Chiang Mai property

In northern Thailand’s biggest city the strong wave of British purchasers has subsided dramatically. But buyers from other European countries and Australia are now taking up the slack, said Ed Schroeder, manager of the real estate brokerage Century 21 Lanna Company.

“Previously we had a very, very strong British presence, but then the recession hit – the baht went up against the pound and it got horrible,” he said.

“And England is still in recession, so our customer mix has changed considerably. Before more than half of our customers were English. Now most of the customers are other Europeans because the euro has not suffered as the pound did.”

Mr Schroeder said he was getting a lot of Swiss, French and German buyers, plus some Danes. A large number of Australians are also keen on buying real estate in the “Rose of the North”.

The sharp drop of British buyers also led to younger foreign clients being replaced by retirees.

“Before 2008 younger English people were looking to come here because they liked Thailand and Chiang Mai and a lot of them wanted property here,” he said. “But since the 2008 crisis it has been the retirees that have been looking up here; it’s not the young people at all.”

While retirees are attracted to all Thai resort towns because the infrastructure is good while accommodation is very cheap compared with other countries, Chiang Mai’s special appeal is that it is much cooler and has more seasonal variations than the rest of Thailand.

“Up here it gets a little bit cool and even in the hot season it doesn’t get anywhere near as hot as Bangkok. In the rainy season, when there are showers in the afternoon it cools down considerably at night. So overall the weather pattern here is much more pleasing to Westerners.”

Mr Schroeder said that Thailand was a bit far for most Americans and Canadians to come and live permanently, but some Americans who were stationed in Udon Thani during the Vietnam War always had in mind that they would like to retire there, and many have now started doing just that. “Some of them haven’t been here in 40 years.”

Both property rental rates and selling prices in Chiang Mai are much cheaper than in Bangkok. Century 21 customers usually look to buy a house for around two to four million baht. Most Westerners seek new condominiums priced about 40,000 to 45,000 baht per square metre.

Mr Schroeder said Thais in Bangkok also come north to buy real estate because Chiang Mai has a Shangri-La appeal for them. Again, the cooler climate adds to its attraction.

Significantly, Chiang Mai was less affected than Bangkok during both the 2008-09 and 1997 crises, mainly because it has not been over-built.

“Even during the last crisis there was still lots and lots of construction going on in Chiang Mai. There is not a glut of condominiums up here. It takes far longer for condos to turn over and sell, whether new or second-hand, and as a result developers aren’t willing to build as fast or as aggressively as they do in Bangkok.”

One reason that property prices are lower than in the capital is because the construction costs are lower.

“Most of the developers are local. There has been interest by some foreign developers in launching a project but it hasn’t happened yet,” said Mr Schroeder.

“But there are several who are looking at doing so right now, as a matter of fact. And you can tell they are looking from the standpoint of building a retirement community for foreigners which is marketed and well-received in Europe.”

He observed that the current round of red shirt demonstrations in Bangkok hasn’t really affected the real estate market, but on the other hand tourism has definitely slowed down.

“This last high season was very good, but when the demonstrations started down in Bangkok tourism dropped dramatically.”

However, he does not think this round of demonstrations has had as bad an effect on Thailand’s image as the seizures of Suvarnabhumi and Don Mueang airports by the yellow shirt camp in late 2008.

“People have been more cautious because they weren’t sure what the red shirts were going to do, but for the most part it has been a non-violent demonstration and in democracies you have non-violent demonstrations,” said Mr Schroeder.

He said that among actions the government and the municipality in Chiang Mai are taking to improve the city and draw more visitors is the construction of a new convention centre.

“It was approved by the cabinet last year and construction started about four months ago. So that should enhance the ability of Thailand to attract more business meetings.”

Mr Schroeder said he sometimes gets clients who want to find some small business in Chiang Mai, but he usually advises them that if they want to make good money they should go to Bangkok, Phuket or Pattaya, because in the North it is more about lifestyle, as the people are more easygoing and more traditional.

However, there are industrial estates in the area, with several big factories in neighbouring Lamphun province, some of them involving major investments by Japanese companies.

Several wooden furniture and craft factories are also established in the Hang Dong area to the south of the city, while jewellery, silk and paper products are made in the San Kamphaeng area.

While it is customary for wholesalers and retailers to place orders from around the world with these craft factories, some of them are now owned by the exporters themselves.

“I know one company that is expanding here. They make jewellery and right now they are about to buy a factory with a hundred workers. They expect to expand this to 200 this year and 300 next year,” said Mr Schroeder.

SOURCE: Bangkok Post

While doubts linger about how the property industry will perform this year, the market for used homes should do well because prices of new properties have risen as buyers continue to benefit from low interest rates, said Visit Kunatharakul, managing director of Realty World Alliance Company.

Aside from more attractive prices, the secondary market also offers buyers properties in locations where it is no longer possible to develop new projects, either because the required land is not available or is far too expensive.

Condo fever seems to have swept the second-hand market too. Mr Visit points out that a lot of Thais have overcome their basic desire to own a house and are opting for condominiums instead because of high transport costs and traffic jams.

Clearly from what they are building, developers believe it is small units sized from 35 to 45 square metres that most buyers are looking for, as a first home for one or two people. Later these people might buy a bigger property in a suburban area, but they would try to keep their condo if they can.

Mr Visit said very few developers were building condominiums in the 250 to 350 square metres range these days. The largest units in new buildings are around 100 square metres. Steeply higher prices in the inner city areas, where units cost 120,000 to 150,000 baht square metres, have led to this shrinkage in living space. Also, under Bank of Thailand regulations buyers are now required to put up a minimum 20% deposit if they purchase a new property costing more than 10 million baht.

This desire to own a condo has led to these properties selling very quickly in the secondary market unless they are very pricey units in a project that has not yet sold out.

While buyers continue to like the Sukhumvit and Sathon areas, Mr Visit has noticed that other zones such as Ratchadaphisek, Phaya Thai and the lower sois off Phahon Yothin near Soi Ari have become very popular and the prices are no longer low.

ON THE WATERFRONT: The Victoria Lake View Condominium towers at Muang Thong Thani in Chang Wattana.

These areas have become more attractive because some people are turned off by the large supply in Sukhumvit, which might make reselling their units in the future a lot tougher.

“If we look at Phaya Thai or the early part of Phahon Yothin as well as the area around Siam Centre and Ratchadaphisek, the total number of condominium units is not that high compared to demand,” he said.

Looking back at 2009, Mr Visit said there was steady improvement, from poor sentiments in the first half of the year due to the global economic crisis to an improved outlook in the third quarter. In the final three months, said Mr Visit, the market reverted to normal.

“The market that shrank or perhaps disappeared would be the foreign market, and it is still shrinking today.

“Right now the buying power is actually emerging from Thais.”

He said the main pressure on the property market this year would come from politics, which might affect confidence regardless of whether the buyers are Thais or foreigners.

The supporting factor is the low interest rates and the substantial tax breaks that last until March 27 this year. It is not yet certain whether these incentives will be continued.

Mr Visit has also noticed that those with large budgets are currently quite keen on buying apartment buildings for anywhere from 30 to 200 million baht, because it is easier to run an entire building than owning units in several buildings. Trade in vacant land continues to be good, with developers still securing good plots for future projects. However, industrialists are mostly staying still and not buying additional land. The Map Ta Phut case definitely is behind their stalling and reconsidering further expansion.

This is because the case is not yet clear, said Mr Visit. Those who have already invested will hang in there, but other s who were contemplating investment might decide to scrap their plans and move on. There might also be a relocation of some projects or a reduction in size, he added.

Mr Visit pointed out that while there are a few people interested in buying hotels, hotels here have not had good occupancy rates because of poor global economic conditions over the past two years and the drawn-out Thai political troubles.

“Those who have borrowed a lot of money to build a hotel might now have to sell because the revenue is not keeping up with expenses.”

Because there are not that many buyers out there, only hotels in good locations can be sold now. But this of course also hinges on price.

Realty World also saw an increase in properties that companies put up for sale last year.

“If they have borrowed and their main business cannot service the loan, then they have to sell their assets. These might be non-income generating assets that they had acquired for their future plans but are now selling to ensure adequate cash flow in their business.”

Mr Visit added that these companies were also willing to give more discounts than in normal times.

The property brokerage focused more on the provincial market last year and will continue to follow this strategy this year as it is helping increase revenue.

While it is active in the practically every province in the country, trading has been especially good in Chiang Mai, Khon Kaen and Chon Buri.

Mr Visit said that one should not compare the provincial market to Bangkok because prices in some key areas do not differ significantly from the capital. Even when there is a difference it is usually due to cheaper land values, because the construction cost is the same regardless of where one builds.

The Chiang Mai market in particular has improved markedly and is now attracting both Thai and other Asian property buyers.

“Japanese, Koreans and Chinese like Chiang Mai because it’s cool there and has a very good culture.”

Another big drawing card is that Chiang Mai’s road network has improved greatly over the past few years, with there now being inner and outer ring roads that have opened up new residential areas. The cost of living there is also low, added Mr Visit.

SOURCE: Bangkok Post

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