Property Market Still Listless

Phanom Kanjanathiemthao says political stability is the key

Phanom Kanjanathiemthao says political stability is the key

People looking for properties for themselves rather than as investments actually have a good opportunity today because interest rates are very competitive.

The local property market has turned quiet these days with most developers putting off projects unless they absolutely have to continue. The big listed developers are still moving ahead as they have to constantly generate revenue, according to Phanom Kanjanathiemthao, managing director of Knight Frank Chartered (Thailand).

The slow pace of activity reflects the fact that while people may be able to forecast how the global economy might fare in one to two years, no one can predict how Thai politics will play out, he said.

“This is the main problem. Where economic conditions are concerned, I think educated and experienced people in the business sector can assess the trend and direction and move on. But what they can’t forecast is how the political problems in our own country will end and how much longer this uneasiness and discouragement will last.”

Despite the downbeat mood, developers are not really slashing their prices but instead are reducing unit sizes to make them appear cheaper to potential buyers. While some of them have slightly reduced their profit margins, they are not able to make substantial cuts because construction costs have not dropped significantly, nor have other costs entailed in developing and marketing properties.

Mr Phanom mentioned that one large listed developer had turned to building townhouses and single houses rather than high-rise condominiums because the current tough market conditions mean it is difficult to sell 40% of the units quickly, and without reaching this target the developer cannot get bank loans.

A large number of small investors have also backed out because it is difficult to speculate on prices today. Only those who have substantial savings are venturing forth and they generally opt for small units in new projects that show good potential for the future.

“I think that more than 50-60% [of small developers] have disappeared,” said Mr Phanom.

Listed developers building single houses and townhouses at competitive prices for real end-users seem to be doing well, but these developments are not targeted at investors and speculators.

“Those who realise that they have to buy actually have a good opportunity today because interest rates are very competitive. If end-users are able to buy today and have the strength to meet mortgage payments, I think they should do so.”

Mr Phanom pointed out that there are still Thais with buying power, including those who can easily purchase residences for 10-20 million baht, although the total number of people with deep pockets has decreased. The reason they are not jumping in now is because they do not know whether the red-shirted and yellow-shirted groups will come out and start fighting again.

Mr Phanom is critical of the reduction of specific business tax from 3.3% to 0.11% and property transfer tax from 2% to 0.01% until the end of March 2010, saying that developers and not end-users are the ones who benefit from these reductions because it is they who pay these taxes.

The one-year timeframe is also too short for developers to give corresponding price reductions at any new projects they might launch because generally it takes longer than 12 months to complete a development. While ongoing projects would benefit from these incentives, the developers would not pass the savings on to the buyers because sizeable number of sales contracts would have already been signed.

These two incentives mean developers of projects being completed within the 12-month time-frame would save money, but it is uncertain that they will use these savings to reduce the prices of new projects.

The short timeframe also affects another incentive, the personal taxable income deduction on mortgage loan principal payments of up to 300,000 baht for homebuyers making purchases in the 2009 tax year. This is a one-time incentive – the previous allowance was 100,000 baht in interest payments per year. Only those taking transfer within this tax year would benefit whereas extending the incentive to three years would widen the net and benefit many more purchasers.

Mr Phanom also suggested that the government consider giving foreign property buyers more benefits such as allowing them to buy freehold land rather than the 30-year leases currently permitted.

“This will directly spur the market because those who can buy in these times might decide to do so but at the same time I want to ask whether the government would dare to take this step.”

It is noteworthy that other countries such as the US, UK, Australia, Hong Kong and Singapore do allow foreigners to acquire freehold land on the premise that they cannot take the land away. Also foreigners buying land in Thailand would mostly live here permanently and this would have a multiplier effect on the economy.

Even extending the 30-year leasehold to 60 to 90 years would help because although foreign property buyers do tend to lock in three 30-year lease terms, only the first period is guaranteed by law. The other two are contractual obligations but at the seller’s discretion, and it is uncertain how the Thai courts will rule on this issue should such a case be filed.

Mr Phanom also does not believe the extension of the subway and skytrain routes will help the property market right now because these projects take at least five to eight years to complete. A good example is the Bang Sue-Bang Yai extension that has been mooted for five years with very little progress.

The global crisis is also pushing down rents of apartments and serviced apartments, a segment that very closely tracks economic condition,s because when there is no business to be obtained people economise. Also when fewer businessmen travel to Thailand, rents of serviced apartments naturally slip.

“Hotels too are affected. The condition hotels are in is often in the news – no tourists, no investors and both are clients of hotels.”

The secondary market is not in any better shape, with more people now looking to sell than buy, he added.

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 ( 33 )

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