Thursday, December 13, 2007
Compared with China's bumpy property market, the market for condominiums in Thailand has been more stable, possibly because half of the buyers are end-users. Yet, premium projects can still bring an annual return of at least 30 percent.
"Condominium buyers in Thailand are not speculative. A significant number of buyers purchase them to live in," said CB Richard Ellis Thailand executive director James Pitchon.
Thai condominium prices have surged, according to CB Richard Ellis figures, to about 123,000 baht (HK$28,400) per square meter - a 13.5 percent increase from a year ago.
Property prices in the country are mainly driven by three factors: land cost, construction cost and developers' anticipated gross profit margin, which is usually 20 to 30 percent.
Unlike Hong Kong, Thailand has low land cost, allowing project prices in the country to stay at relatively low levels.
Pitchon noted that the average land cost for net saleable area is about 55,000 baht psm. But there are some projects that command higher prices as they are located in areas with limited land supply. One example is the land near Lumpini Park in Bangkok.
And prices are expected to grow, said Raimon Land chief executive Nigel Cornick.
Raimon Land's premium luxury projects in Bangkok on average are selling at about 250,000 baht psm, translating into about S$1,000 (HK$5,400) per square foot - less than a third the price of premium projects in Singapore.
Similar projects in Hong Kong, in comparison, cost five to six times more.
The River, a Raimon Land project in Bangkok, is a good example of rising condominium prices in the city.
The most expensive units ranged between 110,000 and 140,000 baht psm when the project first launched in March this year. In eight months, the prices have surged to between 160,000 and 220,000 baht psm.
"In all of my projects in the last four years, prices have risen anywhere between 30 and 80 percent three years from the launch date," Cornick said. About 75 percent of Raimon Land's transactions this year has been project sales to foreigners. "The locals are less inclined to spend money," Cornick said.
In 1995 foreign ownership of Thai condominiums was less than 1 percent. This year it has risen to 17 percent.
According to the Thailand Condominium Act, foreigners currently can own only 49 percent of the aggregate sellable unit space. "So foreign investors need to act quickly if they find a condo they really like," Cornick said.
One other drawback, according to Pitchon, is that foreigners are not allowed to get mortgages on Thai condominiums so all purchases have to be settled in cash.
Furthermore, Thai properties are sold in net saleable area instead of gross area, unlike in Hong Kong.
This would probably explain why the Thai condominium market has not attracted many Hong Kong investors in the past. But that is changing.
"Up until now, we only have about 1 to 2 percent of buyers who are Hong Kong nationals. Yet, the trend is growing," Cornick said.
Investors are advised to put their money in Phuket, Pattaya and prime spots in Bangkok such as the area near Lumpini Park.
"Looking forward, Thailand is probably the residential real-estate market in the Asia region where you can see significant growth. It is an important hub in terms of its location. Plus, it also has history, culture, food many things that make people like to go there," Cornick said. "Malaysia is a possible competitor but it does not have the same attraction as Thailand has. Thailand is much more attractive."
As for Vietnam, Cornick said the property market is "very strong," but added that it is very localized. Residential projects are still targeted at local and offshore Vietnamese.
Cornick said Thailand's upcoming elections on December 23 are a major reason why many foreign investors have been waiting in the wings to enter the market.
"A coalition, in which the democrats will have significant representation, is likely to win. Even if they don't win, they will still have some say in parliament," he said. The current government is army-appointed.
He believes that there are some changes in store for the market after the elections.
"We know that [the coalition's] policies will be geared toward relaxing some of the controls on foreign investors, including the possibility of increasing the percentage of units in foreigners' hands from 49 percent to 70 percent.
"Thailand prices are moving upwards. Though Hong Kong property prices keep on growing, the price gap between Thailand and Hong Kong will be significantly narrowed."
