1997-style price plunge not likely

1997-style price plunge not likely

1997-style price plunge not likely

Thai real estate prices will not tumble as they did in the post-1997 economic crisis period as there will be no forced sales, says Suphin Mechuchep, managing director of property consultant Jones Lang LaSalle (Thailand).

She said the 1997 crisis was a crisis of Thai financial institutions so developers had to sell projects cheaply because their investment relied on project finance.

“Developers’ debt-to-equity ratio was very high as their investment leveraged at only 20-30 percent, compared with the current 50-60 percent,” she said. “With no forced sales, prices will not collapse but just weaken to the initial selling prices during the launch period.”

Condominium prices are likely to be weak, however, as more units would be completed in 2009. Units taken by speculators would also compete with new supplies offered at competitive prices as construction costs fell.

“She suggested the government should stimulate the property market by extending the leasehold period for foreign owners from 30 to 90 years”“But this will not mean a loss [for speculators]. It will be just a lower margin than expected or a loss in profit,” she said. “Some buyers will turn from speculators into investors, holding units for longer periods to avoid lower margins.”

At the same time, condominium supply could be augmented by resale units as buyers delay getting their units transferred when projects are complete. Some may be unsure of their income and others may face greater difficulty in obtaining a mortgage.

In this recession she forecast that prices would not fall as steeply as in neighbouring countries including Hong Kong and Singapore, where prices had doubled or tripled in the past few years. “Even if they fell by half, they would remain higher than in Thailand.”Though the slowdown would make real estate investment unattractive, she forecast that domestic purchasing power reflecting good economic fundamentals would endure.

She suggested the government should stimulate the property market by extending the leasehold period for foreign owners from 30 to 90 years, which would reduce buyers’ risk from the market’s current volatility.

Office space rents climbed in early 2008 with an average vacancy rate of 13-14 percent due to limited supply. But the US financial crisis had since hit the world economy, decreasing demand. As a result, she forecast that office rents would slide by 5-10 percent on average.

“Unless monthly rents reach 1,000 baht per square metre, investing in a new office development will not be as attractive as other sectors, except for development for own use,” she said.

About the author

Kanana Katharangsiporn Kanana Katharangsiporn
Kanana Katharangsiporn is a senior journalist with The Bangkok Post, Thailand's first English language newspaper and specialises in property and real estate areas.
Other posts by Kanana Katharangsiporn ( 28 )
Website: http://www.bangkokpost.com/

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