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Thailand Investment – Q 2 2009

Q2 2009 has seen a disappointing number of transactions, one however is worthy of noting, that being the purchase, by LPN Development Plc. of three development sites. The total value was approximately THB 700 million for three land plots in different locations. With regard to whole building sales in Q2 2009 there was no activity. The major reason for the lack of building sales, is that almost nothing is being offered for sale. The latest interest rate cut occurred in April, the key policy rate is now 1.25%. The numerous repurchase rate cuts since December of 2008, four within a six month period, mean that many investors are seeking alternative investments to bank deposits. The only new significant foreign investment in a development project this year was Israel’s Industrial Building Corp. a joint venture with Pace Developments to build the Mahanakorn Ritz Carlton Residences leasehold condominium project. We have been made aware that the Securities and Exchange Commission is expected to announce that a single shareholder can own up to 50% of the units in a public listed fund, an increase from the previous 33.3%. This increase will only be for a period of five years after which the single shareholder must reduce the units held to 33%.


Transactions
There were no major building transactions in Q2 2009 however we saw developers continue to acquire development sites for condominium development. Activity was mainly from the stronger listed developers buying sites in some cases, from other developers who had cut back on expansion plans. The land sector did fare better however with the pick of the deals coming from Major Development Plc., a publicly listed condominium developer bought development sites on Narathiwas and Payathai roads with worth more than THB 500 million for the developed residential buildings. These projects will be launched in this year.

The lack of whole building sales was due more to the absence of vendors rather than the lack of buyers. Low deposit rates are encouraging both large and small investors to seek income producing property investments. The Bank of Thailand’s Monetary Policy Committee reduced the key interest rate (One day repurchase to 1.25% and most bank deposit rates were below 1%). The lack of transactions means that it is not possible to analyse changes in yield but based on conversations with purchasers and dividend yields of public listed property funds there appears to have been little change over the last six months.

Property Funds
The unit prices of Thai Property Funds generally increased in the Q2 2009 reducing yields to 6.2 – 12.3%. There were no new listings of new property funds in Q2 2009 or rights issues for existing funds. The Securities and Exchange Commission is expected to announce that a single shareholder can own up to 50% of the units in a public listed fund, an increase from the previous 33.3%.This increase will only be for a period of five years after which the single shareholder must reduce the units held to 33%.

Dividend Yield
The major news in Q 2 2009 is that Central Pattana Public Co., Ltd. plans to increase the fund size of CPNRF, the country’s largest real estate investment trust fund, by injecting office buildings and a shopping complex to their portfolio. Initially, they would like to raise significant funds by investing in the office buildings located at Central World Plaza and Central Plaza Pinklao (Office A & B), and shopping malls at Central Pinklao and Central Plaza Chiang Mai. It looks like only the Central Pinklao transaction will go ahead possibly by the end of 2009.

Outlook
The recent cuts in the key policy rate (which now stands at just 1.25%) means that investors will also continue to search for alternative investments (rather than the money markets), including investment in property funds and all types of property.

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