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Property price inflation in Thailand has been quite
benign, which could lure foreigners wary of established but struggling markets
Thailand is facing a very limited impact from the sub-prime mess in the United
States, mainly because Thai banks are still haunted by the ghosts of 1997 and
have been very conservative in their lending to the real estate sector, says
James Pitchon, the executive director of CB Richard Ellis.
However this does not mean Thailand is completely immune from sub-prime tremors
because between 30% and 49% of the buyers of high-end residential condominiums
are foreigners.
''The good news is that because Thailand insists that any foreign purchasers
bring in the money from overseas, limiting the ability of foreigners to borrow,
the market for condos above 80,000 baht a square metre is extremely unleveraged
because 40-50% of the buyers are cash buyers,'' says Mr Pitchon.
''It's probably the most unleveraged luxury
property sector in the world.''
While this is very positive, he warned that with residential real estate markets
falling in the US, Spain and Ireland at the moment, coupled with the risk that
markets in other western countries could also slump, it raises the spectre of
western buyers initially becoming reluctant to buy Thai property.
''But on the other hand it also provides an opportunity that as other markets go
down people will focus on markets that are not in a bubble and have not had
dramatic price inflation and Bangkok is one of those cities.''
It is also worth remembering that the sub-prime crisis is bigger than most
people think. Mr Pitchon notes that it is not merely a problem of property
owners in the US defaulting on their mortgages but a problem caused by many
types of structured credit, leading to a credit crunch in numerous categories.
Domestically the market has been subdued, with CBRE data showing total new
residential supply for the first nine months of 2007 fell 20% year-on-year.
''If you look at mortgage loan growth there was almost no growth in the total
value of new residential loans and that has been the situation since 2004,''
says Mr Pitchon. ''So for the overall Thai market, the broad-based picture is
that we have less new supply, almost no significant growth in new domestic
mortgage loans, we have had conservative lending from Thai banks and we
understand that banks have been rejecting up to 30% of new mortgage
applications.''
Mr Pitchon sees a key change in Bangkok, which is becoming more centrally
focused. Historically the ''centre'' of the capital has tended to shift to
wherever the newest buildings were being built. Years ago, Charoen Krung Road
was the main zone, followed by a shift to Surawong and then Silom. When offices
were built on Sathon and Wireless roads, they became the central business
district.
''The centre could have kept moving whenever and wherever people built new
buildings, that's stopped, because the mass transit systems have anchored the
city centre,'' says Mr Pitchon. ''It's no longer this moving object, now all
developments are focused on the mass-transit stations and very much in the city
centre where networks cross over.''
This has led to Bangkok for the first time seeing a scarcity of land. ''Bangkok
has only historically seen scarcity of development sites in certain locations.
This has now changed especially in Lumphini and parts of Sathon and Sukhumvit,''
he says. ''For example (the developer) Sansiri bought an old apartment building
on Soi Ruam Rudi and demolished it in order to build a new condominium building.
That has been very rarely seen in Bangkok before. I think this central focus to
the city underpins value.''
Bangkok is also seeing quite dramatic price rises, mostly linked to replacement
costs. Over the last 10 years land costs have essentially doubled in the city
centre areas and construction costs have increased by 40% since 2000.
Construction costs of a luxury condominium project now range between 50,000 and
80,000 baht per square metre of net sellable area. The land cost element of the
net saleable built area of a high-end condominium in the Lumphini area is around
50,000 baht a sq m, down to 25,000 baht in other central zones.
It means that the combined cost of construction and land of these high-end
condos is at least 75,000 baht a square metre before a single baht of profit and
marketing costs and professional fees is added. This clearly illustrates that
Bangkok is not currently facing a price bubble because prices are closely linked
to replacement costs.
Total downtown condominium stock last year was 42,700 units with 4,700 being
completed during 2007. CBRE expects 8,600 units to be completed this year.
Prices continue to rise in the best quality projects, units available at the
recently completed Athenee Residence are fetching up to 150,000 baht per sq m
and record prices have been obtained by Sukhothai Residences, where the average
is 220,000 baht per sq m and a penthouse fetched 343,000 baht per sq m.
Mr Pitchon observed that these statistics indicate that Thailand is going in the
opposite direction to the rest of the world with prices continuing to
appreciate.
source: Bkk Post
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