Local equilibrium a healthy sign

Few signs of a US-style property bubble as supply matches demand and pricing is rational.

Asset price inflation and soaring US property prices over the past decade certainly represent one major factor behind today’s global economic crisis.

Could it happen again in Thailand? After all, the 1997 Asian economic crisis offers many parallels to today’s situation, where low interest rates, lax lending practices and a mismatch in information in the market helped create an imbalance between property supply and demand.

The US crisis can be traced back to last year’s sub-prime mortgage crisis, where rising default rates among home mortgage borrowers resulted in declines in the value of hundreds of billions of dollars in collateralised debt obligations backed by home loans.

But experts say the Thai property market is unlikely to repeat the problems of a decade ago.

Pitchon: Condo prices to hold up next year

Pitchon: Condo prices to hold up next year

James Pitchon, executive director of the property agency CB Richard Ellis, said Bangkok condominium prices were likely to hold up in 2009 as units entering the market represent those built this year when raw material and construction costs soared.

The expected decline in new foreign investment in 2009 due to the global crisis would also help to reduce the prospect of future new supply and thus support prices.

The increase in the number of expatriates in Bangkok, projected at 14% growth to 82,000 this year, even with the high political uncertainty, will also support demand in the rental market. The ongoing shift in consumer preferences among the urban middle-class for homes located along mass transit routes will also be positive for the demand.

“The condominium market, which has enjoyed rapid growth over the past four years, is expected to see 10,000 new completed units in 2009. The fact that we will have fewer new supplies is quite healthy for the market,” Mr Pitchon said.

“Bangkok’s middle-class lifestyle has changed dramatically with the opening of BTS Skytrain and MRTA [subway]. We expect Bangkok to become a focus city, rather than one in which people move out to the suburbs.”

Mr Pitchon said property prices in Bangkok had been driven by construction costs, which have doubled over the past 10 years. Developers are unlikely to reduce prices, even though construction material prices have since declined.

“Part of the increase is due to market demand and part is due to the fact that buyers require higher standard buildings. Almost all new supply in the market has been built on high material costs.

“There will be a slightly different price performance in each project as developers differentiate with designs, location and quality. There will be a willingness to pay a premium for certain projects.”

The Thai property market overall is expected to withstand the global credit crisis relatively better than economies such as Singapore and Hong Kong, where prices have dropped dramatically since the sub-prime crisis erupted in 2007.

The fact that the Thai economy is quite diversified, with less reliance on the financial sector compared with Singapore and Hong Kong, has also helped cushion the impact of the global crisis. The conservatism of Thai banks in project finance and mortgage lending has also minimised losses and risks.

“Thai banks on average lend 70% mortgages on value, and focus on the ability to repay. There has been a high rate of mortgage rejections even before the crisis. The ghost of 1997 continues to look over the shoulders of many bankers,” he said.

Mr Pitchon said the market currently offered an opportunity for developers of office space who look at a time horizon of three to four years.

“The next 12 months will be good for conservative new users. There will be a wide range of choice available from remaining inventories and new supplies,” he said.

Mr Pitchon said the rental market was also expected to remain stable, given that there was little evidence of sharp cutbacks by multinational firms.

Samma: Price cuts are unlikely

Samma: Price cuts are unlikely

Samma Kitsin, the director-general for the Real Estate Information Center (REIC), said local developers generally had no insolvency problems.

A recent REIC survey of 411 companies had 71% responding that their net worth remained strong, with only 17% saying their finances were in difficulty and 11% with debt on par with their equity.

“The survey showed that it is unlikely that there will be wide-scale foreclosure problems that can depress asset price. The situation in Thailand is quite different from the US,” Mr Samma said.

Condos accounted for 31% of new units in the first 10 months of the year, an increase from 22% the year before.

“There has been a rise in the proportion of condominiums in the real estate market. They are aimed at consumers looking to buy as either a first or second home, as well as at speculators. But demand could drop in 2009 as the economic outlook dims,” Mr Samma said.

“But I don’t think developers will cut prices, as they remain concerned about the reaction of early buyers. Another factor is that new units have been built based on high construction costs. We’re more likely to see developers increase their marketing campaigns to help prop up sales.”

Related Articles

About the author

Nina Suebsukcharoen Nina Suebsukcharoen
Nina Suebsukcharoen is a senior journalist with The Bangkok Post, Thailand's first English language newspaper and specialises in the property and real estate sector.
Other posts by Nina Suebsukcharoen ( 19 )
Website: http://www.bangkokpost.com/

Leave a Reply

Feel free to leave a comment...
and oh, if you want a pic to show with your comment, go get a gravatar!

Copyright © 2009 Thailand Real Estate Magazine. All rights reserved. Powered by WordPress.org, Custom Theme and ComFi.com Calling Card Company., Hosted by HostMonster