ONLY WAY IS UP
Thai property prospects remain promising but it needs more than the AEC.
Thai property prospects remain promising with the imminent arrival of regional economic integration at the end of the year. But political stability, greater competitiveness, clear-cut regulations and an agile government are vital components for drawing foreign investment to the Thai real estate market, say property consultants.
Alastair Hughes, chief executive of property consultant Jones Lang LaSalle (JLL) Asia-Pacific, says international investors like certainty. They will always consider stable government and clear laws.
“If Thailand can ensure political stability with a new constitution [in place], foreign investors will not hesitate to resume their property investment,” Mr Hughes says.
According to the Bank of Thailand’s figures, foreign direct investment (FDI) in the real estate sector — which includes residential property, commercial property, hotel projects, industrial estates, healthcare facilities, leisure groups and infrastructure — remained in the doldrums in the first quarter of 2015, falling 40.6% year-on-year to US$169.8 million.
Full-year FDI in real estate fell to $1.34 billion in 2014 from $1.55 billion in 2013.
Lee Nai Jia, associate director of research at property consultant DTZ Debenham Tie Leung (SEA) Pte Ltd, says FDI in Thai real estate is likely to remain subdued, owing mostly to political issues.
Driven by political uncertainty and expectations of further weakening in the exchange rate, local developers and investors in Thailand have been looking overseas for viable opportunities to hedge downside risks in the local market, according to DTZ.
One such player is Minor Hotel Group, which recently acquired six hotels in Portugal and Brazil for $189.7 million to widen its portfolio and enhance its long-term growth trajectory.
All things considered, Mr Hughes says Thailand is better off than it was nearly two years ago, when the country was caught off-guard by political mayhem. Yields on commercial property are reasonable. Office rents are rising again. Overseas investors want to buy more Thai property once they know the future direction.
Huge opportunities in the Thai property market are in store once the Asean Economic Community (AEC) takes effect. It is estimated that the regional integration will create a market to the tune of more than 600 million people and a combined GDP of $2 trillion.
According to the International Labour Organization and the Asian Development Bank, the AEC, when fully implemented and operational, has the potential to create 14 million new jobs between 2015 and 2025.
The single market is tipped to increase the annual growth rate in the region to 7.1% in 2025 from average growth of 5.1% between 2007 and 2013. Based on this projected growth, the aggregate GDP for Asean could reach $8 trillion by 2025.
According to JLL’s recent research, several underlying domestic trends are supporting property markets in Southeast Asia. In Thailand, main factors include urbanisation, a young and literate population, rising middle-income earners, improving competitiveness and the country’s role as a low-cost alternative to China.
In 2014, the World Economic Forum issued a report on country competitiveness, defined as “the set of institutions, policies and factors that determine the level of productivity of a country”.
In Asia-Pacific, three of the top 10 most competitive economies are in Southeast Asia, namely Singapore, Malaysia and Thailand.
Among the developing or emerging Asia economies, five out of the eight that scored above average in terms of overall competitiveness are in Asean: Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
Mr Hughes says it will take three years to see a noticeable impact from Asean integration on the property market, as the AEC will affect the economy first.
“We don’t think there will be a big change that will create a dramatic impact on the property market,” he says. “Rather it will be a gradual harmonisation, which will take time. This will be good for Asean as a whole.”
He says countries that are competitive and productive will gain the most benefit from Asean integration once the protections of taxes and tariffs fade.
“Openness and transparency of the property market is part of being competitive in a deregulated market,” Mr Hughes says. “Laws, regulations and taxes are very important.”
Transparency in Southeast Asia is highly variable. According to JLL’s 2014 Transparency Index, Singapore had the highest transparency score in the region, ranking 13th globally. Indonesia, the Philippines and Thailand were semitransparent markets.
Unless Southeast Asian governments improve their property transaction process, legal and regulatory environment and governance of listed vehicles, foreign investors will continue to favour more transparent markets.
In Thailand, f oreigners are not allowed to own land other than through leasehold interests or joint venture arrangements in which they do not have the majority share. Interestingly, investors have got around this by breaking up the ownership into multiple levels.
Despite the limitations, Thai property on a micro level remains attractive to individual foreign buyers, especially condos in Bangkok, Pattaya and Phuket.
Laws, regulations and taxes are very important ALASTAIR HUGHES Chief executive, JLL Asia-Pacific