Location, location, location!

By Samma Kitsin
Director-general of Real Estate Information Center

Location is important but there are also other factors to take into account

Modern-day real-estate markets are very dynamic. The analysis of a local market is becoming much more difficult than before, as events and circumstances in far-away places can have great repercussions on any domestic turf.

Of course we all have learned that the basic real-estate principle is location, location and location. But there is life beyond basic, and life beyond basic is much more complicated.

Economics and marketing principles also have given us the concepts of supply and demand, elasticity, price sensitivity, the 4 Ps etc. Identifying and determining market characteristics to get to these numbers and senses is a daunting task. We live in an almost-borderless digital age. Global online trade is here, and the world is increasingly a free-trade community.

You cannot analyse the demand for properties in a certain area by just looking at the government data on population and per-capita statistics in that area, because people travel and migrate in and out on a constant basis. There is no longer a simple local market for real estate in Phuket, Pattaya or Hua Hin, as an expat Ms Angela Wang from China or a retiree Mr James Smith from the UK could actually be added to the demand side, while a local Khun Thongdee may not be interested in a local property but instead looking to purchase a piece of real estate in Sydney. Because of immigration and foreign-ownership issues, many international buyers disguise themselves as Thai juristic persons. The same is true on the supply side, where many “local” developers of high-end properties in Samui or Phuket are not that local.

When planning a project in these island locations favoured by foreign buyers, developers should treat each as a twin market, which makes it twice as complex to analyse. For projects of exclusive status, data is not always available to the outsiders. Getting to the inside demand-and-supply information is as much an art as a research science.

In local markets with a more distinct Thai identity, there are many other determinants |to be reckoned with. As rural areas become |more urbanised, city planners get more serious about the environmental regulations, land use |and building codes. Stricter regulations, higher construction costs and rapid growth in an area |can increase replacement costs, which push |up the prices of new properties and existing |units. The affordability of ownership is greater when the government churns out incentives |at times of perceived crisis. Incentives drive demand up as they increase affordability |but sometimes lead people to own more |than they should, and then demand can become unreal.

Household size in Thailand is constantly shrinking. As population grows and household size gets ever smaller, there is always a natural real demand at an entry-level for more residential units. But when factories shut doors and multinational offices close down, young urban professionals lose jobs. Financial institutions are reluctant to lend when personal income evaporates, and real demand can be wiped out in no time.

A crisis for some is not a crisis for all. A niche-market player who can truly find that niche has a captive market of his own. A think-outside-the-box developer who dares to come up with bold ideas for a piece of real estate can create his own demand pool. Prestigious properties and locations add to the psychological satisfaction of the owner. Large developers who are market leaders can dictate market pace. An outstanding commercial property such as a big shopping mall can create a whole new residential neighbourhood, or vice versa.

Real estate is not a one- or two-dimensional market. The new-home market intertwines with the existing-home market, and a liquid resale scenario certainly helps. The house-rental |market competes with low-end residential properties.

Macro-data are nice to have and quite readily available in the market place. It is essential, however, for any developer to have an in-house research unit that can understand all these underlying market determinants which appropriately provide a clue to their respective markets.