Skip Ribbon Commands
Skip to main content

News Release

Bangkok

Thailand’s property markets: Further slowdown expected but not as bad as in the 1997 Asian financial crisis


Bangkok / 29 April 2009 - Conditions in the real estate market in Thailand have continued to deteriorate since the final quarter of 2008 when the global financial crisis erupted and the Thai economy being impacted. These negative conditions were exacerbated by the continued political turmoil which led to the seizing of the two national airports in December. Poor economic conditions have hurt demand in all of the real estate sectors whether it be in the office, residential and industrial property markets.
 
The formation of the new government led by the Democrat Party brought some hope to Thailand as a number of economic stimulus packages were announced in the first quarter of 2009.Whilst those stimulus measures may have dampened some of the impact of poor economic conditions, the political turmoil which was developed into riots in mid April resulted in a sharp fall in tourism and foreign investment. Those events will further damage Thailand’s economic outlook.
 
Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle, said “Part of the government stimulus packages was aimed at boosting demand in the real estate sector through different tax incentives. Whilst not necessarily generating new real estate demand, these incentives help accelerate buyer decisions. However, the stimulus measures were aimed mainly at helping the residential sector, and as a result, have had very little impact on institutional investment transactions.”
 
“Real estate in Thailand has increasingly become a buyer/tenant market. Softening demand has resulted in stronger competition in both the residential and office markets, with more incentives being offered to buyers and tenants. However, recent market conditions has led to a slowdown in the growth of new supply, which will minimizes the impact of weak demand, and better positioning the property market for a quick recovery should the country’s economic improve,” Mrs. Suphin added.
 
Growth of both demand and supply slowing
 
A poor economic environment has been reflected in sluggish growth of both demand and supply in the real estate sector. While property sales and leasing transactions have slowed, fewer new property development projects have been launched, according to Mr. Dan Tantisunthorn, Head of Research at Jones Lang LaSalle.
 
The Bangkok condominium sector, both the high-end and mid-price segments, which underwent rapid growth over the past few years, has seen new project taper off as developers have reacted to the retreat of new demand.
 
With less new demand, competition to secure buyers among both projects and resellers has intensified. Developers have yet to lower prices significantly.
 
In the Bangkok office market, new occupier demand from occupiers has slowed dramatically. Whilst most companies have put business expansion plans on hold, others are undertaking downsizing exercises, which is some cases results in the handback of office space. However, certain companies are still exploring taking up more office space this year.
 
Coupled with some new supply, weak new demand has resulted in a further decline in office rents. The average rental of grade A office space in Bangkok dropped to 662 baht per sqm per mont at the end of the first quarter of 2009 from 671 baht per sqm per month as at the end of 2008.
 
Slow occupancy of new supply has seen vacancy rise, compared with the recent past. Nevertheless, the Bangkok office market is fundamentally more sound than in the aftermath of the financial crisis, as the supply pipeline is relatively moderate and the risk of widespread business failures is lower.
 

Investment market remains subdued due more to lack of investment grade assets for sale
 
Investment activity in the Thai property market has remained subdued since last year, with very few land/building purchases transacted.
 
Mr. Umpon Thepnumsommanus, Director of Investment Services at Jones Lang LaSalle, said “The low volume of transactions has been due more to the unavailability of investment grade assets offered for sale than distress in the property markets. In fact, investor interest in land and office buildings in prime locations has remained strong. About 70% of the recent enquiries we received were from investors looking for buy opportunities and the remaining 30% were from owners who want to sell their assets.”
 
Furthermore, the gap between buyers and sellers’ prices expectations has continued to be a factor in curtailing property investment transactions. With the economy and the real estate market in a downturn, buyers expect quality property assets to buy property at the deeply discounted prices seen during the tom yum koong crisis, an expectation which just isn't being met by owners who are currently liquid and not overly leveraged. Many of the distressed sales following the 1997 financial crisis were the result of banks needing to restructure an abundance of non-performing loans, a condition which does not exist today.
For more information, please contact
Winai Jaiton 0 2624 6500