Window of opportunity in crisis

CB Richard Ellis

CB Richard Ellis

Cyclical downturns are nothing new to the realestate industry. In this case, the downturn came earlier than expected, as the financial crisis has hit the global economy, including Thailand.

A benefit of this is that the Thai property market is being slowed before bubbles are allowed to develop. The fact is that the slowdown comes as a result of outside forces, while the fundamentals of the local market remain relatively strong, especially in comparison to other regional markets.

Once the crisis hit, the reaction of the market was not difficult to predict. Past crises have been characterised by slowdowns in sales, with investors holding out for further declines in prices, all of which leads to limited activity until both the economy and the market recover. One major question is how long it will take for the Thai property market to recover. Opinions vary widely on this, with the most pessimistic comparing it to the Asian financial crisis of the late 1970s, while more optimistic viewers are projecting as little as a year.

I believe the answer lies somewhere in between, but I feel that this time the situation is different from the last crisis. Both developers and banks have been much more prudent this time around, and price rises have been fuelled in great part by constructioncost increases and the emergence of new classes and grades of property.

Important factors to consider now are the effects of the global crisis on our economy, the reactions of developers and buyers and, possibly most importantly, consumer sentiment. How long the downturn will take is partly dependent on the amount of new supply in the future. We expect to see a period of consolidation among developers, which should be positive for the sector in the long run.

Even if my feeling is that current inventory levels are more manageable than they were a decade ago, the developers’ primary focus now should be on clearing inventory before launching new projects. With US presidentelect Barack Obama about to shape economic policy for his own country and by extension the world, there are high hopes globally that the worst has passed and things will improve soon.

While it seems as though investor sentiment is at a low, the truth is that every crisis, no matter how bad, brings a set of opportunities for certain investors. The key is identifying the right opportunities and the right products. We have seen this in the past, when savvy investors have taken over halffinished projects, changed the concept or structure and finished the projects successfully and at a considerable profit. It is true that the worst time for the realestate market is during recession, when there are no transactions, and essentially nothing happens. The concern today is that buyers are waiting for the bottom of the market, suggesting that activity may be limited in the near term.

Unlike the situations in neighbouring markets such as Hong Kong and Singapore, I do not see prices of condominiums in Thailand declining significantly. However, I do see the prospect of more units in quality buildings in prime locations offered for sale at attractive prices by people who bought off plan and are panicking or in financial trouble and cannot afford to transfer upon completion of building. These properties are good buys for those looking for opportunities. Such opportunities may come available in properties that were never available for sale in the past despite the offer price. Today it is a buyer’s market, and although I am not suggesting you rush out and buy something, keep an open mind: restricting oneself may mean missing out on a great opportunity.

At the same time, if you have bought something of good quality in a prime location recently, do not panic just yet. If you can afford to hold on to it, do so. Prices will rebound, and in the long run prices of new developments will be higher than precrisis. Remember: with any investment there is a bestcase scenario and a worstcase scenario. Make a decision only after having considered both.

A famous quote from the most successful investor of our time, Warren Buffet: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” This is always the classic rule of investment for smart investors, especially in market conditions like the current; there are still many opportunities in the market for propertybuyers with cash on hand.

A good example is the stock market, which dipped under 400 in recent weeks but was almost immediately propped up by bargain investors who saw opportunities and took advantage of this by buying stocks with good fundamentals at surprisingly low prices.

About the author

CB Richard Ellis CB Richard Ellis
CB Richard Ellis Thailand operates throughout Thailand and covers all aspects of Thai Real Estate from offices in Bangkok, Phuket, Pattaya, and Koh Samui.
Other posts by CB Richard Ellis ( 9 )

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