Political woes upset Thailand’s real estate

Political woes upset Thailand’s real estate

Thailand saw the end of ending its strong post-Asian crisis property market recovery, as the political crisis impacted the economy. House prices moved up just 1.9% in 2006 (-2.4% in real terms), after 2005’s price increase of 7% (1.5% in real terms), and 2004’s rise of 9% (6% in real terms).

As political pressure built up for Prime Minister Thaksin Shinawatra to resign leading to the September 2006 coup, the house price index started falling. The slowdown follows three years of rapid price rises. Over three years to January 2006, there was a 91.5% increase in condominium prices in Central Bangkok.

Pre-Asian Crisis peak

Correcting for inflation Thailand’s Thailand’s house prices peaked in 1992, and today’s prices are still 10% below the 1992 level. This is largely because, contrary to popular belief, house prices in Thailand were not rising pre-crisis. Indeed the mid 1990s actually saw a mild decline, in real terms. That decline accelerated after the Asian crisis, and house prices fell 18% (27% in real terms) from 1998 to 1999.

Thailand’s house price index quickly recovered post-crisis. It rose 53.8% (29.3% in real terms) from 1999 to 2006 thanks to strong economic growth. However, all is not well in the political arena.

Thaksin Shinawatra was elected prime minister of Thailand in 2001 amid allegations of vote-buying, and a partial re-run of the 2001 election was needed. Thaksin won a second term after winning the 2005 elections by a landslide.

Military junta and instability

However, allegations of corruption and tax evasion against Thaksin sparked protests, Bangkok in late 2005. To reassert his authority, he called for a snap election in April 2006. The poll was later annulled by the Constitutional Court leaving a political vacuum. After taking a seven-week “leave of absence” from politics, Thaksin returned to office in May 2006.

However in September, while he was in New York, military leaders staged a bloodless coup and abolished parliament. This is the 18th military coup for the past 60 years and the first coup in 15 years. But the junta promised elections in October 2007, after a new constitution has been written (the last one was written only in 1997).

The military junta has created several policies and announcements detrimental to the economy. For instance, the Central Bank imposed capital controls in December 2006, causing the stock market to experience its deepest decline in 16 years (worse than the effects of the Asian Crisis). Some of these controls were lifted in February 2007.

The junta also considered tighter restrictions on foreign ownership of companies; the government backed down after businessmen and investors protested.

Real estate market in peril

The junta maybe favored over Thaksin by the populace and the monarchy, but Thaksin is definitely a better economic manager. The sooner elections are called, and Thailand is returned to democracy, the better it will be for the property market and the economy as a whole.

Unless economic and political stability is restored the real estate market remains in peril. The Global Property Guide sees that economic liberalization and opening the real estate to foreign ownership can increase transparency and efficiency to the market. However, this is contradicted by “sufficiency economy” theory espoused by the junta and developed by Thailand’s beloved monarch, King Bhumibol.