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Investment in Real Estate is a Safe Haven in a World of Uncertainty

By on Oct 18, 2011 in Property News

Published on The Nation dated 17 October 2011 by Aliwassa Pathnadabutr, Managing Director of CBRE Thailand

In the past one month, the escalation of the euro-zone debt crisis has dominated the headlines and has had a significant adverse impact on global stock markets, including the Stock Exchange of Thailand, which fell below 1,000.  In the wake of renewed glogal economic concersn, risk-averse investors are diverting away from investing in paper assets and turning to investment in tangible assets like property. Some investors have focused on previous metals, but there has been significant price volatility for both gold and silver.

The evidence that investors are turning to real assets can be seen from an improvement in the sales performance for units in completed buildings in Bangkok, whereas off-plan sales have been slower than in the previous quarter. In the last three weeks, I have seen improving interest, particularly for Grade-A prime assets in good locations. I see the overall trend pointing at the appreciation of prime assets for many reasons, one of which is rhe recently announced new city-planning regulations, which is likely to push up the value of completed central Bangkok properties, hence making them a more appealing option for investors.

The current city-planning regulation expired recently and was extended for a year. The new draft regulation is at the public-hearing stage and not yet definite. As long as the new regulation is not finalised, this will have an impact and the market will continue to live with uncertainties.

One of the concepts of the new regulation is to maintain high-density areas in the city centre and the commercial zone, but to lower the density in smaller roads and sois in both commercial and residential zones. For example, the draft regulation prohibits large residential and commercial buildings of over 10,000 square metres if the road width is less than 30 metres in commercial zones (Por2 and Por3), which include central areas such as Ratchathewi and Sri Phya. In the high-density residential zones (Yor8 to Yor10), including Sukhunvit, buildings over over 10,000 sqm are permitted only if the road is more than 16 metres wide.

For instance, let’s take sub-sois in lower Sukhumvit as an illustration of the impact of the new regulation. Under current regulations, buildings with a gross floor area of more than 10,000sqm can be built in sub-sois that are more than 10 metres but less than 16 metres wide. However, under new draft regulations, with a road width of less than 16 metres, it is no longer possible to build large buildings ove 10,000sqm.

If the new draft regulation does go ahead, it will change the city’s development pattern and reflect in the prices of products that are launched in the near futhre.

In the long run, stricter regulations are likely to push up prices of existing large buildings and high-rises on main roads, while the construction of high-rises will no longer be permitted on sub-sois. The price appreciation will of course vary from building to building, and depends very much on the management and upkeep, but for the first time we may see a general appreciation of older completed properties.

The impact of this is not dissimilar to when the green-belt regulation was implemented in the United Kingdom in the 1950s with the aim of controlling urbang growth and preventing urban sprawl by keeping the land surrounding urban centres permanently open and protected. This resulted in the price appreciation fo urban properties. Similarly, new regulations will likely have a positive impact on central Bangkok property prices.

It is, therefore, not surprising that prudent investors are sticking with prime assets as they know that not only is property investment a safe haven at a time of uncertainty for paper assets, but also that more restricted city planning will likely have a positive impact on prices.

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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