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News Release

PROPERTY VALUES: Sellers lowering asking prices but unlikely to take losses

There remains a wide gap between buyers’ and sellers’ price expectations


Bangkok, 3 February 2009 - Despite continued interest and more properties offered for sale, investment activity in the Bangkok property market has been subdued as there remains a wide gap between buyers’ and sellers’ price expectations, according to Jones Lang LaSalle, a professional services firm specializing in real estate.

Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle, said “Buy-side interest in the Bangkok property market remains strong; however, investors are mostly looking for distressed assets offered at deeply discounted prices. At the same time, sellers refuse to dispose of their property assets at a loss, despite accepting the softer market conditions. As a result, investment activity in the Bangkok property market over recent months has stagnated, with buyers continuing to adopt a wait-and-see attitude, expecting prices to drop in response to the perception of value.”
 
Mr. Umpon Thepnumsommanus, Director of Investments at Jones Lang LaSalle “Over recent months, we have continued to receive enquiries from investors looking for properties available for sale in and around Bangkok. However, all of the enquiries were driven by the search for distressed property assets.”
 
Jones Lang LaSalle have also been appointed by several landlords to help dispose of their real estate assets, ranging from vacant land plots, sites for redevelopment and office buildings to industrial properties. A number of these properties belong to companies that are looking to dispose surplus properties and shore up their balance sheets.
 
“Whilst buyers are expecting to acquire the property at a deeply discounted price, sellers have yet to encounter financial conditions which would force them to accept losses on disposing these properties,” Mr. Umpon explains. “We have so far seen certain landlords only willing to reduce asking prices,” he added.

The general consensus is that property values are trending downward. However, the magnitude of the decline in property values is highly uncertain. “There have been very few property investment transactions since last year to date. As a result, real transactions against which to benchmark are scarce. For example, land on Sathorn Road was transacted at 500,000 baht per square wah in 2005 and 800,000 baht per sq wah in 2008. So far this year, there have been no land transactions to support the notion that land prices in this area have dropped. Furthermore, even if the land were put up for resale now, whether the owner would accept the price below the purchase value remains questionable,” said Mrs. Suphin.

“In the current environment, sellers of real estate are lowering their asking prices. Nevertheless, conditions are thus far different from those during the Tom Yum Kung crisis when owners were forced to sell their property assets at a loss.”

As long as leverage does not become a major issue, asking prices could hold sway. “While it may be frustrating for buyers expecting bargains in distressed property, we have so far yet to see any distress which would force a sale. Furthermore, owners may continue to absorb the opportunity costs associated with leaving real estate underutilized,” Mrs. Suphin said.

The Thai government has recently pledged to introduce taxes on unused land in an effort to widen its revenue collection base.

Whilst the government may need 1-2 years to draft the new property tax structure, some parties have already expressed concerns over the plan, which may mean additional burdens on landowners and push land values down as holding vacant land becomes more expensive.

“Land tax will not only to help boost the government’s revenue but also encourage owners to make use of their land. Professional developers, these days, tend to focus mainly on land plots for immediate development rather than buying land without a specific and concrete plan of what and when to develop. Relative to the speculative land buyers, these professional developers should be less impacted by a new land tax,” Mrs. Suphin said.

Developed countries around the world have different property tax structures, which vary in terms of the percentage, they type of property and by whom the tax is collected. For example, in Australia both local government authorities and states levy taxes on an annual basis. In Taiwan, the taxes on holding real estate may be based on both a land assessment and a building assessment, with rates varying on location and type of usage. Japan makes a Fixed Asset Tax and City Planning Tax payable on the assessable value of a property. In Singapore, the tax rates are based on the Annual Value of the property, which is the estimated yearly rent the property could fetch if it were rented out.
According to the Fiscal Policy Office, the proposed property tax rates for Thailand range from 0.05% to 0.5% of the property value, depending on the types of land use.

“Besides determining the optimal tax rate for various land uses, the government should ensure efficient and transparent mechanisms for tax collection,” said Mrs. Suphin. “It should also raise valuation standards to ensure that assessments are made on values which reflect market prices.”

“Apart from a source of revenue which can be used to fund services at a local level, a sound tax structure should promote the efficient use of land and real estate. Nevertheless, the overall impact should be thoroughly studied to ensure against unintended consequences such as more urban sprawl. We do believe that the initiative shows strong leadership on the part of this government to promote efficiency in the economy.”