Steadily falling interest rates together with a limited new supply of property in some segments spurred a recovery in the middle-price housing market, particularly detached houses.

Access to home loans was made easier for homebuyers as commercial banks competed more intensely to offer lower rates. Interest rates on mortgages in early December stood between 4% and 5%.

An oversupply of units in many residential locations has been gradually absorbed amid sustained demand. Resale prices of top quality condominium units in downtown Bangkok have risen considerably.

Another clear sign of improvement was the higher occupancy rate of office space and residential condominiums.

Advertisement for brand-new houses appeared in newspapers. Strongly positioned developers such as Land & Houses, Golden Land Property Development, Sansiri, NC Housing, Wang Thong Group and Lalil Land & Houses posted healthy sales of their new projects.

The September events in the United States had very little impact on the Thai property market as few if any potential buyers suspended their plans to buy houses.

Analysts say the fundamentals of the property industry are gradually being put right. Developers planning new projects are much more careful than in the past about assessing the market and the financial viability of their proposals.

Banks are much more strict in approving loans for new developments and customers themselves are more cautious about budgeting.

Associate Professor Manop Bongsadadt, a lecturer at Chulalongkorn University, said the property crisis taught a painful lesson to all in the industry, including customers.

Many non-professional developers _ many just speculators _ have vanished. Of the 2,000 developers before the 1997 financial crisis only between 200 and 250 remain.

A full recovery is still some years away, though. Developers themselves have worked hard to attract consumers by adopting new strategies such as escrow accounts that reassure homebuyers that their funds are safe, and offering pre-built houses.

The office sector was the worst performer in 2001 while the retail segment remained prosperous with aggressive expansion by international discount store chains.

After the economic crash in 1997, at least 350 large buildings were more or less abandoned in Bangkok. Work on most of the deserted skeletons has not resumed because their owners have been unable to complete debt restructuring with creditors.

However, the Watercliff condominium on Rama III Road was revived, with four parties injecting a total of 320 million in equity.

The four companies _ Sansiri, LPN

Development, Univentures and Yaowawong, bought the distressed asset from BankThai, the Asset Management Corp and Ayudhya Investment and Trust Plc. Construction is expected to restart in 2002.

There were also reports of more development companies, such as Supalai and Property Perfect, finalising massive debt restructuring.

GOVERNMENT SUPPORT

The Thaksin Shinawatra-led government intends to use the property segment to drive the entire economy.

In April, several measures were approved to stimulate demand for real estate.

Buyers of new homes can qualify for a personal income tax deduction of up to 200,000 baht over a two-year period if they pay in cash. Buyers paying by instalments can make a tax deduction of 100,000 baht in the year in which the title is transferred.

This measure complements an existing deduction allowed for interest paid on home loans, currently up to 50,000 baht a year.

The Government Housing Bank was allowed to offer mortgages of up to 100% of the valuation price for new homes bought by civil servants and state enterprise employees, up from 80% earlier.

Firms buying properties would be allowed to take a 24% charge for depreciation against the investment cost in the first year, with the remainder deducted over the following 19 years.

However, the assistance would cost the Revenue Department hundreds of millions of baht in lost tax revenue.

In August, the government allowed the National Housing Authority (NHA) to buy properties from a portfolio of the Thai Asset Management Corp. The assets worth around 50 billion baht were expected to provide opportunities for low-income people to buy houses at realistic prices.

The NHA started by selecting some distressed assets from Krung Thai Bank and Sukhumvit Asset Management Co. After careful selection, sales of five condominium projects were handled by the NHA in late October and the state agency reported selling 80% of the 246 units in one month.

In November, civil servants headed for GHB branches across the country to apply for low-interest housing loans. On the first day, 14,592 applications were received for credit totalling 11.14 billion baht.

The Government Pension Fund gave the GHB standby credit of five billion baht at 4% annual interest to finance the mortgage programme.

In December, additional measures were passed to boost demand in the property sector. Each civil servant's interest payment of up to 50,000 baht for GHB low-cost mortgages can be deducted from annual personal tax. Specific business and stamp duties were waived for the lending programme.

Value-added tax, specific business and stamp duties have also been waived for asset sales by property funds.

Loans for second or additional houses will also be eligible for personal tax deductions. But total deductions, including those for the main residence, are limited at 50,000 baht per taxpayer per year.

MARKET OVERVIEW: HOUSING

Skeletal reminders of the property crash still scar the horizon.

In 2001, the housing market was considered the most active with projected sales growth of between 20% and 25%. The main growth driver was detached houses for middle-income earners, said David Simister, managing director of CB Richard Ellis.

Strong demand came from end-users who made their buying decisions based on job certainty and falling interest rates on home loans. New houses or townhouses developed in locations where a shortage of supply was seen were sold quickly.

According to the GHB, sales 5,306 units in brand-new housing projects were put on the market by the end of September, up from 3,040 units in the first nine months in 2000 and 1,357 in the same period in 1999.

Narudee Kiengsiri, president of the Thai Real Estate Association, forecast that sales of housing units were expected to reach 35,000 to 40,000 in 2001, up from about 30,000 units in 2000. During the first half, about 17,000 units were sold.

However, the improvement was minimal when compared with the 130,000 units sold annually during the boom.

The GHB research said the houses registered in Bangkok in 2002 were expected to total 35,000 units, up from 32,028 in 2000. During the first half of 2001, 17,994 units were registered with 9,297 built by individuals and 8,697 by developers.

The number of new housing registrations is not much different from the number of new houses sold in 2001.

Many developers sold pre-built houses, with transfer of titles completed three months after making the downpayment. The use of pre-fabricated materials reduced both the cost and time of construction.

The high-quality condominium market in downtown Bangkok faced a shortage of new units, with those at Lumpini Place Sathorn, developed by LPN, sold out within three days of opening for bookings.

CB Richard Ellis believed the stock of 33,000 condo units had been steadily absorbed by customers, with a consequent lift in prices. The average occupancy rate rose to 73% by the end of 2001, from 53% in 1998.

OFFICES

Bangkok's office sector struggled with almost 2.5 million square metres of space left unoccupied, of which 1.5 million were B- and C-grade and the rest A-grade. The total stock of office space stood at 6.98 million square metres.

Only 66,00 square metres at China Resources Tower at All Seasons Place on Wireless Road came on the market in 2001.

Bangkok remained the cheapest city in Asia to rent office space and one of the cheapest in the world after Harare in Zimbabwe and Christchurch in New Zealand and Durban in South Africa, according to CB Richard Ellis.

However, there was steady demand from start-ups, mostly telecommunications, insurance and service companies, and also firms looking to expand. The net space take-up by year-end was expected to exceed almost 300,000 square metres, similar to the volume in 2000.

By the end of 2001, the average vacancy rate at offices across the capital was expected to decline to 25% and rents of A-grade space were expected to inch up.

Rents of A-grade office space in early December stood between 350-390 baht per square metre and it was predicted that rents would rise to 400 baht or more for new contracts if existing tenants move out.

APARTMENTS

The rental and serviced apartment market continued to perform healthily as demand remained firm and supply was limited. Demand came from expatriates working in Bangkok, with the total number increasing slightly in 2001.

Viranee Parchakapat, the research director at Sansiri, said only 1,155 serviced apartment units and 150 rental apartment units would be added to the market by the end of 2002.

At the end of June in 2001, there were 8,657 units in 76 serviced apartments in Bangkok of which 2,871 units were in the Sukhumvit area and 2,060 units in the CBD. During the same time, the rental apartment market had a total of 9,907 units in 344 projects.

According to Sansiri, the occupancy rate of serviced apartments stood at 71% in the capital while the rental apartment market saw an average of 85%. Rents for A-grade serviced apartments in Sukhumvit were 891 baht per square metre per month and in the CBD, 808 baht.

Rents for well-maintained apartments in Sukhumvit remained stable at 287 baht per square metre per month and in the CBD at 324 baht.