1st February 2015
Stability and certainty under the new regime has given a strong boost to the real estate sector of Thailand.
If the first half of 2014 was a period of political unrest and uncertainty in Thailand, the year’s second half saw the return of stability under the new military regime. After a period of gradual consolidation and revival at the grassroots over the past six months, the Thai economy – and the country’s real estate sector – is poised to take-off in the New Year. The GDP growth is one of the prime indicators of economic health; while it was just 1 percent in 2014, the Bank of Thailand’s forecast for this year is a robust 3-4 percent, with the prediction of a simultaneous and solid surge across all economic indicators, including the real estate sector.
THE GREEN SHOOTS
After the significantly slower pace of growth last year due to weaker domestic demand, higher household debt that decreased consumer purchasing power and the resultant dampening of economic growth, Thailand is poised to catch up on all indices this year. Driven by the business-friendly and investment-oriented policies of the determined new regime, the Thai kingdom is already in the midst of an uptrend.
For instance, in the realty sector alone, there have been a series of joint venture partnerships over the past few months, that have brought in investments of billions of Thai Bahts (THB). “Cash-rich companies from China and Japan are forming JVs with Thai listed companies to develop properties in Thailand and the proceeds from such projects are shared on pro-rata basis, as required in a joint venture structure,” says Aliwassa Pathnadabutr, Managing Director, CBRE Thailand, adding that one key reason for the recent rise in JV activities is the simultaneous trend of Thai developers hitting debt covenants with their primary lenders, and opening up of new opportunities for foreign investors.
“The foreign entities have access to local asset-backed securities (ABS) in the form of REITs and Property Funds (PF) that are listed on the Stock Exchange of Thailand (SET),” says Pathnadabutr, adding that the ABS gives investors exposure to different types of asset classes depending on the funds. The average dividend yield was at 5.6 percent in third quarter of 2014, and is only expected to go up in the months to come.
With the political situation stabilised, different stimulus measures recently launched by the interim government are expected to show impact on the Thailand’s macro economy in 2015. “The country’s reform roadmap is expected to allow for more clarity in policy and for the direction Thailand’s economy is headed,” says Suphin Mechuchep, Managing Director, JLL Thailand, adding that this should help improve business sentiment and consumer confidence, and consequently boost demand in Bangkok’s different property sectors in 2015.
FOLLOW THE MASS MOVEMENT
In terms of prime property in Thailand, while capital Bangkok’s CBD areas of Sukhumvit, Silom-Sathorn and Central Lumpini continue to be the most preferred locations for Grade A office, retail and residential properties – in the past few years, the action has moved to extended areas along the mass transit lines. With land prices in CBD too steep, developers are moving to second-tier locations which are outside the CBD areas and yet easily accessible. “The prime areas have extended outward but along the mass transit lines,” says CBRE’s Pathnadabutr, adding that the Ratchadapisek–Rama IX area is an example of a new preferred area by property developers and investors.
In terms of prices, even a relatively subdued year 2014 saw rates increase by as much as 8 percent, especially for condominiums in the city fringe area – from THB 124,078 [USD 3,770] per sqm to THB 133,944 [USD 4,060] per sqm. “The projects located on the city fringes, with easy connectivity to the CBD area, have been able to achieve good selling prices, with some even at par with those in the CBD area,” says Risinee Sarikaputra, Director – Research & Consultancy, Knight Frank Chartered Thailand, adding that the majority of new developments in the peripheral area are located in the northern part of Bangkok along the MRT Purple Line of Tao Poon-Klong Bang Pai, followed by the area on the southern part of Bangkok along the MRT Dark Blue Line 2, from Hua Lumphong to Lak Song.
From a long-term investment perspective, the office segment is also said to continue to provide attractive yields. The yield of prime offices ranges between 5 – 7 percent before tax. On one hand, the vacancy rate of the Bangkok office market is now below 10 percent for the first time in 20 years and on the other hand, 120,000 square metres of office space was taken up across Bangkok in the first three quarters of 2014, which is close the average annual take-up rate for the past 10 years. “There is limited future supply of office space in downtown Bangkok and this means that there is an opportunity that demand will outstrip supply, which would increase rental rates,” says CBRE’s Pathnadabutr.
The highest office occupancy rate has been witnessed in the Grade A CBD category, at 93.2%, followed by Grade B CBD and Grade B non-CBD segments, at 91.3% and 89.3% respectively. “A rise of average rental rates was shown in Grade A non-CBD space, increasing by 3.1% year-on-year, from just THB 625 to THB 644 in 2014,” says Knight Frank’s Sarikaputra. According to Sarikaputra, the highest asking rate was at Park Venture, which commanded THB 1,100 [USD 33.5] per square metre, followed by Exchange Tower at THB 1,000 [USD 30.3] per square metre. “With limited supply, we expect vacancies to fall sharply and rents to rise to record levels in the near future,” predicts Sarikaputra.