THE FUTURE OF REAL ESTATE IN THAILAND

By Marc Holt

Last month I sent out a newsletter to our website subscribers (www.mlsasiapacific.com) saying I see a bright future for the property market in Thailand, especially for condominium sales. I received so many emails and phone calls from people who disagreed with me that I thought I should explain why I see a rosy future.

None of the people I spoke to who responded to my newsletter are in the real estate industry, so perhaps they look at things a little differently. The argument I heard most often was that there are a lot of new condominium and housing projects going up all over Bangkok. Surely, they said, when these are completed there will be a glut and prices will drop.

What history tells us

Well, before I answer them, let's see what history tells us. Unlike the real estate market in most Western countries, the Thai market tends to stabilize at current prices whenever there is a setback. If you go back to the mid-1980's we experienced a severe financial crisis when many finance companies went bust. The property market slowed down, but prices didn't drop. They stayed where they were and waited for the economy to recover, which it did within a couple of years. Property sales took off again.

After the 1997 crash everyone expected property prices to drop dramatically. It didn't happen. Instead, Thai owners dug in their heels and refused to sell, or even consider dropping their prices. They simply sat back and waited for the economy to catch up with them. It took almost five years, but by 2003 the economy had bounced back with a vengeance and people started buying and selling property again. Since then, prices have risen an average 30% a year in the most popular locations.

That may seem a lot to the uninitiated, but there is a good reason for this. In the last two years, we have never had more than about 170 condos all over Thailand listed for sale on our books. So, where are all the condos for sale I ask these people who disagreed with me?

They don't exist! And even when all the new ones are ready for occupancy, demand will still outstrip supply.

New Projects?

Last year, about 55 new condominium projects were announced. Of these, about 70% actually got off the ground. The projects at the best locations sold out almost immediately. "The Lakes" project on Ratchadaphisek road near TTM is a very good example. The building was a casualty of the 1997 crash. A local developer bought it and announced that their condos would be on sale 'off plan'. The whole building sold out within seven days! And they hadn't even started refurbishing the building yet. This is typical of the many good projects currently under construction. They are all sold out before the first brick is laid. And yet the demand for condos continues. We just can't get enough to sell.

So, what about houses? Surely there are plenty of houses for sale, my detractors asked.

Again the answer is, "No, there just aren't enough, except perhaps in Pattaya. And even there the housing developments are selling out fast."

The problem is that once a Thai family buys a family home they stay put. They don't feel the need to sell and move around or even to upgrade, as we do in the West. If you drive around anywhere in the most popular areas of Thailand looking for a "House For Sale" sign, you won't see many.

In Bangkok these days, you have to travel to the outskirts of the city north, or east of Ram Intra road, or south along Bangna-Trat highway to find most of the new housing developments. Prices at many of them start at around 5 million, and a number are in the 10 to 15 million Baht range, or higher.

On June 15, 2005 The Nation newspaper published a report from the Bank of Thailand (BOT) that said,

BOT watching property sector

The Bank of Thailand (BOT) said that although it sees no economic dangers in the property business at present, it would still monitor the sector closely to prevent "imbalances".

In particular, it will keep an eye on banks' mortgage loans and the impact of high oil prices on the cost of houses.

The central bank yesterday released details of a study which concluded that property businesses should grow positively in 2005 due mainly to real demand from homebuyers.

That doesn't sound like a glut to me.

OK, but what about other areas in Thailand, you might ask?

The most obvious one is Phuket. Reports getting back to me from local residents say that things are still very bad down there after the tsunami. Hotels are reporting a mere 10% occupancy rate, with future bookings way down compared to last year. Tourists are not flocking back in droves, and they probably won't for at least another two or three years. The fear of another unlikely tsunami is there. Even my five year old daughter pulled a face when I told her I plan to take the family down there for a holiday in July. Fear like this is keeping people away. But I believe Phuket is safer than Bali, where it is much more likely that a terrorist could turn up with a bomb. The lack of tourists has put thousands of people out of work. As a result, demand for property has dropped dramatically.

Despite this, property prices have not gone down in Phuket and property sales still continue, although at a much slower pace than before. The market is very high-end and people with money are still buying their slice of paradise. They want the lifestyle that is becoming increasingly hard to find for the price anywhere else in the world. And tsunamis be damned!

Pattaya Boom

Pattaya is booming and will continue to do so. The local government is doing all the right things. They are improving the infrastructure and upgrading the city's image. In addition, rising property prices are starting to force beer bars and other sleaze merchants away from the center of the city. I was castigated by the Pattaya Trader's "Nightmarch" in January for daring to say this, but since then all the beer bars opposite the "Made in Thailand" market on second road have disappeared and a new development is going up there. I believe other beer bar areas in the central city will soon face the same fate.

Chiang Mai and Hua Hin continue to attract buyers. Prices in these two cities are still very competitive, although Hua Hin tends to be more expensive than Pattaya. Chiang Mai has some unsung bargains, with some beautiful developments under construction there. But hardly anyone hears about them. Once they do, expect property sales to grow much faster than they currently are.

Have I made my point yet? I sure hope so, because I am tired of hearing all the naysayers going around telling everyone that another crash is coming. My advice? Go and have another beer and worry about where you are going to be living in the near future. You just may not be able to afford a house soon if you don't get in and buy now. Prices are going up and they will continue to do so for at least the next three or four years. Now is the time to buy!

© 2005 Holt WorldWide Co Ltd, Published in the Pattaya Property Trader magazine,
July 2005

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