Thailand wooing back foreign investors
The relative dearth of international buyers in the last four years has lifted as sentiment around politics and global economics improves, and the situation is helped by market cooling measures in places such as Singapore and Hong Kong
The residential property market has been waiting for signs of a return of foreign investors after a few lean years following the 2008-2009 financial crisis. Now, with statistics from our residential sales activities showing favourable trends of foreign interest, it appears the time has come to welcome back these investors to the condominium market.
Historically, foreign buyers have played a crucial role in driving the local property market, accounting for up to 35% of the demand for condominiums in Bangkok's main commercial districts prior to 2008. The global economic crisis was undoubtedly one of many factors reducing foreign investment to well below 20% over the past four years, during which time the Bangkok residential market has relied very much on local demand. While prices have consistently moved up, a real push in demand and prices, particularly in the luxury market, will only be achieved with inbound foreign investment.
Based on our own statistics, 21% of luxury units sold in Bangkok in 2012 by CBRE were sold to foreign buyers. This is an improvement from 14% in 2011. The trend is expected to continue this year.
Results from a recent property sales exhibition for a Bangkok project in Hong Kong also support the improved outlook. An analysis of our statistics shows that more than 60% of foreigners purchase properties in Bangkok for investment purposes, while the remainder are buying a first or second home.
The origins of foreign buyers remain mixed, with clear market leaders including Singapore, Hong Kong, China and Japan, but also extending to markets such as the United Arab Emirates and selected European countries. We believe that going forward into 2013, regional markets will be the key drivers in foreign demand for the luxury condominium market. Hong Kong and Singapore are two traditional markets targeted by Thai developers.
Why is Thailand beginning to draw back foreign investment? One of the main factors that has held the foreign market back had undoubtedly been local politics. In the past 12 months there seems to be a correlation between the local political situation settling down and beginning to show more stability, and foreign investors showing more interest in the market.
Elsewhere in the region, key markets such as Singapore and Hong Kong have begun to slow down with attempts by governments to impose cooling measures on markets that had become overheated.
In Hong Kong, the government has lowered the loan-to-value ratio to an all time low, thereby limiting the availability of financing for new property purchases. Furthermore, it imposed higher stamp duties for non-residents and corporate buyers in October, 2012. This has reduced the sales volume in the primary market in the short term, but the long-term effect of the policies remains to be seen.
In Singapore, the most recent cooling measures that came into effect on Jan 12 included an increase in the additional buyers' stamp duty of between 5% and 7% across the board. This new measure affects all property buyers, including Singaporean citizens and permanent residents, foreigners and corporate entities, as well as those purchasing their first, second, third or more properties. The measure will result in an increase in stamp duty to a maximum rate of 15%.
Singapore has acted largely to curb speculative demand, particularly by those investing in their second or third properties. Its government also acted to reduce the loan-to-value ratio for mortgage lending to a historical low.
As investor sentiment has been affected by economic growth, as well as the global and eurozone crises, one trend we have seen is more caution than usual among investors. In most markets, they have reacted by investing in smaller properties, thereby reducing their risk exposure to any one investment.
Thailand's property markets, both in Bangkok and the surrounding areas, stand to benefit from the desire to invest by this group of more cautious foreigners. Price points for Bangkok properties are attractive and well positioned, with developers continuing to launch more compact units to ensure affordability. This is not only in terms of price per square metre, but also unit price: The Bangkok luxury market offers unit prices ranging from 10 million to 20 million baht, an affordable and desirable range for investors.
In 2013, we will see a number of luxury projects launching in prime sites including on Witthayu, Lang Suan, Sathon and Sukhumvit roads.
While some concern has been expressed over a potential oversupply, we believe the trend of returning foreign investment will create new demand to support the supply pipeline.
Aliwassa Pathnadabutr is the managing director of CBRE Thailand. She can be reached at firstname.lastname@example.org. See also Twitter: @CBREThailand; Facebook: www.facebook.com/CBRE.Thailand.
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Writer: Aliwassa Pathnadabutr