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Head: Buyers' market for those who can playBlurb: Retail space is one of the few bright spots, but as more developers complete debt restructuring, take-up of homes and office space could improve KRISSANA PARNSOONTHORN
The slower-than-expected pace of debt restructuring among developers and high non-performing loans continue to place downward pressure on the market as well as financial institutions. Low interest rates alone have not been enough to spur demand to absorb the huge oversupply in sectors such as offices and low-cost residential condominiums. The minimum lending rates (MLR) of major commercial banks stood around 8.5% early June. Property-rescue measures adopted during the past two years have yet to bear fruit. They included the reduction of transfer fees to 0.01% of a property's value from 2%, the increase in the foreign-ownership limit to 100% of the units in a condo from 49%, and the extension of leases to 50 years from 30. The industry also was counting on efforts by the National Housing Authority (NHA) to provide some 15 billion baht in assistance to rehabilitate partly built residential projects, but red tape has stalled the project. The first lot of five shortlisted projects is now being appraised by independent valuers. Heavy competition among banks to extend housing loans continues just the same. Sales of completed detached houses improved gradually as consumers who had savings finally decided to buy. Auctions helped move units in some residential condominiums. The retail space market outperformed other sectors as international retailers and specialty stores expanded to cash on in the anticipated economic recovery. During the first six months of the year, investments in new projects and active property transactions were very rare, but there were some sales relaunches at projects whose developers had successfully restructured debts. These projects were sold quickly at discounts of 50-60%. For consumers with cash or access to credit, it is expected to remain a buyers' market with steady or slightly lower prices for the remainder of the year.
Large-scale operators such as L& H, Quality Houses, Property Perfect and Supalai have managed to maintain their portfolios and are concentrating on finishing projects begun earlier. According to a survey by Chulalongkorn University's Faculty of Architecture, the number of unfinished buildings in Greater Bangkok rose last year to 400 from 364. The higher number reflected the disclosure of hidden NPLs in the property sector. Some deserted skeletons are likely to be demolished due to poor construction quality, said real-estate experts. This year's first surprise was the Land Department's announcement of new valuations that reduced median prices on land across Bangkok by 20%. A rare exception was the area around Narathiwat Ratchanakarin Road, where appraised values rose by 90% in the belief that it would become a major new business district. Analysts said the new valuations would not affect the property market greatly, though they might lead some banks to reassess the collateral placed to back loans. Meanwhile, foreign investors are picking their spots carefully. In January, Keppel Land, a big player in Singapore, bought a 51% stake in Five Star Property Development Plc. The latest foreign acquisition came in May, when US-based Westbrook Partners purchased a 40% interest in Amarin Plaza Plc. On the consumer front, the cabinet finally approved the Escrow Account Bill in June, as part of a plan to curb housing fraud. The bill now awaits approval by Parliament. According to Bank of Thailand, the total outstanding debts of the property sector were 562.7 billion baht at the end of 1999. Of the total, 64.5% or 362.7 billion baht worth of loans were still non-performing, and the rest had been restructured.
Some properties and assets with negative values are expected to be foreclosed by banks in the next six to 12 months to reduce expensive carrying costs. At the same time, several owners do not want to operate projects anymore. A complex new set of problems awaits, though, as many banks shift NPLs to new asset-management companies. Krung Thai Bank recently transferred 500 billion baht in assets to its management firm. The banks themselves do not know how to do with these bad assets, but they desperately want them off their balance sheets. Now it will be up to the management firms to pick up the pieces. A number of developers have already been forced by creditors to submit to rehabilitation procedures under the Central Bankruptcy Court. The creditors complained that these debtors had either refused to enter serious negotiations, or had requested excessive ``haircuts'' - write-downs of principal. Among the companies now in the court system are Property Perfect, SV City, the Ban Chang Group and Srivara Real Estate. The stated-owned Asset Management Corp (AMC), now the biggest creditor of many listed and unlisted developers, managed to seal a historic agreement with Natural Park Plc to restructure the latter's debts totalling 11.13 billion baht, the largest amount in the agency's portfolio. The AMC accepted loan losses of almost 50%. Starwood Thailand Property Fund 1, one of the winners in asset auctions held by the Financial Sector Restructuring Authority (FRA), also achieved success in restructuring distressed assets with 12 debtors in only one year. The fund could see a return of 25% on its original investment. Details on the progress of restructuring talks between developers and other FRA auction winners have yet to be released. HOUSING Although the housing market is still oversupplied with a massive number of unoccupied houses and second-hand units, improved sales can be seen at some high-quality projects. Furniture, home decoration, floor tile and roofing businesses have been benefiting accordingly. The Government Housing Bank (GHB) and Agency for Real Estate Affairs Co have yet to update their authoritative figures on unoccupied houses in Bangkok. Preliminary forecasts were for the number of vacant houses in the capital this year to be 295,422 units, a 10.3% drop from 329,379 last year. According to the GHB, the number of residential projects launched last year totalled 1,357 units, up from 1,071 in 1998. Giant developer L& H broke with local tradition earlier this year, saying it would now build its detached houses before selling them. The idea surprised the industry but it is paying off for L& H, which is finding plenty of buyers, many paying cash. The most-oversupplied residential segment is low-cost condominiums. Condo developers who have restructured their debts have been selling units at discounts ranging from 25-50%. With housing prices unchanged or down slightly, and banks busy chasing retail business, consumers in a position to buy homes stand to be winners. OFFICES The entry on the market of new office space has almost ground to a halt, with just 87,720 square metres forecast for this year, a sharp fall from 202,216 sq m last year and 455,920 sq m in 1998, according to the real-estate consultancy FPDSavills. But the company said the market was bottoming out, with 102,229 sq m due to come online next year, and a surprising 800,000 sq m in 2002, because many partly built office blocks will be revived. Bangkok now has a total office stock about eight million square metres. Of the total, 56.8% or 4.55 million sq m are Grade-B buildings, 29.5% or 2.36 million sq m are Grade-A and 13.7% are Grade-C space. Average office occupancy rates in Bangkok were 70% in the first half. Demand is still weak as many companies are still downsizing. At the end of the first quarter, average rents for Grade-A space were 357 baht/sq m/month, a drop of nearly 30% from 1997. Grade-B office rents were 276 baht and Grade-C rents 245 baht. RETAIL Retail space has rebounded in line with a recovery in consumer spending. According to Sansiri Plc, discount stores continued to pursue growth amid high competition. Tesco-Lotus, Carrefour and Makro led the way in developing new locations to capture more shoppers. The most closely-watched battle is between Lotus and Carrefour, which opened complexes opposite each other on Rama IV Road near Klong Toey. New retail space supply this year is expected to top 147,300 square metres, nearly double the 76,858 sq m created last year, said Sansiri. The total stock of retail space in Bangkok was 3.71 million sq m at the end of last year, and it is estimated to reach 3.87 million by 2001. Average occupancy rates are 88%, up from 86% last year. Convenient access from the skytrain system is pushing rates even higher in some prime spots. Siam Centre and Siam Discovery, for example, said they would have 100% take-up in the second half. Consultants Cushman & Wakefield said average rents at major shopping complexes had been rising gradually. In general, rates are now 900-1,100 baht/sq m/month, based on a three-year lease. |
The property sector remains far from a real recovery, but significant improvements in a few sectors in the first half have given rise to hope for the future.
Most of the country's blue-chip developers that had survived the turmoil of the past four years have linked up with foreign partners over the past year. With debts reorganised and some fresh funds in hand, some are expanding again through the acquisition of distressed assets. They include Sansiri Plc, Noble Development Plc, Land & Houses Plc and Golden Land Property Development Plc.
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