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How to Kick-Start Foreign Demand for Condominiums

By on Jul 25, 2011 in Residential

By Aliwassa Pathnadabutr, Managing Director of CB Richard Ellis Thailand, Published in The Nation dated July 18, 2011

The effect of the global crisis on Asian economies has worn out; most economies in the region are back on track and key Asian cities are drawing back foreign investors to its property markets. However, with Thailand’s political instability in the past two years, the country has yet to regain its appeal to foreign investors despite the fact that it is probably one of the most affordable places for property investment.

Another factor why foreign investors have yet to return is the strength of the Baht against the dollar, but we do not see this as being a major deterrent as Thai properties are still undervalued with room for further capital appreciation.

In the last two years, demand for downtown condominiums was dominated by locals, and concentrated in one-bedroom units. The absorption rate for THB 10 to 20 million high-end condominiums which were in demand during the boom cycle from 2004 to 2008 is now very slow. One key factor that will drive demand for high-end condominiums will be the return of foreign purchasers. Pre-global crisis, foreigners accounted for up to 35% of demand for Bangkok CBD condominiums, but this reduced to 18% post-crisis, with the majority being expatriates living in Thailand or frequent travellers to the country, but a limited number of foreigners from overseas markets.

The result of the election shows a clear mandate for Puea Thai to form the new government, which will hopefully bring about political stability, a key factor in regaining investor confidence. In essence, the Thai market is moving towards the right fundamentals to attract back foreign investors, but if we leave the market to take its’ natural course, this may well take a long time. With the new government to be formed, the real estate sector is one area we wish to see more public sector involvement in.

We believe to effectively draw up policies to stimulate foreign demand, there needs to be two sets of policies – one focusing on the short-term to kick-start the market, and the other focusing on sustainable long-term growth.

A short-term stimulus policy should allow special purchasing privileges, but implemented for a limited timeframe. For example, following the Asian crisis, the Condominium Act was amended in 1999 to allow freehold foreign ownership of up to 100% of the condominium floor area in Bangkok and Pattaya for a 5-year period with conditions such as the total land area where the condominium is located shall not exceed five rai and the project shall not comprise less than forty units.

The policy proved to be effective in boosting foreign demand for condominiums in the short-term and we urge the incoming government to re-visit this policy, but with modifications to apply to current market conditions and looking at a 2-year timeframe rather than the original 5-year. The policy should be implemented in specific areas including Bangkok and key resort markets such as Phuket and Pattaya where demand is largely foreign. The policy should also be extended to both completed and off-plan condominiums that are due for completion within 2 years from now to help clear unsold inventory.

The stimulus policy should be implemented hand in hand with long-term policies which aim to sustain the growth momentum, as investors are looking at markets which provide gains from higher capital values as well as a stable return from rental yields. Many sensible long-term policies have been previously raised by the private sector but have not been considered seriously by past governments, including allowing local banks to offer foreigners mortgage facilities, an extension of the lease term to 99 years to stimulate demand for landed properties, particularly luxury resort villas and to stimulate demand for regional offices.

The new government is tasked with many priorities to tackle and problems to resolve, and we do hope that an effective cabinet will be installed that will do the country, its economy and its people good. The opportunity is in Yingluck‘s hand to make independent decisions and changes that will help move the country forward.

Find more info. on Bangkok Property Purchase Guidelines or contact us for property advice.

Aliwassa has been the Managing Director οf CBRE Thailand for a number of years. As a Thai national, Aliwassa is extremely knowledgeable about the sale of property in Thailand, specifically large scale high value condominium developments largely in Bangkok.

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