Real estate stages tentative recovery
Thailand's moribund property market moved tentatively toward recovery in 2000 although most analysts agree it would take years before demand and prices point to a full recovery.
Problems confronting developers, banks, contractors and homebuyers remained, but the positive news was that all the parties have been trying hard to help each other solve the problems, especially in terms of debt restructuring.
The momentum of low interest rates alone is not enough to spur demand. The housing market saw demand in 2000 as low as 40,000 units a year in Bangkok.
Most analysts agree the property market needs at least three to five years to recover from its disastrous downturn in 1997. Analysts agree the key to market recovery is stronger demand and a recovering economy.
Land prices continue to fall and housing prices have increased only slightly for brand new units due to higher construction expenses. At the same time, existing completed units were sold at big discounts.
The problem of non-performing loans still has a negative impact on the property sector, forcing banks to rarely lend new credits to fund property projects.
At the end of July, the total NPLs stood at 1.6 trillion baht or 31% of outstanding loans in the banking sector.
Of the total NPLs, 18.3% or 290 billion baht were sunk in the property market.
Almost all property developers, regardless of their size, have been busy restructuring their debts with creditors.
Some listed developers could gain from the debt restructuring, seeing their balance sheets improve. Their real operations are expected to turn a profit again in 2001.
This year's successful cases were Sansiri, Krisda Mahanakorn, Natural Park and Asian Property.
The creditors like Asset Management Corp (AMC) became major shareholders in some cases.
''It's a transition period for the Thai property market to reform its main business fundamentals from finance, marketing, construction, towards more after-sales service,'' said Assoc Prof Manop Bangsadadt of Chulalongkorn University.
Foreign participation has brought fresh funds, new technology and different business practices to the local market, but their roles are still limited because foreign investors need more time to study the changing market and are cautious about investing in new projects.
Sansiri, with Starwood Capital Group of the US, just started a new housing estate in Soi Watcharapol, Ram Intra Road, as the first project since their alliance was forged in 1999.
Golden Land Property Development Plc, which has links with several international mutual funds, followed with the launch of a housing estate in the Lat Phrao area in November.
The move of Noble Development Plc, which has Lehman Brothers as a strategic partner, has yet to begin.
However, both companies received financial support from local banks and adopted the escrow account scheme with the banks as part of an innovative new scheme for homebuyers.
Among successful bidders for assets from the Financial Sector Restructuring Authority (FRA), only AMC and the Starwood Thailand Property Fund 1 showed substantial progress in debt restructuring.
One big change in developing housing estates was clearly seen during the year among some developers.
Land & Houses Plc pioneered the concept of build-before-sales to sell its detached houses and it seemed successful with increased sales at many sites. Other companies also followed this concept to draw customers.
In 2000, some developers tested new concepts on buyers with novel marketing activities such as project relaunches, unit resales, big discounts and auctions.
Property auctions became colourful marketing events to draw crowds of people to bid for affordable units. More than 20 projects, mainly condominiums, came under the hammer. Bidding prices were reportedly about 40-50% of the sale price.
The government in late June passed three additional measures to revive the property market.
The measures were an extension of the property transfer fee, set at 0.01%, and a reduction in the special business tax , from 3.3% to 0.11% applying to the sale of properties to December 31, 2001.
The government also announced an income-tax deduction of 10,000 baht on housing.
The Housing Development Act is the newest restriction that imposes higher standards and operating costs on developers.
The law has forced developers to demonstrate they have sufficient funds to safeguard the infrastructure and utilities on their sites.
They also have to ask banks to act as guarantors for their infrastructure development.
According to the law, residents can set up their own juristic entity to look after the entire community in their property development.
The law is considered a setback for developers and in 2000 less than 20 projects were submitted to the Land Department for development licences under the new law.
The housing market saw clear signs of improvement, particularly in the sale of detached houses. Some locations are running out of quality supply.
Analysts said sales of new residential properties were relatively strong by some housing companies such as L&H, Quality Houses, Asian Property, NC Group, Prueksa Real Estate, and Lalil Land & Houses.
According to the Government Housing Bank (GHB), during the first half of 2000, only 372 units in newly-launched detached house and townhouse projects were put on the market.
No new condominiums were introduced.
The total number of unoccupied houses in Bangkok stood at 337,413, mainly in Bang Yai, Bang Kapi and Min Buri, at the end of June 2000.
Homebuyers can currently tap mortgages that come in both fixed and floating interest rates.
At the end of September, minimum lending rates for good customers were around 8.25% at major banks and 7-7.75% at GHB.
Fixed home loans are being offered by banks at 4.5-5% interest rates.
The pattern of owning a first home is changing. Some consumers worry about being cheated by irresponsible developers. So, they opt to hire home building firms to build a house on their own land.
During the first five months of 2000, the number of houses built and registered by individuals rose to 6,459 while the units in housing estates totalled 5,837.
The office sector remained the worst performer in the property market with vacant space of up to 2.3 million square metres in Bangkok, according to research by Sansiri Plc.
Real estate consultant Jones Lang LaSalle added that at the end of the third quarter in 2000, the average vacancy of Grade-A office space in the central business district of Bangkok dropped slightly to 32%, compared to 34% in July 2000.
However, stiff competition was looming among building owners to draw tenants to occupy their space.
This put downward pressure on office rents and some locations may see further rent reductions next year.
Many real estate consultants agreed that demand for office space came from IT and dot.com companies, manufacturing companies with expansion plans and those who want to relocate to new buildings attracted by offers of competitive rents.
They argue suspended office projects will not resume construction due mainly to the slow pace of economic recovery.
According to JLL, during the third quarter, 300,000 sq m of Grade-A office space under construction had been suspended, leaving 100,000 sq m of office space still under construction.
Only one project at the All Seasons complex was active with 63,000 sq m under construction.
The net absorption in the third quarter totalled 21,200 sq m. At the end of October, the average rent was 388 baht/sq m per month.
The retail sector was very active in 2000, mostly in the area of cash-and-carry stores, with expansion underway by the giant players such as Tesco-Lotus, Big C and Carrefour.
According to recent surveys, the purchasing power of consumers has been increasing this year in response to the percieved improvement in the economic environment.
According to Sansiri Plc, retail projects with access to the BTS Skytrain have attracted better occupancies.
The first new retail project launched after the crisis was the high-end All Seasons Plaza covering 14,000 sq m on Wireless Road.
CB Richard Ellis (Thailand) said rents of prime retail space recovered to pre-crisis levels at the end of the first quarter for projects in popular locations. This type of retail project has vacancy rates as low as 4%.
Total retail space now stands at 3.73 million sq m, of which 46% is located in shopping centres, 42% in shopping malls and 12% in supercentres.