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A FURTHER SLIDE IS EXPECTED

Bangkok Post Mar 22, 2009 The managing director of Equipnet Southeast Asia Ltd believes property values are heading for a slide before bouncing back in a few years While Thailand cannot escape the global plunge in property values, those able to hold on to their assets should see prices bounce back in three to four years, when inflation is expected to revive on the back of the printing of more money to resolve economic problems in the West, says Scott Bolls, managing director of Equipnet Southeast Asia Ltd. Printing more money would inject liquidity into the system, and also would eventually lead to inflation which in turn would push up prices. But, he added, the big concern right now is how far values in Thailand will slide before the situation changes. "It's another three years; that's a long time and we have all got to weather the storm," says Mr Bolls, who specialises in appraisals. A lot of developers in Phuket and Samui are hurting right now because they were relying heavily on offshore money, particularly from Singapore and Hong Kong, but these two Asian financial hubs are going through tough times. Key buyers like investment bankers are losing their jobs, and obviously those who are jobless are unlikely to buy luxury condominiums and villas. "Pattaya is very hard hit right now - Hua Hin not so much because that is more of a Thai market," he said. In Bangkok, Mr Bolls estimates that the central business district (CBD) has not been very much affected so far, though real estate prices are down by about 8%. However, outside Bangkok prices have plunged by as much as 20%. While pointing out that he does not have a crystal ball, he does expect property prices to slide further based on what is happening in the rest of the world. Mr Bolls said that sometimes a country can be complacent and shrug off the opinions of experts, as happened in Germany after unification. There was a honeymoon period that led to prices bubbling up, but Mr Bolls recalls attending a conference there at which experts warned people to brace for a fall. Few believed them, but eventually prices fell dramatically. "I think it's going to happen here too." While this means there are some good buying opportunities right now for those with cash in hand, there should be a lot more further down the road. "In the CBD there is not a whole lot of great value yet, prices are still holding. There is a little bit of drop but they could go down more. With the current developments there is more supply right now than there is demand because there is no foreign money coming into Bangkok anymore. It's going to hurt these developers so there are going to be some good buys coming up." Cash-rich investors are advised to consider buying condos that can be rented out to Thais for 10,000 baht a month. He added: "Farangs, if they lose their jobs, are not going to be staying in these 125,000-baht-a-month condos." Mr Bolls pointed out that the office market is also having problems, with rental prices in Singapore having plunged 20-30%. Also badly shaken is the global equipment market. Equipnet is receiving a lot of requests from companies worldwide to sell their machines, although equipment is the heart of any manufacturing process. "It hasn't hit Thailand so much but we are finding that in other parts of the world, especially the US and Canada, companies are selling equipment at deep, deep discounts. Prices have plummeted in the last four to five months - down by 30-40% in some cases." However, some companies do not recognise that prices have dropped, for example a company in the Philippines that Mr Bolls dealt with. This company is still unable to sell its equipment, thus depriving it of much needed liquidity. Mr bolls advises those in need of money to sell their assets right away. "Sell now before it really cracks. I think now is the time to sell and it's going to be a good three years before things turn around again. It may be even longer than that. "We are facing a worldwide meltdown, not a regional meltdown. It's worse now because we have got all the superpowers in trouble - the UK, England and Japan are all having difficulty and they are not investing." Mr Bolls added that a safe rule for leveraging is to not take less than 50% of the asset value. "There is a rule in real estate development that if you stick to the 50% leverage you are going to be okay." Although Thai banks have been strict on giving out loans, with even Thai nationals often only able to get 60-70% of a property's value, this country cannot escape the global economic tsunami. "Thailand's real estate market has relied a lot on overseas investors from Singapore and Hong Kong. Those countries have been investing in Thailand and now they can't, which ultimately is going to affect the market here. "And the rules and regulations in Thailand in a way defeat the purpose, because it's difficult for foreigners to own property. So that's another thing that is going to hurt Thailand even more. "One of our clients built four big villas [in Phuket] and he hasn't sold any of them yet, and these are 30-40 million baht villas. Who is going to buy them? You know the price has to go down, but how far can it go? People just don't have the money to buy them." While some argue that Thai property prices are cheaper than in some other Asian countries, Mr Bolls pointed out the luxury end is not cheap. That prices in Hong Kong and Singapore are higher is because these places are perceived to have a more serious business environment than Thailand, he added.

 

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