Follow the smart money

Follow the smart money

Engel & Volkers (Thailand) Ltd

Is now a good time to be investing in property?

Ask a real estate agent when the best time to buy a property is and the humorous response is likely to be “anytime, but preferably in the next 20 minutes”.

With the global financial markets in such disarray, lending seizing up between banks and institutions and general fear and greed permeating the market, there seems little reason to be optimistic. Last night was fine example when we saw that the US$700 Bln bailout package had been rejected in the House of Congress. In the few moments after the Speaker´s gavel sounded, it really did seem like time had stopped. The Dow shed over 700 points falling at frightening speed like a Universal Studio roller coaster, stunning members of congress. The Dow Jones closed down by a whopping 7%.

So, when is the best time to buy real estate? Now? Funny you should mention it. Naturally as property agents we are biased but at this time we have even more of a reason to say “now”. Furthermore,  this is being reinforced by what some of Customers have said to us as well. There may be some method in this time of financial madness.

The safe haven for those with cash is clearly not in the equity markets – just yet. No-one wants to catch a falling knife. Remarkably there is even some degree of caution being voiced about leaving large amounts of cash with a single bank and under low interest rates. Not many understand the complexity of other investment vehicles and most want to invest and leave it over time and not have to watch it every five minutes. More than a few people have come to us and commented that they may be better off at this time by investing in property.

Sometimes, the simple ideas are the best. “What´s the use of cash to me?” commented one client. “I am much better off in property and at least I know it´s there and can´t disappear”.

Well that is one way to look at it. Then look a bit deeper and you will find that property in Thailand, principally in the resort markets such as Samui and Phuket are mostly not financed through mortgages or secured loans. Given the nature of the market, it is a cash purchase. No loans means no bubble and far less defaults on any property that is financed.

The only contributor to price shifts are the fundamental market movement of supply and demand. In other words, there is a degree of stability in resort market property in Thailand as there is less debt. It has survived economic crisis, tsunami´s and SARS. The great majority of property has been purchased by cash as the local banks do not lend lightly to foreigners. Thailand banks have been conservative lenders, spending time since the last financial crisis to clean up the balance sheets and avoid risk. Non are exposed to sub-prime.

Transactions may be down as the middle market has been hard by foreign executives concerned with job security and saving for a raining day but there is a segment of astute and savvy  investors with cash and they would prefer to employ this in the property sector rather than equities or idly in the bank.

Now for another one of Phuket´s or Samui´s best kept investment secrets. Not only are the markets relatively stable but there are opportunities to purchase properties with a guaranteed yield.

Not only is the market not exposed to the same pressures as caused by the sub-prime debacle but there are superb investment properties available with guaranteed yields of up to 8% for periods of up to 5 years. If you are not looking at the yield, then look at the effective discount this brings to the purchase price of the property.

With some Asian markets off of their peaks by 40%, a drop in the Dow of 7% in a single day and interest rates at less than 2%, a property investment with a guaranteed return of up to 8% begins to sound attractive. And you can use it for your family holidays as well.

This is perhaps the time when resort marketing will come into its own and the property market which has been sidelined by ongoing political factors may now seem more attractive to investors looking for guaranteed yields, a higher degree of price stability and a place in the sun in which to escape and relax with the family.

Martin Phillips is the Managing Partner of Engel & Volkers (Thailand) Ltd

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