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IT'S NOT ALL DOOM AND GLOOM

The current financil crisis presents some very different challenges to the problems faced in 1997. The fear that non-performing loans (NPLs) could rise this year has turned into reality since February, which means small and medium-sized property players will have greater difficulty in staying afloat, says Thanapol Sirithanachai, managing director of Univentures. Distressed assets too would rise as NPLs pile up. Mr Thanapol says Bank of Thailand data shows that NPLs within the whole system were 5.6% of total loans at year-end 2008, but rose to 5.9% in February. For the property industry, this means smaller operators could be snowed under with more problems as they fail to reach sales and price targets, while having difficulty in drawing down loans as banks are much stricter now and have imposed more conditions. "But at the same time we can see that big companies - the top five - can move ahead this year because the situation is not like 1997, listed companies and big operators today not only have low debt levels, they hold cash too so they will be able to implement projects." However, Mr Thanapol warned that sales will slow down with this squeezing of margins, also indicating that NPLs could climb even in the property industry. But banks and financial institutions are already aware of this difficulty and seem to be taking better care of their clients. These troubles also mean there will be fewer new property projects this year but this is, in fact, a blessing in disguise because it matches decreased demand. Mr Thanapol expects there to be a few more ghost buildings joining those from the 1997 era that still dot the Bangkok skyline, but the total will be fewer than the Asian financial meltdown left behind. "I think it will differ from that period because there will be fewer instances of construction halting after a project has started. But the scenario of projects being scrapped after sales fail to pick up - if we look around there are projects that were introduced for a while and when they failed to make it their executives returned the money to the clients and shelved them." Mr Thanapol, whose company has experience in handling distressed assets, fears that it will be much more difficult to resolve these problems today than in 1997-98 because the lightning speed and deadly impact of the Asian meltdown caused the whole system to halt at that time. This led to speedy foreclosures and when a company such as Univentures moved in to acquire a suspended project. it only had to hold talks with one party - the bank. When negotiations ended, the projects were able to resume construction and continue. However, such a move today means having to deal with several parties, with the banks too now in a stronger position so they no longer have to accept a debt write-down or "haircut". Aside from the banks, any acquisition entails dealing with contractors because the construction would probably still be continuing, the buyers who would also debate whether to pull out or continue, there would also be host of suppliers and on top of this there are a whole lot of regulations to wade through. OPPORTUNITIES: Thanapol Sirithanachai is confident. It is clear that prices have already begun sliding, but developers disguise this by packaging them as promotional giveaways, but they do really mean a discount. A drop of five to 10% is already apparent in the market and it could sink further. "I think demand is still tangible in some locations, but buyers are waiting to see whether the price offered is acceptable. Right now, when it comes to marketing, most operators are stressing the price as the key point because consumers are looking at this," says Mr Thanapol. In the residential segment, the impact is most visible in the condominium market because the supply increased substantially in recent years but is expected to drop because fewer condos will now be built because these tie up large sums of money. "But there is demand for condominiums at the one to three million baht level because when people run into such problems they tend to opt to live in condos and use the mass transit systems." The strongest impact will be felt by projects catering to people on low-incomes because of the heavy impact this round of financial woes is having on the industrial sector. The luxury end is also slowing because some of the buyers have been foreigners, or Thais buying units to rent to the foreigners. With the whole world facing a severe economic crisis, Mr Thanapol urged the authorities to consider winning the hearts of foreign investors by allowing 100% foreign ownership of condominium buildings in certain areas such as Pattaya, Phuket and Samui for a certain period after which the regulation could be scrapped. Also, with foreigners generally not allowed to buy land and only permitted leaseholds which are now only up to 30 years under legal guarantee, with further extensions being contractual obligations, Mr Thanapol feels this too could be extended. While it might seem that Thailand is in greater difficulty than some other countries because it is coping with the twin economic and political problems with this year's GDP also expected to be in the minus territory, in fact other nations that are only coping with tough economic conditions, but without political instability, are worse off, Singapore being a good example. "Their economy depends on exports but ours ... we still have a basic economy so we are not that badly off." However, if political issues continue to trouble Thailand then it will sap demand even further. "I think the most important thing is the impact on confidence. We could have demand, but if there is no confidence to spend then everything will stall. Although people have savings and money in their pockets, the impact of lay-offs means although they could still cope they will slow down spending." Even so, Mr Thanapol said the reverse side of every crisis is opportunity, and people looking to buy a home to live in will this year see prices they have never dreamed of before and will likely settle for a good offer. Investors and business operators too will get opportunities to buy projects to develop further. Bangkok Post May 3, 2009

 

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