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The sub-prime meltdown in the US will ultimately
affect the cost of borrowing and the ability to do so in Thailand because a lot
of funds that flow into this market come from institutions in US and some of
them have been affected, says Nigel Cornick, the CEO of Raimon Land Plc.
Financial institutions' general risk awareness increases when there is talk of
mortgage defaults, repossession and price slumps, ''so those things tend to
spread even though [the real impact] may be confined to America'', he says.
The problem in the US is rooted in the willingness of lenders to finance
property up to 100%, and second mortgages are commonplace. Many homeowners are
leveraged far beyond their ability.
''Now [sub-prime lending] is a market that is to some extent unique to America,
so when you get a hiccup _ and it happens very quickly _ people's equity gets
wiped out overnight, leading to less inclination to pay back your debt because
you know your real estate asset is worth less than what you borrowed.''
The key lesson that Thais can learn from the sub-prime crisis, he says, is to
keep within realistic debt-to-equity and loan-to-value ratios.
Despite the global sub-prime jitters Raimon Land continues to be optimistic
about the future of the Thai property market. It is gearing up for the launch
its posh twin-tower The River condominium, opposite the Shangri-La Hotel, in
October; a soft launch took place earlier this year. The show units are nearly
ready and the company will also be launching its own boat shortly to ferry
people to the site. Piling is to start this month and is expected to last six
months before the main contractors move onto the site.
Raimon Land is also working on another exciting project, 185 Ratchadamri, which
is where the Cambodian embassy used to be located.
''We are going through a very detailed design development exercise to try to
customise the number of units to the identified customer base that we have built
up as a result of direct contact,'' Mr Cornick explains. ''So we envisage that
there will be 180 to 200 units _ larger rather than smaller units _ I doubt if
there will be any units smaller than about 120 to 130 square metres.''
However, the company is not in a hurry to unveil 185 Ratchadamri with the timing
roughly around early next year for now. The price is expected
to start as high as 200,000 baht a square metre.
''Where we finish we don't know.''
Mr Cornick advises people not to be put off by the prices of luxury condominiums
in Bangkok because he expects them to double if not quadruple over the next five
to 10 years. Underscoring this is the price of Somkid Gardens, which during the
1997 financial shake-up was around 100,000 baht a square metre but today, if
there is a unit for sale, it would be at least 140,000 to 170,000 baht a square
metre. Even this is only 70%, and most people expecting the price of their
property to double over a decade.
''That would be most people's expectation in a normal market, in markets such as
the UK it has probably quadrupled, but in this market the prices currently being
achieved are not high, historically or regionally, and they can only go up.''
Those who think that coughing up 12 million baht to buy a condominium here in
Thailand a huge investment should note that there are not many places in Europe
where one can buy much with this sum of money. ''There may be in some of the
eastern (European) states but I think in any major city in the world 12 million
baht will not buy you much.''
But given recent worries as well as months of political drift, Raimon Land has
seen evidence of consumer wariness in the number of sales it has made since the
beginning of the year. Despite this the company has sold six billion baht worth
of real estate so far this year with 70% of it bought by foreigners.
The company's foreign buyer base is spread quite widely now with its top buyers
coming from the UK, US, Europe and Australia. ''Interestingly we are seeing a
number of Russian buyers now, particularly in Pattaya but also Phuket and in
Bangkok on the river, so that is going to grow,'' says Mr Cornick.
Raimon Land also expects more investment to flow to the Thai property market
from the Middle East, not just at the institutional level _ Raimon itself has
new investors in IFA Hotels & Resorts from Kuwait and Istithmar Hotels from the
UAE _ but also by individuals.
''There are something like a million people coming to Bangkok for health care
and other reasons out of the Middle East now, which is a significant number of
people,'' he says. ''They all have money in their pockets, and a lot of it will
be converted into buying real estate, I am sure.''
Given the high foreign interest, Mr Cornick has urged the authorities to
consider increasing the percentage of
foreign ownership in condominiums from the current 49% limit. ''That is
one we have always recognised as being an easy option but one they haven't taken
yet.''
Second, he says, the authorities could ease some
of the controls they seek to put on foreign ownership of Thai companies. Third,
they could consider allowing foreigners to borrow money locally to buy
condominiums.
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