices, or increase profit margins by reducing development costs.

Overseas investors need local expertise, especially in the residential market where the market is constantly changing, and successful developers need to be innovative market leaders not market followers.

The condominium sector is the most popular sector that foreign capital is flowing into due to the nature of the fast return on investment of condominium sales, minimizing the partners’ risk of tying up their capital in Thailand for too long. Condominium developments typically take 3 years to make return on investment compared to other developments such as rental office developments, which would likely take at least 7-10 years. However, Mitsui Fudosan, who has entered into joint venture with Ananda Development since 2013, has now expressed an interest in tapping into the office market for long-term investment.

Thailand’s infrastructure and its potential to be a hub for the Southeast Asia region has also attracted foreign investments, especially the opportunities created by mass transit development and expansion plans.

Most of the joint venture deals have been in Bangkok, but we started to see interests in the Eastern Economic Corridor development zones. Saha Group joined with Tokyu Corporation to develop a serviced residence for expatriates in Sri Racha area. Hankyu Realty, a Japan-based company who joined with SENA Development as SENA Hankyu 1, sees Thailand as its base for Southeast Asia expansion.

Going forward, as foreign companies gain more confidence in Thailand’s economy, we expect more joint venture projects in other sectors l such as the office and retail sector.

Foreign ownership restrictions mean that Thailand is only likely to secure investment of property developers rather than institutional funds, which means that countries allowing 100% foreign ownership such as Japan, Hong Kong and Singapore will continue to be Asia’s key gateway property investment markets.

An article written by Rathawat Kuvijitrsuwan, Manager, CBRE Research & Consulting, CBRE Thailand for Bangkok Post dated 10 January 2018.