What Real Estate Experts Have to Say about Anti-Bubble Measures
The Bank of Thailand has recently enforced new regulations to restrict the real estate market. These measures, however, are unnecessary as there are no signs of a property bubble, according to experts from Jones Lang LaSalle (JLL), a commercial real estate company.
JLL’s Managing Director Suphin Mechuchep defines the property bubble as a situation wherein there is additional demand from speculative buyers. It also takes place when there is increased liquidity because of borrowing. As a result, prices of real estate are inflated to rates way beyond its basic economic value. The real estate bubble can also be caused by developers constructing infrastructures without undertaking market planning and research, therefore resulting in overbuilding of properties. So why does the Bank of Thailand think that a bubble is forming? Its experts draw the hypothesis because of the fact that more and more condominiums in Bangkok are being built, yet the prices of completed and off-plan structures in the capital’s key areas continue to escalate.
The concept of the property bubble is not foreign to Thailand, as the country has suffered from it from 1996-1997. Unfortunately, this real estate bubble has drastically affected the country’s economy, as well as its financial system. Investments even rose to an excess of 40% of the country’s gross domestic product. To remedy this situation, the government addressed the expansion of the domestic financial supply.
No Bubble, No Trouble
Fortunately though, JLL’s evaluation of Bangkok’s property market shows that the real estate bubble is not inflating as reported. Despite the concerns of government and private economists that a bubble is growing because of the stronger currency rates and the improved stock market, it is not the case according to JLL research. Supporting JLL’s findings is the senior economist of Asian Development Bank, Luxmon Attapich. In her report, Attapich noted that the cost of the residential units is not that inflated. The Stock Exchange of Thailand too, despite its recent gains, has normalized as well. Even if foreign direct investment inflow keeps on coming, it would not cause the property bubble, as believed by many.
However, the aforementioned factors make a lot of people believe that individuals who profited because of the stock market will divert their funds to the real estate market, and could cause a bubble that does not exist as of current. Suphin adds that although the central bank’s appeal on commercial establishments to be careful about mortgage lending is very sound, he believes that no measures should be put into place, since there are no clues that a real estate bubble is about to inflate to epic proportions. He adds that measures to restrict property transactions could destabilize the demand for property, which can result in inflated costs to buyers, who are purchasing properties in the first place because of affordability. With all that has been said, it sure looks that the property market in Thailand will get stronger, amidst speculations that the country is about to enter another era of the property bubble.