Thailand: New government, new mood

Thailand: New government, new mood

Will Thailand be the next stop on the Asian housing boom train? Not judging by the stagnant housing market which prevailed during most of 2007, when property prices fell by 0.8% over the year, or by 2.8% after inflation.

Nevertheless the global realtor CB Richard Ellis has boldly forecast that Thailand will be next in line for the “global investment surge”.

Why? While Hong Kong and Singapore have already felt the effects of global investment, Thailand is in a different situation, CBRE points out. Two years of political turmoil (2005-2006) spared Bangkok the wave of development seen in other Asian capitals, making it now more attractive to outside investors.

They may be right, helped by populist politics. On March 4th 2008, the new government led by Prime Minister Samak Sundaravej introduced a wide ranging, 42-billion-baht tax exemption package, putting forward various measures affecting the property market:

The 30% reserve requirement for short term capital inflows was also scrapped by the Bank of Thailand on 3 March 2008, and tax deductions for investments in long-term equity were raised to 500,000 baht or 150,000 dollars.

In addition, the government pledged to continue implementing a Bt15bn infrastructure investment programme—the so-called ´Megaprojects´ scheme.

This government is likely to introduce measures very similar in nature to those which were seen during the government of Thaksin Shinawatra – populist spending, to add to the cash in the ordinary man’s pockets.

Despite the slowdown in 2007, prices of new downtown condominiums continued to rise by an average of 10%-12% per annum since 2003, according to CBRE. Rising construction and land costs have contributed to these rising prices. Prices of newly launched high-end and luxury condominiums in Lumpini Pask range from Baht 100,000 to Baht 178,000 per sq. m.

High-end condominium developers face the prospect of selling units in their developments – which are subject to a 51 per cent Thai buyer quota – to local buyers at a reduced price because foreign investors are buying into the market section at a greater pace than their Thai counterparts, CBRE claims.

Work has began on what will be Thailand´s tallest condominium tower, Siam Best Enterprise Company's Bt12 billion tower on Pattaya's Jomtien Beach. Units in the 91-storey 327m tower are priced at Bt137,500 per sqm on floors 10-14, Bt143,000 per sqm on floors 15-50 and Bt148,500 on floors 52-85.

Scandinavian investors are expected to be big investors in residential developments in Thailand this year, with money will flowing into tourist destinations such as Rayong, Hua Hin, Koh Samui and Phuket, according to research by Colliers.

Pre-Asian Crisis peak

Correcting for inflation 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 has 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. 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 – the 18th military coup for the past 60 years and the first coup in 15 years.

The military junta’s policies hit 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.

In February 2008 Samak Sundaravej and a six-party coalition took over from the military, marking the return of democracy. The dominant party is the People Power Party, which is generally seen to be the successor to Mr Thaksin's Thai Rak Thai (Thais Love Thais) party, which was banned after the coup for electoral fraud.

The PPP won the most parliamentary seats in the December 2007 election. Because Thaksin and more than a hundred of his key lieutenants are still subject to a ban on holding office, the government is generally seen as inexperienced.