Local Property Values Will Likely Stay Firm
BANGKOK POST Issued date 9 May 2010
The Thai market has historically shown it can weather crises without damage to investors The protracted political stand-off that has turned parts of Bangkok’s inner city into a barricaded fortress for more than a month is unlikely to lead to dramatic drops in property values, although some people have deferred buying decisions for the time being, says David Simister, chairman of CB Richard Ellis (CBRE).
He added that CBRE sold 12 condominium units in the third week of April, although he doesn’t expect that momentum to continue in the short term unless a political resolution is clearly seen.
“The condominium sales recorded were nine in Bangkok, one in Nonthaburi and two in Hua Hin. The buyers were all Thai and I don’t think that the properties they bought or the property market in general is in any way suddenly going to show dramatic drops in value,” he said.
“The reason I say that is because the property market has been dampened by political uncertainty for the last five years.”
Those who have plotted the pattern of property values during periods of political uncertainty in this country, as CBRE has done in the 21 years it has been in Thailand, would notice that prices rise in good times but hold and do not drop in bad times, with steady growth again after the situation improves.
Although real estate prices did drop dramatically during the 1997-98 Asian economic crisis, Mr Simister explained that these plunges took place among secondary grade properties and not prime ones, whose values held up.
But even if and when political reconciliation begins, Mr Simister said questions would remain about Thailand’s relations with international investment, and particularly tourism.
“The danger is that if we keep having repeats of crises like the red and yellow demonstrations and the disrupted Asean summit [in 2009] Thailand won’t bounce back as quickly as after previous crises.”
With key streets of the inner city having been turned into barricaded red shirt zones, companies affected by commuting problems have shifted to temporary offices.
“We have been quite active in finding people temporary office accommodation as they needed alternative space because of access problems. But the nature of the move is very short term – the situation in no way is changing the pattern of purchasing or the pattern of value in Bangkok, and again one can only see this as being a short-term aberration not a new norm.
“What we have seen is the majority of Bangkokians are doing their best to work around the pockets of demonstrations.”
Mr Simister added that the shift by some companies has only been in terms of taking a serviced office desk for a few days and not cancellation of a lease in a city centre office tower, which could lead to consideration of a major relocation, to areas such as Bang Na or northern Bangkok.
“The impact, in our opinion, will be short-lived,” he said.
While dispelling the impression that foreigners are no longer buying property in Bangkok, Mr Simister admitted that the pace has slowed down.
“In Bangkok there was a period between 2002 and 2005 when foreigners were very active in the market, and those foreigners were both end-users and people buying into a rising market for speculative gain.
“And condominiums selling at that time in the upper market were typically 49%. Our database shows that foreign purchasing has dropped to approximately 30% of the market. People who still want to live in Thailand are buying, but people who are focusing on speculative gain are looking at markets such as Hong Kong and Singapore.”
However, it seems Thais are more resilient to the drawn-out political turbulence and remain confident of the long-term outlook. Mr Simister said his agency has seen land sales in city-centre areas achieving new benchmark prices in recent months.
“So all in all we are still seeing substantial confidence in the Thai property market.”
Turning to the resort markets, he said there was no evidence of a drop in value in Phuket and Samui as existing foreign owners of property on the two islands are choosing to hold on to their assets.
“I think the fundamentals of the resort markets are that they are discretionary purchases with surplus funds; purchases are 100% cash,” he said.
“Again looking at Phuket, most of the buyers are sitting on positive financial gains on their investment – there is no direct pressure to sell and generally people only sell when they have made substantial profit. This means there is generally little stock on the market at any one time.”
In fact, it has been the global financial crisis that has had the prime influence on the resort markets and this has led to the cancellation of many developments. While big Thai companies have launched major projects in Phuket in recent years, quite a lot of the developments on both islands have been foreign-led, although some of these projects have been quite small.
“From our experience we have seen a reduced volume of sales but prices are still recording substantial gains for those few sellers in the market.”
Despite all the problems, Mr Simister said Thailand is still a top resort destination and although he has seen good prospects in emerging markets such as Cambodia, there is no stock of quality resort properties there today.
“We have brought small projects onto the market and they have sold out very quickly at significantly cheaper prices, but we are talking about very, very small volumes.”