Resort markets under pressure

Phil Alexander: President of Martello Realty

Phil Alexander: President of Martello Realty

Buyers now have the upper hand, but there are increasingly fewer of them

Thailand’s resort markets are under severe pressure right now, with foreign buyers who have been negatively affected by the exchange rates opting to walk away from the deposits, says Phil Alexander, president of Martello Realty.

The strengthening of the baht against sterling - from about 65 baht to about 51 baht today - has had a strong impact on British buyers who are dumping their downpayments.

“We are seeing that now in Pattaya, without a doubt. There is still a lot of money around, but the condominium market in Pattaya is definitely suffering from a lack of buyers who are prepared to carry on with their payment structure.”

While admitting this is not good news for Thailand and is a delicate subject to touch on, Mr Alexander pointed out that foreign developers, especially those in resort areas, have been under significant pressure recently.

“Just a trip to Pattaya will tell you that. You will see that a large number of projects have been stopped.”

Martello Realty is working on a development on Koh Samui for which it was previously anticipated that 70% financing could be obtained, but today the maximum that could be hoped for is 50%, and this is also conditional upon the strength of the development and the hospitality brand it acquires.

Where Bangkok is concerned, the many segments mean it is difficult to generalise the overall direction this multi-faceted market is taking, but it is becoming clear that the top end, which typically comprises a very small group of people, is hurting because these people usually have their money tied up in stocks and other financial instruments and these markets have been shaky for months now.

“But I still believe the sensibly priced condominium market in the central business district will work and is working.”

Even so there is no denying that the market has slowed down over the last few months with Mr Alexander mentioning that projects his company is involved in as selling agent have definitely seen sales drop significantly.

Just a trip to Pattaya will tell you that. You will see that a large number of projects have been stopped“The question is when will they come back I think, they are still there, we are still getting one or two a week, so we are still selling. Obviously it’s going to depend on how quickly certain markets come out of recession - six months, nine months, 12 months, 15 months, who knows?”

While some developers hard hit by the economic turmoil are offering discounts to clear their inventory, those developing in better locations are reluctant to do so. An interesting turn in the market is that there is an increase in institutional sales.

“We are handling a couple at the moment where the owners are looking to dispose of their assets at substantial discounts just really because they need their money for other investments.”

Mr Alexander has also seen developers struggling with banking problems openly looking for new financial partners. Obtaining such a partner in these difficult times is not a pipe dream because there is still a lot of money around in the form of sovereign wealth funds.

“Middle-eastern funds still have substantial capital to invest but they have choices and the problem is whether or not Asia is their number one focus, probably not because the sovereign wealth funds will be able to get significant discounts on prime property in US and Europe. This always happens, especially in the States because the way the Americans deal with their real estate in a recessionary situation is to sell very quickly and at steep discounts.”

While these funds are more interested in assets firstly in US and then Europe, prime real estate in Asia would draw their attention because these would be the best on this continent.

Among the good deals that should attract the attention of wealthy funds and moneyed buyers are Lehman Brothers’ assets in Asia.

“Lehman Brothers is now in receivership so the receiver gets involved in handling the real estate, the receiver is not going to hold on to the real estate, his job is to sell the real estate. An example is the portfolio in Thailand is managed by the receiver out of Hong Kong, those receivers will be selling and selling into a market where the buyer is king, the seller is no longer the king.”

Also even though the global financial storm is still raging fiercely, there are still people investing in large projects with Mr Alexander knowing of three to four hotel projects set to launch in Bangkok’s CBD shortly.

“I think developments are coming out of the ground now which will mean they will be operational in two to three years’ time. I think people are building for that market. To be honest, tourism will come back it’s a question of how long that will take.”

Because times are so difficult Martello, which has 20 years of experience in both brokerage and restructuring but mainly the latter, has now taken a major step to launch a global property alliance out of Hong Kong called Synergy. This network also handles machinery, plant and equipment business that is vital in a recession.

“You will see that the business model that we have chosen is totally different from a brokerage model. We have three very important aspects so that we can meet the demands of our clients, some will be downsizing, some will be outsourcing, some will be disposing of assets, some will be looking for opportunistic deals in terms of receivership deals. So that’s going to be the focus of the new alliance, we already have 35 offices now running and the branding is starting this month under the new name.”

By the end of this year this alliance hopes to have 100 offices in Asia. It aims to answer the need for a more regional approach to doing real estate business because more people are now looking further afield as they are no longer satisfied with just a local perspective.

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 ( 21 )

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