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PROPERTY
Negative real rates promote new options
KANANA KATHARANGSIPORN
The Bank of Thailand has warned that current interest and inflation rates, resulting in negative real interest rates, might cause speculation in real estate if the situation is prolonged.
Titanun Mallikamas, director for the central bank's Domestic Economy Department, said the current inflation rate at 8.9% was even higher than the prime lending interest rate of 7.25% at the country's largest banks.
''Low interest rates for deposits promote alternative investments. But be careful of speculation in real estate,'' he said yesterday at a seminar about building quality houses in the age of high oil prices, organised by the Home Builders Association.
Fundamentally, he said, Thailand's economy and financial sector remained strong but so did risks, including constantly rising energy costs and a food crisis with negative impact worldwide.
''Generally, these two factors [oil and food crises] did not emerge at the same time. But now they have pushed inflation rates higher and reduced confidence among the private sector. We don't know when they will end,'' said Mr Titanun.
The increase in inflation this year was different from in the past few years when inflation rose for a short period. But the annual inflation rate this year has continued to climb each month.
He said Thailand's interest rate was quite low, compared with those overseas. Other countries have increased interest rates to tame inflation while Thailand's key has remained at 3.25% since June last year. ''We should strike a balance between deposit and loan interest rates.''
The central bank's Monetary Policy Committee will meet next Wednesday, when most observers expect a quarter-point rate increase.
Besides the negative impact on the cost of property development, a possible rise in interest rates would also affect homebuyers as there are many risks including stricter rules for housing loan approvals.
Also at the seminar, Tananit Ratananane, director of distribution channel management of the Siam Cement subsidiary SCG Distribution Co, suggested that homebuilders co-operate with strategic suppliers in the industry to control costs of construction materials.
He said builders should design new housing styles and create new materials as consumers consider economic and functional value. Builders should also offer more choices ranged by price and functions to respond to demand.
''Installation convenience is a key to saving. If it's difficult, it's a cost,'' he added.
Prasong Tharachai, president of the Engineering Institute of Thailand, suggested applying lean concepts to production management with an emphasis on total system flow. For example, controlling costs in the design stage would save on overall cost and reduce possible losses during construction.
''You should know how to build with safety, saving and sufficiency,'' he suggested. ''You should consider function and cost ratio and not select only low-cost materials that may not match customers' demands.''
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