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No bubble yet as Thai builders jump into housing boom

BANGKOK: From its business district to leafy suburbs, new condominiums are sprouting 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 last three months and many listed companies have raised profit forecasts, confident of capitalising on what they say is insatiable local demand.

Other Asian governments, worried about asset bubbles and housing affordability have tried to yank back their respective markets, with Thailand's nearby Southeast Asian neighbour, Singapore, the latest to unveil a slate of tightening measures.

But Thailand is unlikely to follow suit, analysts said.

"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," said Sorapong Jakteerungkul, a property analyst at Kasikorn Securities.

He pointed 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 is still low amid rebounding consumer spending.

"Lifestyles are changing and there's not been many obstacles for young workers and first-time buyers with low purchasing power to get credit," Sorapong said.

The number of new condominium units in Bangkok more than tripled to 13,028 in the first quarter, compared with only 3,389 in the second quarter of 2009, 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. Asian banks struggled for years to shed bad loans.

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 6.4 trillion baht (RM640.16 billion) in deposits, which pay a low interest of about 1%-2% at major banks and need a place to park their funds.

The central bank has forecast economic growth of 6.5%-7.5% for 2010 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's 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, buying and looking for asset prices to appreciate," he said.

LPN Development, which specialises in small units close to rail links with starting prices of around one million baht was the frontrunner in tapping that demand.

It said two projects launched in March sold out in the first day, with sales of 4.7 billion baht. It launched two more projects and will start work this month on a riverside condominium. LPN shares are up 33% this year.

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 said it was difficult to tell if there was speculation, but purchases for non-living purposes were 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 Bangkok housing market, where analysts say there are more new units that are not owner-occupied, suggesting purchases were intended as second homes, or speculation.

CB Richard Ellis (CBRE), one of the largest real-estate brokers operating in Thailand, it expected a limited number of new launches in prime areas. Like CBRE, Lertchai, of Fitch Ratings, said developers would hold back on new developments in the luxury end. "There needs to be demand before there's a supply," he said.

Thai property stocks such as developer Pruksa Real Estate Pcl, where presales have hit record high for six straight quarters have seen strong demand. The stock is up 32% this year — and 60% in the last three months alone.

Yet like many Thai stocks, the shares are still relatively cheap. Pruksa trades at 10.9 times 2010 earnings, compared with Singapore developer City Developments Ltd, which also focuses on the residential market and trades at 16.2 times.

Other big Thai real-estate firms include Supalai Pcl, whose shares are up 97% to trade at 6.9 times estimated 2010 earnings. Supalai remains a top pick along with market leader Land & Houses Pcl, LPN and Pruksa due to their earnings prospects. — Reuters
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