Supachai sees property bubble ahead

Supachai sees property bubble ahead

WTO ex-chief warns of property bubble

A high-rise building on the banks of the Chao Phraya River is under construction, more proof to former WTO and UN development chief Supachai Panitchpakdi of the coming oversupply in the real estate sector. (Photo by Pornprom Satrabhaya)
A high-rise building on the banks of the Chao Phraya River is under construction, more proof to former WTO and UN development chief Supachai Panitchpakdi of the coming oversupply in the real estate sector. (Photo by Pornprom Satrabhaya)

Domestic private investment remains low, with most of it concentrated in the property sector, which could cause a bubble, says Supachai Panitchpakdi, a former director-general of the World Trade Organization and secretary-general of the UN Conference on Trade and Development.

"Investment has poured into the real estate sector mostly," he said. "This is quite abnormal. One cannot deny the beginnings of a bubble in the real estate sector as many more projects have been launched but there's an oversupply."

Mr Supachai, who is also a former deputy prime minister overseeing economic policy in the Chuan Leekpai government, said the private sector does not invest, instead allocating profit through dividends for shareholders. Private companies in Thailand pay the highest dividends in Asia, he said.

According to Stock Exchange of Thailand data, 567 SET-listed companies delivered an aggregated net profit of 909 billion baht last year, a 30% surge from 2015 and marking the highest net profits in five years.

Mr Supachai said the high dividend payments of Thai private companies have propelled the stock market, but such payments are without consideration of investment to strengthen their business.

This practice causes a low level of research and development funding in Thailand, he said.

"The Pracha Rat initiative [for public-private collaboration] enables the private sector to make a larger profit, but that profit should be used to help the people," Mr Supachai said.

He argued that tepid private investment has nothing to do with confidence, but rather is about operators' attitude in doing business.

"If we teach people to focus too much on dividend payments or low interest rates it discourages them from saving, instead putting money into the stock market where there is higher risk but sometimes a better return," Mr Supachai said.

"I want the government to instruct state agencies to show the real economic figures to let people understand them. I understand they use political rhetoric for fear of affecting investment, but we sometimes need to tell the truth.

"For example, the government announces that investment applications through the Board of Investment increase by 70-80% every year, but where is the real investment."

Separately, he said China's One Belt, One Road initiative will be a boon to the regional economy, particularly the Greater Mekong Sub-Region because economic integration with China will deepen.

Major and secondary roads under the initiative will be modernised, developing the areas where they connect, said Mr Supachai.

Wason Khongchantr, managing director of property consultant Modern Property Consultants Co, said there will not be a property bubble like in 1996-97 as a majority of the supply now is from experienced developers.

"Investment in the property sector is largely dominated by large developers that control a 70% market share. All of them conduct data and market surveys on a monthly basis, allowing them to revise their plans very quickly," he said.

Small or medium-sized developers typically have their projects screened by financial institutions before launch or development, said Mr Wason.

He said because low-income earners are still having problems with mortgage loan applications, there are no longer speculators in the market, leaving only high-income earners active in local property purchases.

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