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Thailand Needs a ‘Good Neighbour’ Policy Before AEC Comes into Effect

By on Jun 18, 2012 in Property News

Liberalising foreign ownership rules and getting ready for a wave of competition in property development and related sectors are just a few of the steps the country must take before the Asean Economic Community comes into effect in 2015

The integration of the 10 nations with a combined population of more than 600 million under the Asean Economic Community has been attracting increasing attention as 2015 draws closer. That is when the AEC will begin, with the key objectives of establishing Asean as a single market and production base, developing a competitive economic region, and promoting equitable economic development and full integration with the global economy. A single market and production base are necessary for the free flow of goods, investment, capital, skilled labour and services. Thailand will encounter both challenges and opportunities when the AEC comes into effect and all sectors of the economy will be affected, including the property market. To reap the most benefits, Thailand should prepare itself well.

Thailand has clear advantages over other Asean nations in terms of geographical features, cost and standard of living. The question is: How can we make use of these advantages to benefit the overall economy?

There are no specific policies relating to the property sector at this stage, but from the overall objectives of the AEC, we can anticipate a number of impacts which can be broadly viewed as inbound and outbound.

In terms of outbound investments, we can expect to see many Thai developers diversifying to other Asean markets. As the Thai property market matures, developers are likely to look to less developed markets such as Myanmar to take advantage of the growth cycle. Overseas investments by Thai developers have been limited to date, but with greater regional economic integration, entry barriers to other markets are likely to be reduced, making it easier for developers to expand their regional presence.

The inbound impact will be greater and more difficult to predict. The industrial sector will be one of the most affected by the change. With the move toward a single production base, businesses will seek to relocate or set up production bases in countries offering the best incentive packages. The Thai government must have a well thought out plan on how to establish the country as a competitive industrial base.

One of the key changes under the AEC will be the increased participation of foreign equity of up to 70% in service sectors, including the hospitality and tourism industry. This will not only bring in increased competition within the industry, but also for its skilled and professional workforce.

A knock-on effect is expected regarding the demand for office space. Thailand’s strategic accessible location within Asean is already a key advantage. But government incentives alone cannot maximise the benefits from foreign investment if fundamentals such as immigration rules and work permit limitations are prohibitive.

The residential market will also benefit, with both foreign end-users and investors expected to drive demand. The free movement of capital within Asean means money is expected to flow into capital markets and the property market. As a result of the economic integration, we will also see more foreigners setting up businesses in Thailand, which will increase the number of expatriates. This will push up demand for rental properties and demand for buying properties for expats’ own use. However, to reap the benefits from this potential upswing in foreign demand, the government needs to look at amending foreign ownership policies and extending lease terms to facilitate foreign investment in Thai property.

The banking sector is another area that will face greater competition and needs to be well prepared ahead of the AEC. Banking policies can also play a major role in supporting property sales to foreign investors by allowing foreigners to obtain mortgages for Thai property. The lack of financing has been one of the key deterrents to market growth and Thailand should take this opportunity to set right the basic fundamentals.

Property-related professions such as architecture will also be affected and we can expect to see more foreign architects involved in Thai projects and vice versa as a result of free movement of skilled labour.

Property agencies should use the opportunity of joining the AEC to professionalise and regulate the industry. At present, anyone can act as an agent in Thailand. In developed countries such as Singapore, all property agents and individuals working for agents are required to pass a test and be legally qualified to practise. To increase competitiveness and transparency, Thailand should follow the examples of developed markets. This would allow Thai agents to comply with international standards and be regionally competitive.

Another related industry is construction. With the movement toward free trade and the elimination of tariff and non-tariff barriers, the cost of importing construction materials will be lower, giving local developers and contractors more options for sourcing construction materials. While local suppliers will face greater competition, this should benefit the industry by keeping building costs down, or at least easing the rate at which they rise.

These are just some of the potential impacts when the AEC comes into play in three years. While we cannot predict exactly what the effects will be on each industry, it is vital that the government take the necessary steps to lay the correct basic fundamentals to ensure that Thailand benefits from the integration. In addition to supporting policies for specific industries, the most important factors are the economic and political stability in the country. If this cannot be attained, then Thailand is at risk of losing out.

Source : Bangkok Post 17 June 2012 written by Aliwassa Pathnadabutr is the managing director of CBRE Thailand. She can be reached at bangkok@cbre.co.th. Twitter @CBREThailand or facebook.com/CBRE.Thailand .

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