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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
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