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The property industry is confident that the formation of the new government will lead to a gradual recovery of the real estate market and consumer confidence by the third quarter of the year, says Somchao Tantaterdtham, president of Thai Real Estate Association.

He said foreign investors remained interested in entering the property business in Thailand and some were looking to acquire large land plots in prime areas in the country for development.

In the first quarter, the property market would be stable as there were a few long holidays and the political direction remained unclear, Mr Somchao said.

''This is a good time to buy a house before prices rise after the economy picks up,'' he said. ''Many developers have been trying to cap prices since last year to attract demand that has been slowing.''

Prasong Owlarn, the president of the Housing Business Association, said the new government would be able to regain confidence among investors, developers and consumers. He foresees more economic activity starting in the second quarter, which will have a positive impact on real estate in the second half.

The Housing Business Association, Thai Real Estate Association and Thai Condominium Association will stage the 18th House and Condo Fair from March 13-16 at the Queen Sirikit National Convention Center.

The fair is normally held in April but the organisers want to stimulate the market sooner.

The fair will cover 11,000 sq m with displays of around 600 projects from 150 developers, plus non-performing assets held by financial institutions. Commercial banks will offer attractive home-loan packages with speedy approvals.

source: Bkk Post

A total number of 117 residential projects worth up to Bt72.07 billion to be launched into both Bangkok and suburban market this year will create fierce competition in the property market, according to a survey conducted by a property agency Agency for Real Estate Affairs.

Nearly a half of total 117 projects or 62 projects will be city condominium projects, 33 projects will be detached house, 19 projects are townhouse, as the rest three projects will be double house. Average per project will have 220 units at price average Bt2.8 million per unit.

Top ten locations for launch new residential projects are including Sukhumvit, Rama IV, Phaholoyothin road, Klong San, Bang Na-Trad KM 1030, Pattanakan, Yanawa-Silom, Rama V Bang Krouy, Rachada, Lad Prao, Pracha Uthid, and Rachayothin.

The agency's managing director Wasan Kongchan said that demand for residential price between Bt1 million per unit and Bt2 million per unit has continued growth for the both detached house and city condominium.

Last week the Thai baht surged to a 10-year high of 33.12 against the US dollar. Such a strengthening of the currency is very much in line with those of other regional economies, as a difficult year in the US sub-prime lending markets ensures tough times for the American economy.

Kasikorn Research Center forecasts the momentum to continue to a possible peak of 32.50 baht to the dollar in the first half of this year, while predicting a possible US recovery in the second half of the year could ease the upward pressure on the baht.

But what will the overall effect of an increasingly buoyant baht have on the Thai property market? In truth it has had a mixed impact with a number of dynamics at play of which investors may want to take note.

International investment in the Thai property market experienced both positive and negative factors last year with the debate over changes to the Foreign Business Act working against overseas investment, while the ability for foreigners to own condominiums under a set quota remained a key and compelling driver of investment. We feel that this buying opportunity will continue to attract investors despite the change in exchange rates.

Europeans, where the euro and pound sterling are similarly strengthening against the US dollar, will see Thailand's condominium market as an increasingly attractive investment opportunity. Americans, investors using currencies pegged to the dollar, and those earning in dollars will take a financial hit from the greenback's weakened status, with buying property here being a more costly exercise.

However, what Thailand offers in comparison with the developed property markets in Hong Kong and Singapore, and emerging markets in Vietnam, Malaysia and Indonesia, is value and affordability.

A new luxury condominium in Bangkok costs up to 250,000 baht per square metre, five to six times cheaper than an apartment in Hong Kong; with average condominium costs in Thailand significantly cheaper still at around 100,000 baht per square metre.

This means that there are some excellent buying opportunities in the mid-range condominium market, and high-quality product can still be found in the 85,000 to 90,000 baht per square metre range.

Singapore is only marginally cheaper than Hong Kong. Vietnam's property market is developing fast, but is currently almost solely targeting onshore and offshore Vietnamese.

Condominiums in Bangkok also offer a typical rental yield between 6% and 8% of the purchase price, three times that of Singapore and almost double the Hong Kong rate, making for a much more attractive return on investment.

Thailand's allure is made all the more powerful for its fantastic lifestyle opportunities, food and culture. Its central location in the region makes it the ideal transport hub, which is an added draw.

Raimon Land has seen our property prices increase anywhere between 30% and 80% for projects launched in Thailand in the last four years, so we do not expect to see any downward trend in condominium prices caused by this currency fluctuation. Foreign ownership of condos has also grown from one percent in 1995 to 17% today, further proof of the market's increasing popularity.

While these overall trends are positive, there are some factors that will raise international investor anxiety in the Thai property market.

To complete transfer of a condominium you need a foreign currency certificate which proves that 100% of the funds have come from offshore in order to qualify for the foreign freehold quota, which is 49% of the saleable area of any condominium development. This means that investors who bought into a project two or three years ago, which is now nearing completion, will feel the pinch from the strengthened baht when they make the final transfer of funds.

Conversely, investors buying now are in a more comfortable position, as they will be bringing financing into the country on completion in two to three years, seeing little impact from today's strong baht. So the strengthening of the baht is not a reason to not buy now as the only financial commitment required is a minimal deposit and monthly payment installments.

Thai buyers will be unaffected by all of this as they earn, borrow and buy in baht, whereas the most vulnerable group will be foreign nationals working in Thailand who are paid in baht. Due to the current Bank of Thailand advisory that prevents banks from lending to foreigners for property purchases, this group still has to transfer 100% of its funds from overseas, meaning currency purchases have to be made from an increasingly weakened financial position.

Raimon Land continues to call on the government and central bank to open up local financing to foreign investors, resident or otherwise, to further strengthen the property market here and to make investment more equitable.

However, there is much to look forward to this year, and with a strong and stable government in place, investor confidence will certainly grow as buyers seek to take advantage of the attractive opportunities available in the property, and particularly condominium market, in Thailand.

source: Bkk Post/NIGEL CORNICK

The Nation: 12 Jan 2008

Property developers are more worried about construction costs and say government valuations are well below market prices

Developers continue to build condominiums in Bangkok’s central business district, even though land valuations have increased and construction costs continue to escalate.

Although the Treasury Department has announced increases in land valuations averaging 26.9 per cent across the country, the move will have little noticeable effect on residential prices. There is strong competition in the property market, and many developers are battling rising costs to maintain their margins and hold prices down.

Moreover, Property Perfect senior executive director Teerachon Manomaiphibul says the new land valuations will have a negligible affect on property developers, because they are still 20-30-per-cent lower than market prices.

At the end of last year, the Treasury Department announced land valuations for tax calculations between this year and 2011 had jumped an average of 26.9 per cent.

In Bangkok, the average valuation rose only 5.76 per cent. The highest was on Silom Road, where each square wah was given a value of Bt650,000, while the lowest was in Nong Chok district, where each square wah was worth only Bt260.

In setting the new valuations, the department took into account land use, the environment and economic conditions.

Average valuations in the South rose a sharp 85.79 per cent. In Songkhla's Hat Yai district, land was valued at Bt400,000 per square wah, while in Ranot district, by way of contrast, 1 square wah was declared to be worth only Bt15.

Valuations in the Northeast rose 22.97 per cent. One square wah in Khon Kaen's Muang district was given a value of Bt200,000, but on the other end of the scale, land in Sakon Nakhon's Song Dao district and Chaiyaphum's Phakdi Chumphol district was worth only Bt20 per square wah.

Land in the North increased in valuation 15.43 per cent on average. The highest valuation was in Chiang Mai's Muang district, where 1 square wah was declared to be worth Bt250,000. But in some parts of Chiang Mai's Doi Tao and Mae Chaem districts, valuations were as low as Bt10 per square wah.

In the Central region and along the Eastern Seaboard, land valuations rose an average of 11.71 per cent. The highest value, in Samut Prakan's Muang district, was Bt140,000 per square wah, while land in Kanchanaburi's Sangkhla Buri district was valued at only Bt10 per cent square wah.

The department reviews land valuations every four years. It evaluates 5.12 million plots in Bangkok and 3.32 million upcountry.

The new valuations, to be used for calculating tax over the next four years, will increase tax payments about 1 per cent over those of last year.

They will have no noticeable effect on home-buyers.

Agency For Real Estate Affairs president Sopon Pornchokchai says the new valuations do not reflect real market prices, which are generally higher than Treasury Department estimates.

However, the new valuations will affect calculations of transfer tax this year, making it a higher payment than last year.

"We think the new land valuations will effect property developers less than the rising costs of construction. This will be the main factor forcing developers to decide whether to increase their residential prices," he says.

Most property developers are expected to absorb the increased transfer tax payments for their customers, and so, unlike construction-cost increases, the new valuations will not be a factor like in the setting of housing prices, Teerachon says.

Construction costs began to increase last year, and by now the average rise is 5-10 per cent.

"We believe most property developers want to increase their prices, but they cannot do so immediately, because of strong competition in the market and the fact that home-buyers have reduced their budgets," he says.

The market trend is forcing property firms to adjust their business costs, especially operational costs, to maintain their gross margins. If they cannot reduce their business costs, they may be faced to accept lower gross margins than last year.

LPN Development managing director Opas Sripayak says high market competition is forcing the company to hold its residential prices, even though its construction and management costs are rising. The company is trying to maintain its gross margin by adjusting and developing its construction process to reduce costs.

"We speed up the construction process by completing a project within one year of presales. In that way, we cut our construction costs, especially our payments to workers on the projects, while creating economies of scale. As a result, we can maintain our gross margin, although our construction raw-material costs are rising," he says.

Preuksa Real Estate chief business officer Prasert Taedullayasatit says his company has tried to maintain its gross margin by reducing management and construction costs. It uses innovative construction processes like prefabrication and relies on information technology to manage its operational and management costs.

"We don't want to increase our residential prices when the property market has such strong competition. We're trying to maintain our net income after tax at 15 per cent, so we must manage our business model to reduce costs and maintain our margin," Prasert says.

source: Bkk Post

Siam Zokei Co, a property development joint-venture between the country's largest consumer products conglomerate, the Saha Group and a Japanese developer, plans to build condominiums near mass transit to tap more Thai buyers, according to president Yasuo Miyazaki.

''The number of foreign customers has shrunk as the Thai baht has been stronger,'' he said.

''During the past five years, the baht has strengthened by 20%. However, foreigners' purchasing power remains strong and residential prices in Thailand are lower than those in other neighbouring countries.''

The change has prompted the company to shift its strategy to focus more on Thai buyers, who currently make up only 20% of its customers.

Mr Miyazaki said the company was in talks with Saha Group to develop some of its land, as well as new sites, for condominiums in two locations in Bangkok and three in Chiang Mai this year.

Last Saturday, the company launched the Peaks Garden condominium in Chiang Mai. The 300-million-baht, eight-storey building has 79 furnished units sized from 40 to 143 square metres and priced at 55,000 to 63,000 baht per sq m.

Eighty percent of the units have been sold, with 70% of the buyers westerners, 10% Thais and 20% Japanese. Most of the foreign customers are retirees, said Mr Miyazaki.

During the past three years, the number of Japanese retirees staying in Thailand rose by 20%. In 2005, when the company's first project was completed, there were about 8,000 to 9,000 retired Japanese staying in its projects. These customers had been on tour groups seeking overseas destinations to live.

Apart from Peaks Garden, the company plans three new projects on the eight-rai site. The Peaks Avenue luxury condominium will have 52 units worth 325 million baht. There will also be a Peaks Mall shopping centre worth 31 million baht with a sellable area of 887 square metres. The rental rate would be 600 baht per sq m per month and construction will finish next month.

Also planned is Peaks Market, with a supermarket, Italian restaurant and a plaza with a sellable area of 1,895 sq m. All are located near Chang Klan Road and the Night Bazaar.

Mr Miyazaki said the property market in Chiang Mai had high potential for investment thanks to the high number of foreigners visiting and living there.

Siam Zokei expects sales this year to more than double to 2.4 billion baht, helped by sales from another development, Grand Peaks Si Racha.

source: Bkk Post

For months, most businessmen believed that the Dec 23 election would restore optimism about the country's longer-term economic outlook, which had been severely damaged by the 2006 coup.

But the new military-drafted constitution, which favours weak coalition governments, could complicate the hope for consistency in the new economic policy framework.

Business and consumer confidence took a beating after the September 2006 coup, with private investment and consumption both grinding to a halt in the first half of 2007.

According to a November survey conducted by the Federation of Thai Industries, business confidence picked up in the last quarter in light of the election. But firms became more concerned about shortcomings in the continuity of economic policies, rising oil prices and the worsening US sub-prime problems.

Amara Sriphayak, senior director for the Domestic Economy Department at the Bank of Thailand, said domestic demand was helped by economic policies that focused on grassroots spending.

''Domestic demand declined since 2005 partly because of the cyclical factor _ it had been accelerated earlier by both fiscal and monetary policies. But in 2007, the problem was sentiment,'' she said.

Investment activities turned around in the second half of the year in line with improved confidence in anticipation of the year-end election. Sustained high capacity utilisation suggested firms were ready to invest.

Dr Amara said investment in certain projects not related to public spending could improve right after the elected government is formed.

Business that can support the overall industrial sector such as petrochemicals, as well as automobiles and electronics, could start investments after the new government takes shape.

Projects in the public-sector pipeline, including about 100 billion baht worth of investment along the Eastern Seaboard, would help improve momentum for private investment, she said.

Prasarn Manoleehakul, the president of Kasikorn Research Center, said public spending efficiency would play a key role in boosting private investment in 2008.

''Businesses want to be confident that there is demand to serve their investment. The size of 2008 fiscal expenditure budget is sufficient, but the problem as usual in the past is the speed of disbursement,'' he said.

Phatra Securities expects private investment to become a key economic engine, with 6.1% year-on-year growth in 2008 and 9.2% year-on-year growth in 2009. The growth will help offset a decline in exports due to the US sub-prime debt crisis in 2008.

Supavud Saicheua, managing director of Phatra, said that accelerated state enterprise spending and investment in tourism-related sectors could begin right after the new government is formed.

Certain projects that need clearer government policies could recover in the second half of the year. Assuming clear policies are set regarding the Foreign Business Act, foreign land ownership and the 30% reserve requirement.

Board of Investment records for submitted and approved projects for investment promotion reflected significant projects in the backlog.

''But we are at the point where we must decide which direction we want our investment to go and what investment suits our fundamentals,'' Dr Supavud said.

For instance, the economy should utilise the Japan-Thailand free trade agreement to benefit the local automotive industry, given tight competition from countries such as India. The country should also think about whether it wants to focus on heavy industries such as steel to boost the automotive sector.

It's important for the government to clarify its stance on alternative energy, he added.