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ASIA FOCUS
New opportunities emerge for Thais to tap after breakneck growth in recent years, writes Umesh Pandey
Asia's once-booming property market seems to be heading for some kind of a slowdown of which local Thai companies are looking to take advantage by venturing into the unknown.
The latest to take the plunge is Preuksa Real Estate Plc, which has said that it would invest around 300 million baht in its first venture in Bangalore by the end of this year after having cancelled its plans in a more volatile Vietnam.
But its move comes on the heels of a more uncertain environment in the property market in India and across the region. Rising oil prices, construction costs and inflation and the gloomy outlook of the global economy seem to be taking their toll on most regional markets.
The gloom in property, especially in the middle and lower segments of the market, is not just centred around Ho Chi Minh City or Hanoi. Other cities across the world including the so-called "miracle" markets such as those in China and India are also feeling the pinch of the slowdown.
In a recent report, property prices in Mumbai were estimated to fall by 10-15% over the next six to nine months on the back of lacklusture sales. The decline and poor offtake of properties are attributed to higher interest rates and costs, credit squeeze by banks, bearish capital markets and weak sentiment across the world.
"These will definitely have a negative impact on the property prices in Mumbai and other cities in the country. In my view, the prices will go down by 10-15% over the next six to nine months," Indiareit Fund Advisors' managing director and chief executive officer Ramesh Jogani told the Press Trust of India.
On the positive side, it shows that markets are maturing and the fall in prices will again bring resurgence in customer demand, he added. Indiareit Fund Advisors manages a total of $450 million domestic and offshore funds.
His views were echoed by leading real estate firm Orbit Corporation's managing director Pujit Agarwal who said that there was a total slowdown in the property market at the moment.
"For the last six months, sales were lacklusture. The demand for property will not go up until the general elections, scheduled for next year," Mr Agarwal said.
High inflation, costs of capital and trade deficit have led to the fall in the stock market, he said, adding that the real estate market of Mumbai has a close correlation with the stock market.
But all is not gloom and doom as developers say that even as sales in the Indian real estate market are declining, demand from overseas and non-resident Indians (NRIs), especially in the luxury housing segment, is on an upswing.
The real estate sector in the country has been growing at 30-35% a year to touch $12 billion this year, according to a report by the consultancy Ernst & Young.
In the last six months or so, the real estate market has seen a drop of 60% in sales in the top cities as higher interest rates crimp buying. But demand from the overseas Indian community continues to be strong because it is not subject to the sharp rate hikes, where the real estate market is more mature and the returns less assured.
The interest by Indian diaspora is relatively high for the upmarket houses. Thailand is no exception as local Thai-Indians have been looking to buy houses in India.
Ansal API Ltd said recently that non-resident Indians accounted for 20-25% of the company's sales in the premium housing segment, which consists of houses above the $100,000 mark. The demand is mostly from the West Asia, the United Kingdom and the United States.
In the US in particular, home prices are starting to soften sharply after a series of bad loans to home owners, who had a high risk profile and failed to repay their mortgages on time. Home values have fallen and are now worth less than they were a year ago.
On the other hand, the Indian property market offers a minimum of 15% return on investment a year, even though that is a climb down from a doubling of values seen two years ago, Ansal says.
"Anybody who bought property two years back has made a good return, so this could encourage NRI buyers," Anshuman Magazine, chairman and managing director of the real estate services provider CB Richard Ellis, South Asia, said recently in the business daily MINT India.
Government policy has also made it easy for NRIs to buy a house in India. Under the present government regulations, overseas Indians can acquire residential property in India, rent it out, transfer or sell it. NRIs can also remit the rental income and capital investment made in Indian property abroad.
Developers are making a special effort to attract NRI buyers. Ansal, for instance, plans to offer its prospective NRI buyers a special discount at property exhibitions across the world and recently came to Bangkok to present its plans as well.
Omaxe Ltd, another real estate company that predominantly builds high-end homes, is seeing a lot of interest from NRIs in Europe and the US. "I can't put a figure to the demand from NRIs but the response is certainly very positive," said Arvind Parikh, chief financial officer of Omaxe.
Omaxe has its marketing representatives in Europe, the US and West Asia either on its own or through tie-ups with the local real estate agents to tap the NRI market.
While property prices have increased in India by as much as 50-100% in the last three years, making it costlier for NRIs to buy houses, this price increase has not affected the demand from NRIs.
Even a fast-appreciating rupee, which is hurting the value of the dollar, isn't damping demand from the overseas Indians. Since the start of the year, the dollar has fallen against the rupee and now fetches only about 39.5 to a dollar compared with about 44.6 in January.
But there remain some prospects for the smaller, so-called "Tier 2" cities, said Deutsche Bank in a recent research report.
"All commercial real estate segments continue to boom Tier-II cities will gain particularly. ... Investment volumes are still very low. This will change rapidly in the next few years," said the report titled "Real Estate Investments in China and India: Big returns in big countries?"
Although, strong residential demand growth is expected, the bank noted that "dangerous exaggerations can occur". An important growth driver for the real estate market would be the increasing urban population in both countries.
The report talks about how India and China are projected to witness increased number of urban population especially by the end of 2050. From just about 30%, India's urban population is anticipated to touch 55% by 2050.
According to the report, another growth driver for both countries would be the rising population of working age. In the near term, that population is expected to touch a peak of more than 70% in China.
The working-age population in India is projected to be on the upward curve in the coming years and would be above 65% by 2050.
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