Thailand property

The Bank of Thailand has played down concerns over the country’s record foreign direct investment fuelling a property bubble.

“Many foreign investors still choose to invest in the stock market while some choose to invest in bonds,” Bank of Thailand’s domestic economy department director Methee Supapong said on Monday according to the Bangkok Post.

The amount of foreign investment in the country’s real estate remains small, due to strict foreign ownership laws in Thailand that largely forbid foreigners from freeholds and restricts leases to 30 year periods. Investors have long called for these restrictions to be eased, but, Thailand, in contrast to some of its larger neighbours, Singapore and Hong Kong, has not become a speculators market. Bangkok property prices rose over 4 per cent over the last year, but Thailand has enjoyed relatively stable market prices since its recovery from the 1997 crash.

The Bank’s comments come several days after Supavud Saicheua, managing director and head of research of investment brokerage Phatra Securities warned Thailand’s property and stock markets run a risk of facing a bubble burst if foreign capital continues flowing into Asia.

With further liquidity expected in the market, partly due to US Federal Reserve measures, some Asian economies are expected to grow 7.7 per cent on average this year. Anticipating this drive for investment and in an attempt to slow the Baht’s meteoric rise the Thai Government has recently introduced capital inflow taxes that have deflected some investment.

However, with market forces exceeding the government’s own, inflationary pressure is still strong in the region, heightened further by the US dollar’s expected weakening against the Baht with the injection of USD 600 billion by the Federal Reserve.

“For the past six months, investment activity in the Bangkok property market was buoyant,” said Umpon Thepnumsommanus, director of investment at the property services company Jones Lang LaSalle Inc.

The firm said it handled transactions worth 3.5 billion baht (US$109.4 million) during the six-month period.

Violent anti-government protests were staged in Bangkok from March 12 to May 19, leaving 90 people dead, 1,885 injured and culminating in a looting and arson rampage that left 36 buildings in flames.

The good news was that the unrest might have persuaded some property owners to sell their assets at reduced prices, Jones Lang LaSalle said.

“As the political unrest that intensified between April and May softened investor sentiment, sellers adopted a more compromising approach with their asking prices, allowing faster sales transactions,” Umpon said.

Bangkok property owners are somewhat notorious for never reducing their selling prices, no matter how severe the economic or political crises battering the kingdom.

Another factor hastening sales during the first half of the year was the approaching expiration of the government’s property stimulus package, such as reduced transfer fees on transactions.

“Many sellers became more flexible during the negotiation process in order to complete the sale and have the property transferred in time prior to the expiry of the property stimulus package on June 30,” Umpon said.

While property sales were strong in politically challenged Bangkok, they were “subdued” in Thailand’s coastal holiday destinations such as Pattaya, Phuket and Samui, the company said.

Jones Lang LaSalle noted that sales at Thailand’s beach resorts have traditionally been dominated by foreign investors, who have been bearish since the global financial crisis hit in late 2008.

Mr Umpon Thepnumsommanus investment director at property consultant Jones Lang LaSalle said that the transactions concluded by the firm were for the sale of a portfolio of office condominium units at Sermmit Tower for THB 1.5 billion early in the year and a number of prime land plots. Supply was in part fuelled by some corporations restructuring their portfolio by disposing of non core assets.

Demand came from property developers buying more land for future developments, while some investors remained keen to buy into income generating assets like office buildings, given the low interest rates. The narrower gap between the price expectations of buyers and sellers was another driver of demand.

Mr Umpon said that “As political unrest intensified between April and May, softening investor sentiment, sellers adopted a more compromising approach with their asking prices, allowing faster sales transactions.”

He said that several sales in the second quarter were accelerated due to the expiration of the government’s property stimulus package. Many sellers became more flexible during the negotiation process in order to complete the sale and have the property transferred before the tax breaks expired on June 30th 2010.

The acquisition of land and sites for redevelopment by property companies accounted for much of the investment in the first half. Land plots located no further than 200 metres from a BTS, MRT or Airport Rail Link station tended to receive especially high interest.

Mid priced condominiums with convenient access to mass transit systems remained very popular, as reflected by the fast sales rates achieved by many off-plan or newly launched projects in close proximity to mass transit systems. This has encouraged demand from property companies for land with potential for condominium development.

He added that “The trend of property development companies securing prime land for condominium development will continue. The recent issuances of debentures by a number of major listed residential property developers show that these companies have been well prepared for new investments.”

However, the property markets in coastal holiday destinations like Pattaya, Phuket and Koh Samui remain subdued. Dominated by foreign buyers, investment activity has witnessed a marked slowdown since the global financial crisis escalated in the final quarter of 2008, he said.

Meanwhile, many parts of the world have seen signs of economic recovery, so some international investors are regaining their financial strength and expected to come back into Thailand’s holiday property markets in the near future.

(Sourced from www.bangkokpost.com)

Casa Ville

Located on a two-rai plot of land very close to both the BRT and BTS rapid transit systems, the THB540 million (US$16.7 million) project consists of two residential buildings, featuring studio and one-bedroom units ranging in size from 25 to 59 square metres. Price start from THB60,000 (US$1,855) per sqm.

The project is expected for completion and ready to move in by Q3/2011, and pre-sales open on July 17-18.

SOURCE: Property-Report

Nevertheless, the average occupancy rate of CBD offices rose slightly by 0.7 percentage point to 87.5 per cent in second quarter 2010 against 86.8 per cent in the previous quarter. Lease renewals were the main driver of leasing activity during the quarter, according to a survey of DTZ Thailand Office agency.

Prime office rental rates in second quarter 2010 held firm at an average of Bt648 per sq m per month for the fourth consecutive quarter. The lack of activity due to the uncertainties surrounding the political rally put a halt to potential rental increases.

Amornrat Kiatkobchai, Senior Manager of DTZ Thailand, said “There may be spill-over effects from the April-May riots that are not reflected in the market immediately. These may only be seen in the future quarters as firms reassess their operation plans prior to lease expiry and readjust their business strategies taking into account politics as an additional risk factor.”

Demand for office space will continue to stem from local firms and foreign businesses which already have an established presence in Bangkok, as new major new demand is not foreseen until the political situation improves.

Retail

The Bangkok downtown retail sector was negatively affected by the arson activities which took place during the anti-government riots in May. Prime malls were closed for nearly eight weeks resulting in losses of over billions of Baht from lost sale revenue as well as from burning and looting activities.

In the downtown zone, both average occupancy rate and rental rate remained unchanged from the previous quarter at 94.2 per cent and Bt2,290 per sq m per month.

Midtown occupancy moved upwards as tenants which were affected by the closure of major downtown malls shifted to temporary space in midtown and fringe locations, lifting average occupancy from 93.2 per cent in the first quarter to 94.3 per cent in second quarter 2010.

Midtown rents stood at Bt1,560 per sq m per month, reflecting no change on a quarter-on-quarter basis and an increase of 2.0 per cent on a year-on-year (YOY) basis.

There was no new supply in both downtown and midtown areas in the quarter. Several shopping malls in both core and fringe areas were damaged by arson activity, the most prominent being Central World where the front portion Zen was burnt down. Rebuilding work will take approximately 12-14 months. The arson activities reduced total stock in second quarter 2010 for the downtown area to approximately 965,000 sq m and to 313,000 sq m for the midtown area.

Punnee Sritunyalucksana, Associate Director of DTZ Thailand Retail, commented that consumer activity has been quick to recover after the dispersion of the rally in mid May. Businesses are slowly regaining normalcy. Tenant sentiments have not waned as they have been spontaneous in adapting to the environment which they operate. The government and private sector have been quick to provide assistance by offering space and reduced rental rates to help affected tenants. Midtown rents are also likely to increase more than downtown rents in future, as the midtown area was not affected by the riots and retailers may find this an opportune time to move to the fringe areas where space is still available and an increasing number of developments is being initiated in this part of town.

Residential: Demand for affordable concept condominiums remains upbeat

Activity in the CBD residential sector waned with the disruption from the political riots which took place during the quarter. The majority of activity during the quarter was concentrated in peripheral fringe and suburban locations near to the mass transit lines. Demand for smaller 1-2 bedroom (40-70 sq m) affordable units which are usually priced below Bt80,000 per sq m remained upbeat despite the political woes.

The property tax break which was extended for a further two months at end March 2010 was again extended for another month until end of June 2010. This is a part of government initiatives to help spur property transactions which slowed down when violence broke out during the protests. So far, a handful of investors have already taken advantage of this tax incentive and transferred land and property units. It was recently announced by the Government that this will not be extended after its expiry in June.

CBD condominium rents averaged Bt452 per sq m per month in second quarter 2010 reflecting no change on quarter.

The overall average capital value for the CBD condominium market was also stable registering no change over the quarter to stand at Bt82,740 per sq m.

“New launches within the CBD will be very selective. With the uncertain political and economic conditions, developers are more cautious in initiating new projects. More time is being taken to conduct due diligence studies prior to launching a new project. Buying activity over the next quarter will largely be dominated by domestic purchasers-both end users and speculators. Foreign investors are likely to remain off the radar particularly for luxury projects until there is more certainty in the political situation,” said Low Ming Tze, Senior Manager of DTZ Thailand Research.

SOURCE: The Nation

Bangkok Real Estate

The report noted that activity in Bangkok’s Central Business District (CBD) residential property sector waned with the disruption from the political riots which took place during the quarter. The majority of real estate activity was concentrated in peripheral fringe and suburban locations near to the mass transit lines.

Demand for smaller one- and two-bedroom (40 sqm to 70 sqm) affordable units, which are usually priced below THB80,000 (US$2,470) per sqm, remained upbeat despite the political woes.

CBD condominium rents averaged THB452 (US$13.97) per sqm per month in Q2 2010, reflecting no change quarter-on-quarter. The overall average capital value for the CBD condominium market was also stable, registering no change over the quarter to stand at THB82,740 (US$2,548) per sqm.

Low Ming Tze, Senior Manager of DTZ Thailand Research, said: “New launches within the CBD will be very selective. With the uncertain political and economic conditions, developers are more cautious in initiating new projects. More time is being taken to conduct due diligence studies prior to launching a new project.”

She added: “Buying activity over the next quarter will largely be dominated by domestic purchasers – both end users and speculators. Foreign investors are likely to remain off the radar, particularly for luxury projects, until there is more certainty in the political situation.”

Bangkok Property

The company’s chief executive officer Alan Lin said that property prices, especially for city condominiums could rise up to 20 per cent in a couple of years time due to increase in cost of land. However, he said, they are still priced at an affordable level, especially compared to many countries in the region such as Singapore and Indonesia.

“It’s not a surprise now to find a condo unit in downtown area that could cost up to THB 100,000-200,000 (US$ 3,080-6,160) per square metre. The city condo price has increased 5-10 per cent from last year and I’m sure that it could go up more in the years to come”.

Lin also had similar views towards land prices. “Since 2006-2008 land prices in popular locations in Bangkok like Silom, Sathorn, Ploenchit, and Sukhumvit have increased up to 50 per cent

Despite that fact, Lin is confident that demand for properties in prime locations will remain high.

In Q3, Lin said the company will be adding 10 new projects worth about THB 12 billion (US$ 370 million) into its portfolio, all of which are located in the prime area of Bangkok. It also plans to launch the sales of another 10 new projects, worth over THB 6 billion (US$ 185 million), during the remainder of 2010.

Emporio Place

TCC Capital Land is a joint venture company formed in late 2003 between TCC Land, a Thai development company owned by liquor tycoon Charoen Sirivadhanabhakdi, and CapitaLand in Singapore. According to its original plan, the company was planning to launch two condominium projects worth THB 1 billion (US$ 31 million) and THB 1.5 billion (US$ 46 million) respectively.

However the company’s chief executive officer Soammaphat Trisorat said that without funding from their Singaporean partner, the new projects will be developed by TCC Land alone.

“Our partner is quite concerned about the situation in our country and would like to hold its investment for a bit until they are more certain about it. But it won’t stop us from launching some new projects this year. We are here and well aware that the Thai property market has significantly improved in the past month,” said Soammaphat, who’s also executive director of TCC Land.

In the first half of 2010, TCC Capital Land generated sales of approximately THB 1 billion (US$ 31 million). It currently has a sales backlog of THB 9 billion (US$ 278 million), over THB 5 billion (US$ 154 million) of which is expected to be sold by the end of this year, with the rest to be sold next year.

The industry in the latter half would continue to be driven by strong local demand while foreign buyer sentiment would remain poor as western economies are sluggish, said Anukul Ratpitaksanti, deputy managing director for asset management.

“Since the beginning of the year, there was much worry over the impact of the political turmoil, but the overall market in the first half turned out to be better than expected,” he said.

The tax breaks, which expired yesterday after being extended twice, helped spur demand and offset the poor sentiment caused by politics.

Plus Property recorded transactions worth 1.5 billion baht in the first half, compared with 2 billion for all of last year. Sixty percent of last year’s transactions came from rental projects and 40% from sales.

The company forecasts its sales will grow by 15% to 2.3 billion baht this year.

Mr Anukul said the industry, however, still hoped the government would continue its support in terms of tax cuts to keep stimulating the market, which could also benefit the economy and related industries.

While foreign buying has been weak for three years, the rental market is still doing well, particularly in tourist destinations, Mr Anukul said.

The condominium rental market in Bangkok is also expected to remain stable given the large amount of new supply in the past few years. Existing condos have reduced rental rates to stay competitive with new projects.

Average monthly rental rates of condominiums near mass-transit stations such as Phra Khanong or Taksin are estimated at 10,000 to 30,000 baht a month or 300-500 baht per square metre. Those in the CBD areas such as Sukhumvit sois 24-26 cost about 600-800 baht per sq. m.

Rental yields of condominiums in Bangkok have eased to 5-6% per year when compared with 8-9%, but Mr Anukul said they remain attractive when compared with bank interest.

He added that there was only a small gap between yields of new projects and existing ones as new projects are facing rising costs of land.

Real demand makes up half of the condominium market in Bangkok while the other half is demand for investment.

The Lat Phrao to Ratchadaphisek area came first in the market this year in terms of new condo supply, with about 70 projects introduced in the last five years.

Plus Property currently has 15,000 listings worth 150 billion baht in hand. Of the total, 40% belongs to its parent company Sansiri Plc, and others include 500 land plots.