Thailand's booming property market is at risk of cooling this year as rampant construction threatens an oversupply of apartments amid increasing global economic headwinds.
The country has been a relative bright spot in an otherwise lacklustre Southeast Asian real estate market. Thai residential property has experienced substantial growth in recent years, much of it fuelled by buyers from China, Japan and Singapore. The thriving hospitality sector has also drawn money from foreign and local investors to fund the building of many new hotels and resorts.
Mainland Chinese have poured roughly US$10 billion (315 billion baht) into condos in Thailand over the past three years, helping to drive annual price increases of 20% in major cities such as Bangkok. Japanese investors have spent $8 billion and Singaporean buyers $2 billion.
At a time when Beijing and Washington are still locked in a trade dispute, affluent mainland residents consider Thai real estate a safe place to park their money. Rental yields in Bangkok can be more than 4% -- far more appealing than socking money away in domestic savings accounts that offer less than 2%. Analysts estimate that one out of every five condos in Thailand is sold to a Chinese buyer. As mainland economic forecasts grow stormy, more people are likely to gravitate to a country known in tourist brochures as the "Land of Smiles".
With Thailand's benchmark interest rate at 1.75% and inflation at about 0.4%, developers are able to obtain construction loans at a reasonable cost. As a result, they are flooding the market with projects. The Bank of Thailand expressed concern on Jan 10 that a condo surplus amid a global downturn could adversely affect the Thai economy. The central bank has tightened mortgage lending rules to tame speculation and the government may take measures to clamp down on excessive construction if the situation worsens.
Moreover, bank representatives are worried that foreign buyers who have already put down a deposit might get cold feet and pull out, leaving properties empty. However, as the Chinese middle class continues to grow and accumulate wealth, the volume of people purchasing should remain steady. Though developers may ease up on new construction projects, demand -- especially at the high end -- will stay strong among Chinese home buyers.
Tourism, meanwhile, which represents almost one-fifth of Thailand's economy, will remain robust. The Tourism Authority of Thailand has predicted 40 million international tourists will flock to the country in 2019. A significant number are expected to celebrate Chinese New Year there on Feb 5.
The government recently announced that it expanded its visa-free entry policy until April 30 to include visitors from China. That was partly a bid to entice visitors scared off by the deaths last summer of 47 Chinese tourists after a tragic capsize accident in Phuket. Arrivals from the country dropped an estimated 20% after the accident.
While Thailand's residential property market may cool slightly, it's hardly likely to slump. The combination of buoyant tourism and Chinese demand should mean that the market will weather 2019's dreary global economic forecasts. - BLOOMBERG OPINION
Ronald W Chan is the founder and CIO of Chartwell Capital in Hong Kong. He is the author of The Value Investors and Behind the Berkshire Hathaway Curtain.