City&Country: Offshore-- Huge demand sustains Bangkok boom

From its business district to leafy suburbs, new condominiums are sprouting up almost daily across Bangkok, but developers and investors alike seem little concerned about a property bubble developing.

The country’s real estate stocks have been on the boil with the index of property stocks up 28% in the past three months and many listed companies have raised profit forecasts, confident of capitalising on what they say is an insatiable local  demand.

altOther Asian governments, worried about asset bubbles and housing affordability, have tried to yank back their markets, with Singapore the latest to unveil a slate of tightening measures. But Thailand is unlikely to follow suit, according to analysts.

“Interest rates are still low. There’s still huge demand, particularly with units from listed companies. Growth in the property market tends to move in tandem with GDP and the economic fundamentals are more sound now,” says Sorapong Jakteerungkul, a property analyst at Kasikorn Securities.

He points out that the government’s only move has been to raise its key policy rate from a record low of 1.25% by half a percentage point, a rate that was still low amid rebounding consumer spending. “Lifestyles are changing and there have not been many obstacles for young workers and first-time buyers with low purchasing power to get credit,” Sorapong says.

The number of new condominium units in Bangkok more than tripled to 13,028 in 1Q, compared with only 3,389 in 2Q2009, when Thailand emerged from its first recession in 11 years, according to Bank of Thailand data.

The resurgence of the Thai market revives memories of a 1997 bubble that touched off an economic storm in Asia, whipping Malaysia, South Korea, Indonesia and the Philippines as credit dried up even to reputable developers with fully booked projects.

Across Bangkok, buildings were abandoned midway through construction. Fast-forward to 2010. Construction is surging.

But economists and equity strategists say Thailand’s economy is healthier, boasting a large trade surplus instead of its deficit of the 1990s, large foreign-exchange reserves, robust financial markets, low corporate debt and nearly record low interest rates.

Thais also have THB6.4 trillion (RM646 billion) in deposits, which pay a low interest of 1% to 2% at major banks, and need a place to park their funds.

The central bank has forecast economic growth of 6.5% to 7.5% for this year while the International Monetary Fund predicts growth of as much as 8%, the best in 15 years and one of the highest in Southeast Asia. And, crucially, there is a lot less hot money from foreign fund  inflows.

Lertchai Kochareonrattanakul, a Fitch Ratings analyst whose specialist areas include property, sees more room for growth because of high demand. “The speculation we see is different from in the past. It’s less than before and it’s Thais with a lot of liquidity who are buying and looking for asset prices to appreciate,” he says.
LPN Development, which specialises in small units close to rail links with starting prices of around THB1 million, is the frontrunner in tapping that demand. It says two projects launched in March sold out in the first day, with sales of THB4.7 billion. It launched two more projects and will start work this month on a riverside condominium.

Part of the reason is the new type of home buyer: young professionals with unprecedented access to long-term credit at local banks. Developers say they outnumber speculators hunting for quick profits in sharp contrast to 1997’s meltdown when property buyers borrowed short-term from nervous foreign banks.

Still, the central bank remains watchful. Bank of Thailand governor Tarisa Watanagase said last month the central bank was keeping an eye on possible oversupply in the condominium projects. “Although there is no sign of bubbles, condominium projects have risen steadily since 2007, unlike detached houses.”

She says it is difficult to tell if there is speculation, but purchases for non-living purposes are 25% of the total. “The 25% bears watching because if it’s not real demand, when the economy turns in a different direction while interest rates are moving higher, it could affect buyers.”

There are also concerns about the higher end of the housing market, where analysts say there are more new units that are not owner-occupied, suggesting purchases are intended as second homes or speculation.
CB Richard Ellis, one of the largest real-estate brokers operating in Thailand, says it expects a limited number of new launches in prime areas.

Fitch’s Lertchai says developers would hold back on new developments in the luxury end. “There needs to be demand before there’s a supply,” he says.

Thai property stocks, such as developer Pruksa Real Estate where pre-sales have hit records for six consecutive quarters, have seen strong demand. The stock is up 32% this year.

Yet, like many Thai stocks, the shares are relatively cheap. Pruksa trades at 10.9 times FY2010 earnings, compared with Singapore’s City Developments, which also focuses on the residential market, and trades at 16.2 times. — Reuters

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 824, Sep 20-26, 2010

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