Rising land prices in prime areas and urban demand

It’s visible that Bangkok has been dominated by luxury developments in the past 3 years, land prices have been risen exponentially leaving no other choice than to start luxury projects to match the developers return. 2015 and 2016 was a healthy year for luxury projects with much interest from abroad and wealthy Thai families. The increase in the luxury segment also pushed other developers to new (sub) urban areas and the expansion of the mass transit lines. Remembering the old days that BTS Onnut was the last stop on the Sukhumvit line is no longer the case, we can now daily commute to BTS Bearing and before the end of 2017 this extension will run to Samut Prakan province.

The quality of infrastructure systems including transportation and telecommunications is an important factor influencing real estate investment and development decisions in cities around the world. Infrastructure developments have direct impact on property values. Especially transport infrastructure positioning has serious impacts on people, communities and property values. This is clearly visible along the BTS lines Sukhumvit and Silom.

Residential and commercial properties located close to transportation infrastructure tend to stand as “premium ‘ it has been common for real estate prices to appreciate in line with the development of infrastructure. 

Thai Quota demand slowing down.

Local household debts and low credit approval has affected the Thai building quota at residential projects across the Kingdom. The condominium act imposes that only 49% of the building quota can be sold to a foreign entity. In general developers have a ‘sabai’ time selling to foreigners, most of those buyers are cash rich (at least sufficient to pay the down payment) have multiple options for credit approval and less debt due to strict regulation in their home country. 

When we look up into the evening skyline of Bangkok, we see several high rise condominiums in semi darkness, are people not home? Forgot to pay utility bills? Daily earth hour? Or could it really be that there is stock left? In many cases the darkness is indeed a result of Thai quota that cannot be sold due to the reasons mentioned above. But isn’t the middle class growing in Thailand? Yes it is, and they also instantly apply for a household debt by purchasing items on credit that are not a necessity, but more image based. 

Developers will create persuasive schemes and payment plans to trigger the interest of Thai buyers. In 2017 we will see more serious and also hilarious marketing campaigns being launched from free Iphone’s for the first batch of buyers (because that’s what life is all about)  or  a “chance” to get  10% discount during the pre sales phase ( if the non-refundable booking is paid and your lottery ticket is drawn). 

Dealing with resale units

There will be even more resale units available than before. The question remains, who are the buyers? And is there an appetite for resale? The majority of the real estate agents today earn their bread and butter by offering resale units and rentals, the resale market is dynamic and lucrative if you play it wisely. It offers you exclusivity on deals, unique interior designs and prime locations. Resale’s have been popular because they are being sold with tenant agreements in place, an investment commitment. Developers on the other hand also offer stable returns by collaborating with hospitality groups and corporate leasing companies. 

Over the years developers have setup subsidiaries to manage rentals and resale’s within their own vicinity, many became a collection point for agents who are searching for listings. Which as result that third party agents manage to get better deals with the owners directly. Leading these subsidiaries to downfall. 

The downside of resale’s are the direct competition with the developer. If the developer is not fast enough to sell of their new units, the resale units will stagnate the selling process by offering lower priced units. In many cases the project is doomed unless a hardcore project marketing comes in. Location has been the key selling point for investors and end users, in some special cases the project is so much in demand that even all resale’s sell out. 

The supply of resale units will be concentrated in overcrowded area’s , new developments are lined up in emerging districts and can offer more affordable investment and stable returns.  

Stricter rules on condominium hospitality management 

Thailand has the most hotel properties in South East Asia and the Pacific region. Having that said the demand from tourist for accommodation is growing y-o-y , opening doors to smaller businesses and individual condominium owners. Foreign buyers are familiar with a buy – to – let environment, which is not self –evident in Thailand. Therefore developers often collaborate with hospitality companies to setup legal schemes to assure return on investment or assign their own lease subsidiaries to fill in the supply. 

We all have heard and seen the police raids at several residential projects in the main tourist districts of Thailand, with the aim to terminate illegal hotel operations. Landlords that rent to tourist, juristic bodies that cooperate with tour operators and online booking systems that are in violation with the Hotel act.  The Hotel Act addresses any place that provides accommodation for less than a period of one month in exchange for payment is defined as a “Hotel”. Under the Hotel Act, a “Hotel” is defined as all lodging premises, established for commercial purposes to provide temporary accommodation to a traveler or any person for consideration. The problem with utilizing such a broad definition is that other lodging premises that provide both short term and long term accommodation, also fall within the definition of “hotel”. 

If you or your company own a condominium unit or villa here in Thailand that was used, even if only for one day, by someone other than its legal owner (with or without you having received rental income), then you or your company are liable under the House and Land Tax Act. 

These two acts will be enforced tougher coming years. Both the Ministry of Tourism and Thai hotel associations are putting pressure on the ongoing operations – which is getting complex due to the implementation of global hospitality groups that modify their business model to a more acceptable operation without breaching the Thai laws and hotel license required mandates. The rise of AIRBNB and similar websites is spreading across the globe, a virtual world that is almost impossible to regulate.  As for now the average condo owner should not have to worry, raids take place on concentrated locations with clear visual “short term rental” hotel operations and by bulk. 

For investors Bangkok remains one of the top tourist destinations in the world – with all the convenience and facility of the modern world. 

Imposing stricter currency laws by China – “Money makes the world go round’

It has been obvious in the past years that the residential market has received an additional cash rich investor stream “ Chinese” . Chiang Mai and Bangkok metropolitan area in particular are their prime investment locations. Several mid priced condominiums in Sathorn and Phra Khanong have a 40% Chinese uptake.  China has been imposing various degrees of curbing capital outflow in 2016, but not all have been successful. Therefore in 2017 they will scrutinizes foreign currency exchanges even more, the government will demand reasons why the exchange need to take place, financial institutions will have to report international transaction exceeding a certain amount.  The Chinese government is in a fall, and economic growth has been slower than expected. Next to that the yuan is losing value against other major currencies. So not only the multibillion dollar M&A transaction are part of the scrutiny, but the hundreds of thousands  individual investors. 

Despite these measures we foresee a healthy uptake from foreign, and in particular Chinese buyers in 2017 , we know from previous experience that investors store their liquidity in banks across the globe – with easy access. Majority of the local developers have already lined up their overseas events for 2017. 

“Money makes the world go around’ – perhaps a subject many developers and realtors cannot or refuse to speak about is the money line, which is still active today. The money line is a general term that entails several cross border transactions which assist in bringing “cash” over the border.  You may question ‘Doesn’t this cash need to be legalized?’, and there is where this story ends…