How is Bangkokâ€™s real estate market different from other Asian metropolises, such as Hong Kong and Singapore?
SIMISTER: Hong Kong and Singapore are fundamentally different because they developed from former colonial cities and they are now major international and regional trading centers looked on as icons by emerging South East Asiaâ€™s markets. However, Bangkok and most Asian capitals are fundamentally different and Bangkok is very much driven by domestic demand and a buoyant economy. The Thai economy is principally divided between tourism, industry, agriculture, and the service sector. So there are differences between Bangkok; as these cities, for example, the office sector is nearly 2.5 times larger than Singapore. It sounds odd, but there is strong local demand. The pros and cons would be that Hong Kong is laissez-faire and a level-trading base. Prior to 1997, it was borrowed time in a borrowed place. So there was a big push to make your profits immediately. Post 1997 there was an air of more confidence and it is arguably the best city in China. Whether it will be in another 10 years is a different question.
Singapore as a city-state was initially founded by not being part of the Federation of Malaysian States and consequently having to fend for itself. Singapore did this by setting up a very transparent but easy to operate base for international business. Its hinterlands of Malaysia and IndonesiaÂ fueledÂ location-based demand and for a long while it was looked up to by both countries. Maybe that is changing. There is the Jurong city development providing a cheaper alternative to Singapore right on its border, and Indonesia is now a very favored investment destination because of the size of its population, and you see Singapore adapting and drawing new demand. For example, it now embraces gambling.
Bangkok is unique and is driven by a different set of criteria. Its first move into a modern city came with the opening of the stock market in the late 80s, the benefits of an industrialization policy with the industrial estates, the Board of Investment, which created the push for the big four accounting firms to come followed by international lawyers and companies like us, known in those days as Richard Ellis. Today, if you come as a tourist, you are surprised by Bangkokâ€™s modernity and a very clean sky train, by some of the modern efficiency, and by the level of prosperity.
What is the breakdown between domestic and foreign buyers in todayâ€™s real estate market?
SIMISTER: If we look at the residential sector, in Bangkok it would be 80%+ Thai buyers. I was just with Raymond Land who are developing one of the top end condominium projects near the Sports Club on Ratchadamri, which is a prime location. Their breakdown was over 70% Thai buyers. There is still significant foreign interest, but the driver to pricing and the rise in value is, I would argue, driven by domestic prosperity. Resort markets are slightly different, but even in Pattaya and Hua Hin, the majority of buyers are still Thai.
Which types of potential issues should foreign real estate buyers be aware of?
SIMISTER: If you want to by a condominium, you can buy it and you can put it in your own name. So Tom Jones, or Fred Smith, or Mick Jagger can own a condo. It is freehold, registered at the Land Office in your own name, and measured by the land office and not by the developer. So you only pay for a true net area, which does not include any of the common area or, as they do in Hong Kong, maybe a foot outside the window. So you know exactly what you are buying and it is registered in your name and it is a freehold title. Since the makeup of the market is many more Thai buyers than foreign, the fact that only 50% of an individual block can owned by foreigners is not relevant. So for the individual buyer of a condominium, there is no problem at all in quality of the freehold title. The problem will be getting a mortgage and in actual fact, the foreign entrants in this market are cash buyers, and that says something about the value here and the appeal of the market. If Thailand wanted more foreign buyers, and you could question does it need them, they only need to allow Thai banks to give mortgages to foreigners. You can question why they donâ€™t offer foreigners mortgages because you are not going to put the condominium in your suitcase and take it home and they could easily increase foreign demands.
Where do you see supply and demand equilibrium for the residential segment and for the commercial segment in Bangkok?
SIMISTER: Residential presents no problem. There are buyers for all units, which sounds like an estate agentsâ€™ BS, but if you look at the projects and the rate of sales, generally, there is adequate demand in most sectors. There are ranges of developers, and in many cases, still first time developers. The listed development companies tend to stick to a very safe product that they know works and they repeat the formula. You can see saturation in small units around certain mass transit stations. But what you then see is the better designed ones and the ones with better location sell out first and have an active resale market. There will always be bad developers in any markets and obviously they suffer. If you go to the hotel segment, you can argue which hotel managers do not have a problem? If you look at room rates in US dollar or Pounds Sterling terms, it is as cheap to stay in the Oriental hotel today as it was when I first came to Thailand 22 years ago. Room rates will always be soft because there is more than adequate supply. But this benefits tourist numbers. Thailand is a huge bargain.
How have changes in the Bangkok Metropolitan Administration (BMA) zoning regulations impacted the market?
SIMISTER: Overall it is positive, but you have to realize Bangkok is not like New York or London where just getting planning permission gets you a huge windfall gain. Here it is a very straightforward system. A site with certain road access can be developed to a density of 10:1 or 8:1, can the city cope with that volume is a second question. When I came here there were people doing all sorts of manufacturing businesses within 5km of downtown. Thatâ€™s all been pushed outside of the city and most of it has modernized and pushed out into the industrial estates. So this has been a positive result for zoning. If you look at the industrial estates, the zoning policy of 1, 2, and 3 with different incentives to industrialist has spread prosperity and industry geographically, not nationwide, but over a much wider footprint than it would have if it were based on a pure economic model. Today, if you want to build more retail, more residential, more office, more hotels, your only constraint is in terms of building volume. You do not have planners trying to be social engineers or economic engineers. Singapore and Hong Kong can and do turn the supply faucet on and off depending on how they read the market and I do not think Thailand has done any worse than they have. In fact where Thailand has really scored is the banking industry controlling project finance to developers. Bangkok has turned the faucet on and off or kept the flow restricted and has been very cautious with real estate lending. Thatâ€™s a lesson that Thailand really learned in 1997.
If we look at the residential sector, in Bangkok it would be 80%+ Thai buyers...There is still significant foreign interest, but the driver to pricing and the rise in value is, I would argue, driven by domestic prosperity. Resort markets are slightly different, but even in Pattaya and Hua Hin, the majority of buyers are still Thai.
What needs to be done to build a more robust secondary market overall?
SIMISTER: Probably time and specifically property management. We do property management, but we do it to tight budgets. I have to say in general, property management standards are not good in Thailand. Maybe in a wholly owned building, like an office investment, they can be. But there is almost instinctively and maybe within the Thai psyche an acceptance of obsolescence. So the idea that you can own a 300 year old property in England that grows in value is an alien concept. There are people who think of things as old after only 3 or 4 years. Now there is clearly a difference between a condo built 20 years ago with no lobby, ground floor parking, and maybe a swimming pool tacked on the back or the side and current projects. There are some great condominiums today with first class facilities, but they have to be properly managed. Sadly, there is still a reluctance to pay for service charges or increases and this is vital to maintaining an upward increase in property value. So some properties hit an obsolescence curve, but they donâ€™t need to. More money needs to be put in to the management sector. Rising building costs and rising land values will make this happen. We are not there yet, but when I was first working in Hong Kong in the 80s, they had very poor deeds of mutual covenance to cover the way multi-owned properties were managed. It was equally bad. I think it is a development thing.
What is your future outlook for Thailandâ€™s real estate sector?
SIMISTER: 2 million car exports this year, possibly 3 million next year. That sounds like a huge increase, but you are looking at Ford, General Motors, and all manufacturers gearing up their facilities and you are looking globally towards a motor industry with fewer bases of excellence. Thailand is a base of excellence. Ford used to manufacture in the Philippines and then stopped. Thailand has captured this market very well. If, for example, you had a small family company making the nuts that put a standard steel wheel onto a standard basic sedan, your business is doing very well, you are generating wealth and prosperity. That money is going back into the Thai economy and we are seeing a fair portion of it in terms of additional property purchases. I think Thailand is also quite close to somewhere like Korea in going from being agrarian and industrialized to becoming an almost middle class society on a much broader economic base. When you travel to cities in northeastern or northern Thailand, where you would expect compressors, rotavators, and agricultural equipment to be the star products in the high street, there are actually sophisticated air-conditioned shopping centers selling product not very different to Central World in downtown Bangkok.
Being very simplistic, I think Thailand is just going up. We are in a reasonably weak global economy, but Thailand is taking more of its share. It has a reasonable base of production, it is not cheap, but it has debunked the myth that you are better moving your production facilities to Vietnam or China. What we have learned is that cheap labor does not stay cheap very long. Toyota celebrated its 50th anniversary, so that is 50 years of experience. Thailand isnâ€™t Singapore; it hasnâ€™t got a huge number of education facilities pumping out the right people to service certain sectors of the economy. But the hotel industry, tourism industry, construction industry, car manufacturing industry, and agricultural industries, all have people with the right skill sets. Maybe they could be better, maybe they could be sharper, but they are here. Go up to northern Thailand around Chiang Mai, where land may not have been unsuitable for rice paddles. You will see it is now under plastic and it is thriving as a market garden. I can now get strawberries year round here and I can get kiwi fruit cheaper than I can at green grocers in New Zealand. Thais are industrious, they are inventive, and they are hard-working. You have an economy ignoring political colors, and whether you are very yellow or very red politically, everyone is all pro-business.