Wide gap between price expectations in property

Bangkok Property Market

Bangkok Property Market

Despite continued interest and more properties up for sale, investment activity in the Bangkok property market has been subdued as there remains a wide gap between buyers’ and sellers’ expectations, according to Jones Lang LaSalle, a professional services firm specialising in real estate.

Suphin Mechuchep, managing director of Jones Lang LaSalle, said interest in the Bangkok property market remained strong. However, buyers were mostly looking for distressed assets offered at deep discounts.

At the same time, sellers refuse to dispose of their property at a loss, despite accepting the softer market conditions. As a result, investment activity in the property market had stagnated, with buyers continuing to adopt a wait-and-see attitude.

“Over recent months, we have continued to receive enquiries from investors looking for large land plots, office buildings or industrial properties available for sale in and around Bangkok. However, all the enquiries were driven by the search for distressed property assets,” said Umpon Thepnumsommanus, director of investments at Jones Lang LaSalle.

As long as leverage does not become a major issue, asking prices could hold sway“While buyers are expecting to acquire the property at a deeply discounted price, sellers have yet to encounter financial conditions which would force them to accept losses,” Umpon said. “We have so far seen certain landlords only willing to reduce asking prices.”

The general consensus is that property values are trending downward. However, the magnitude of the decline in property values is highly uncertain.

He said there have been very few property investment transactions since last year to date. As a result, real transactions against which to benchmark are scarce. For example, land on Sathorn Road was transacted at Bt500,000 per square wah in 2005 and Bt800,000 in 2008. So far this year, there has been no land transaction to support the notion that land prices in this area have dropped.

“In the current environment, sellers are lowering their asking prices. Nevertheless, conditions are thus far different from those during the tom yum kung crisis when owners were forced to sell at a loss,” said Suphin.

As long as leverage does not become a major issue, asking prices could hold sway.

The government has recently pledged to introduce taxes on unused land in an effort to widen its revenue collection base.

While the government may need one or two years to draft the new tax structure, some parties have already expressed concerns over the plan, which may mean additional burdens on landowners and push land values down as holding vacant land becomes more expensive.

“Land tax will not only to help boost the government’s revenue but also encourage owners to make use of their land,” Suphin said.

Developed countries have different property tax structures, which vary in terms of the percentage, the type of property and by whom the tax is collected. For example, in Australia both local and state authorities levy taxes on an annual basis. In Taiwan, taxes on holding real estate may be based on both a land assessment and building assessment, with rates varying on location and type of usage.

According to the Fiscal Policy Office, the proposed property tax rates for Thailand range from 0.05 to 0.5 per cent of the property value, depending on the types of land use.

“Besides determining the optimal tax rate for various land uses, the government should ensure efficient and transparent mechanisms for tax collection,” said Suphin. “It should also raise valuation standards to ensure that assessments reflect market prices.

“Apart from a source of revenue which can be used to fund services at a local level, a sound tax structure should promote the efficient use of land and real estate. Nevertheless, the overall impact should be thoroughly studied to ensure against unintended consequences such as more urban sprawl. We do believe that the initiative shows strong leadership on the part of this government to promote efficiency in the economy.”

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