How will Bangkokâ€™s new city plan impact real estate and development in the capital?
LANDY: The plans arenâ€™t out yet, and there is still some debate on what the final format is going to be, so itâ€™s quite difficult to say exactly what the impact is going to be. We have many clients who are waiting for this major event to see how it affects their land value. The common belief is that a lot of the more secondary land on the smaller roads, which we call â€œSoi(s)â€, will decline in value because it will be more difficult for developers to develop mass projects there. Theyâ€™ll be looking at the width of the fronting road as the basis for how much you can develop on the land. The more narrow the road, the less you can develop. Bangkok in the past has had a lot of development on secondary roads. The idea is to limit that. A little late in the day you might say, but thatâ€™s part of the agenda. It will definitely have large impact but weâ€™re not 100% sure how yet.
Given the upcoming changes, are developers rushing to start projects before the new rules kick in or is there more of a wait and see attitude?
LANDY: If you look back at history, this is a common phenomenon in many markets, including Bangkok. A lot of people will have land and will now be applying for building permits for fear they might not be able to get them after the change. Whether thatâ€™s the case or not, we donâ€™t know. We are even seeing land transactions based on current allowable building permits. On the other hand, we are seeing other people who expect to gain from the new plan delay projects.
What is the breakdown between Thai and foreign buyers in the residential market?
LANDY: The residential markets are always like a pyramid, from the luxury at the top all the way down to the mass market at the bottom. The closer you get to the pinnacle of the pyramid the more foreign buyers you find. That top luxury section breaks down to about 80% Thai, 20% foreign. When you get further down the pyramid, itâ€™s exclusively Thai. One of the interesting things we've seen in the past 5 years is some markets that used to be heavily foreign, like the resort markets of Phuket, Pattaya, and Koh Samui, have attracted more Thai buyers. So today, Pattaya, which is a great example of this, is almost exclusively Thai in some projects and mixed in other projects.
For foreign buyers coming into the market, what are some of the regulations or restrictions that they might encounter if they choose to buy a property in Thailand?
LANDY: The big restriction is foreigners cannot own land, end of story. Thatâ€™s just the way it is except if youâ€™re doing an industrial activity that is promoted by the government. In that case, youâ€™re allowed to own the land for your activity, your factory. But as far as residential goes, youâ€™re not allowed to own land. But, you can own a lease on the land and the building. In theory, you could enter a lease. The maximum lease period is 30 years so you could take out a 30-year lease, build a house, and live there. Alternatively, you could buy a condominium unit, provided not more than 49% of units in the block are owned by foreigners, thatâ€™s equivalent to a freehold title.
How would you describe the supply and demand equilibrium for residential and commercial property in Bangkok at present?
LANDY: Residential is complicated when youâ€™re talking about supply and demand. In the West, we used to look at affordability, factors like mortgages and exposure. Of course those factors are important here, but a lot of Thai buyers are buying second or third properties so theyâ€™re not necessarily buying for occupation. So then the question is what is demand? Is it occupational demand? Investment demand? Speculative demand? There are all kinds. So I would say if you look purely at occupational demand versus supply, we have an oversupply. If you add to that occupational demand the people who buy for investment or as a form of wealth preservation, itâ€™s not such an oversupply. Itâ€™s not to an extent to where we need to worry too much at this point. If the trend continues this way then yes I think we are looking at oversupply. As of today, I think we are okay. In the commercial market, specifically office, the situation is much more balanced. Thereâ€™s been very little new supply over recent years in the office market, and demand hasn't been increasing dramatically but gradually. There is quite good equilibrium in the office market right now.
The ASEAN Economic Community (AEC) is coming into effect in 2015. What sort of impact do you see that having on office demand?
LANDY: The AEC is a bit of a mystery to a lot of people in Thailand and overseas. The Thai authorities are trying to increase awareness of the AEC, but I think in reality 2015 is just a date. Itâ€™s not a start date or stop date, itâ€™s a landmark date. Thatâ€™s when things will start perhaps and the integration will begin. But I donâ€™t think weâ€™ll see a dramatic impact on office demand from the AEC. However, we do see a lot of the big Thai companies looking around ASEAN for opportunities. We will see a lot of the ASEAN, Singaporean, Malaysian, and Filipino companies looking in Thailand as well. That should increase office demand. I think the really interesting story for Thailand is what you might call the North AEC; that is Myanmar, Thailand, Laos, Cambodia, and perhaps Vietnam. Thailand has a real opportunity to be a hub for this northern AEC segment.
I would say if you look purely at occupational demand versus supply, we have an oversupply. If you add to that occupational demand the people who buy for investment or as a form of wealth preservation, itâ€™s not such an oversupply.
How do Thailandâ€™s rural and holiday real estate markets compare to the market in Bangkok?
LANDY: The Bangkok market is still largely a domestic market. Except for the top of pyramid, its mostly domestically driven, with domestic consumption. Itâ€™s determined by the major demographic changes in the Thai population. In Bangkok, more and more middle income Thais are moving out of their family homes and into smaller apartments, particularly on the mass transit lines. None of those demographics really apply to the resort markets. However, you do find Thais buying there as a second or resort home, especially the older demographic, maybe 40ss and up, they are buying in those markets. So the demographic trends in the resort markets are the Thai demographic plus the traditional foreign markets. Those foreign markets are developing. In the past year it was mainly a European and Australian market. A lot of demand in Phuket originally came from expats from Hong Kong and Singapore. Today, you still have that market but perhaps even more important is Asian demand, and Russian demand. The Russian influence cannot be underestimated. There is something like a million tourists coming in to Pattaya every year from Russia. Phuket is also growing very fast. The emerging demand is coming from places like India, China, and Korea.
What is your future outlook for Thailandâ€™s real estate sector?
LANDY: I think a lot of it will depend on how much new supply comes into the pipeline in this 2-3 year period. As things stand today, the outlook is quite rosy. Domestic demand is quite strong and there is a lot of liquidity in the system. The stock market goes up and people buy property, itâ€™s what tends to happen here. The stock market has been a little volatile recently, but people are making money and wanting to put it into bricks and mortar. So as long as the strength of the economy continues, I think real estate will do pretty well. The risk is on the high supply side. What we've seen in the past, and what weâ€™re seeing today, is that The Bank of Thailand is being very cautious and conservative. Theyâ€™re keeping a careful watch on the banks, making sure not to repeat the bad habits of the 90s and so far so good I would say. They've done a pretty good job.
What are some of the challenges facing the market as whole?
LANDY: I think if a country is developed, one of the biggest challenges is labour. As you probably know, Thailand has an unemployment rate of 0.7%, which is phenomenal really. Itâ€™s basically full employment. There are somewhere between 3-4m Burmese workers in the system, many of them in the construction sector. As Myanmar develops, will people start going back to work there? Who will come in and do these jobs in Thailand? Thatâ€™s a big question. Of course, the costs are going up as well. Labour costs, material costs, these factors are a big concern for the development sector, and are a big challenge.