Property Article

[eric1000]

City of angels goes from rags to riches

By David Fullbrook

BANGKOK - A bubble fit for bursting in the luxury-condominium market and rising construction costs are casting a shadow over Bangkok's hot property sector. Despite the frowns and jitters, however, a 1997-style meltdown is unlikely, not least because of structural changes and demographics. Sales will pick up pace when confidence returns to the stock market and major projects, possibly accompanied by better zoning and more mass transit, redefine the city over the next few years.

After strong sales in 2003 that helped drive condo and land prices above pre-1997-crash peaks, 2004 was bound to be more difficult, with a rash of speculative high-end condo projects and a sharp by stocks. Sentiment is down, but not out.

"I don't see another big push this year," says Jim Chang, senior executive vice president of City Realty, one of Bangkok's biggest developers. "Good projects will still sell, but at a slower pace. I think the correction is bringing a more realistic mood."

It's costs, not demand, that are hurting. World prices, plus large infrastructure projects - such as Suvarnabhumi International Airport, Bangkok's new airport terminal - supply bottlenecks and a little hoarding pushes prices up. "The costs of developing [and] land prices have increased by 40-50% over the last two years," says Arthur Napolitano, managing director of Kudu Thailand, which builds contemporary urban housing with an Oriental twist.

Chang says, "Right now if you are still planning, people may not want to build for you, especially if it's a fixed-price materials contract - it loses its sexiness."

But overall the fundamentals are firm, as the strong economy encourages people to go shopping, busy exporters expand their offices and historically low interest rates and bigger mortgages fuel house-buying. Long-term pre-arranged mortgages requiring smaller deposits have fundamentally changed the market, eliminating much of the risk, bringing it closer to that seen in such developed cities as Hong Kong and London.

After three stagnant years, Bangkok's property market started to rouse back in 2000. Momentum picked up as banks shifted bad loans, developers came off life-support and the economy gobbled a few Viagras.

"We feel that we are three and a half to four years into a property recovery that began with housing, then downtown condos, followed by retail and offices. In some sectors, developers have responded quickly, such as housing and condos, but less so in retail and especially offices," says surveyor James Pitchon, CB Richard Ellis Thailand's executive director.

New zoning laws due in July should improve the development process, perhaps even heralding a more orderly, more livable, less ugly Bangkok. However, some developers are pushing hard to dilute or delay implementation as the regulations could adversely affect their land and project values.

"If the government's proposed zoning amendments are not implemented in a timely fashion, it would have a negative impact on investor's sentiment, both foreign and local," says Liakat Dhanji, chief executive officer of Golden Land, a developer of condos and offices that will start work on some of Bangkok's prime sites over the next two years.

Speculators, already squeezed by tougher financing regulations since 1997, are not beaming over the prospect of zoning. "It's positive in that newcomers will be less courageous and speculators less interested, so you end up with mainly real demand and real supply," says Charn Srivikorn, chairman of GS Property, whose properties include Gaysorn Plaza, a luxury mall, and Domus, an attempt to redefine the condo market.

As demographics and economic growth pressure the city, zoning becomes more crucial than ever. "A lot of people don't understand the underlying consumer fundamentals. One is 80% of businesses are SMEs [small or medium enterprises]. Less than 1% of Thais have ever invested in the stock market. Thailand has one of the highest savings rates in the world. And I would say most of that was in banks," says Dhanji.

Those underlying fundamentals will stoke demand sooner rather than later. Stocks, a sentiment barometer, will return to vogue given negligible returns on savings, unless interest rates rise sharply, which looks unlikely right now in Thailand. "Thai buying slows down when the stock market slows down. We see it coming back at the end of the year," says David Nardone, president of Hemaraj Land, which is moving from industrial estates to high-style condos, starting with The Park, arguably Bangkok's most luxurious condominium.

Mass-transit lines running 240 kilometers are another primer. Bangkok's first subway opens in July. By 2010 three more lines should be running. Next year the first Skytrain extension opens, taking mass transit across the Chao Phraya River. More extensions will open in 2006.

Meanwhile, the State Railway is working on signaling for frequent commuter services after laying extra tracks along 60km of intercity routes through Bangkok from Hualamphong Station. "People want to live next to expressways and mass-transit systems. They will determine development corridors in the future," says Pitchon.

Next year will see much new gloss, with makeovers for the Pathumwan and Ratchaprasong shopping districts along with Siam Paragon, a mammoth mall targeting Asia's luxury shoppers. A huge site, covering 120 rai (19.2 hectares), out to tender on the old Cadet School, near Lumpini Park, has major implications. "If it's done correctly, that could be the next city center," says Dhanji.

However, significant office developments matching benchmark-setting All Seasons Place are unlikely without rents rising another 50-60%. "The problem here is the rents are some of the lowest in the world," says Nardone.

It may be another few years before rents reach much higher levels, even though offices are filling up. Work has resumed on a few office towers abandoned during the crisis, but no new projects have started since then.

Slow policy implementation or a failure of imagination may continue to leave Bangkok's potential unrealized, however. "It really depends on the government's strategy. If the fashion city and the shopping-destination policies are good, the retail will boom, the office will come back, the residential will grow, the stock market will rise. It's a one-click policy," says Supaluck Umpujh, senior executive vice president of The Mall Group, co-developer of Paragon and owner of Emporium, Bangkok's premier mall.

Bangkok is still an emerging city. Beyond Rattanakosin Island, the heart of old Bangkok, much of the city was orchards and paddy fields until the early 1970s. "If you look at mature markets like London, Bangkok has a lot of potential - it's only just developing," says Napolitano.

Most of its ugly, utilitarian shophouses are little more than temporary buildings put up quickly by small-time landowners looking to make a quick baht a few decades ago. They come down faster than it takes to boil tom yam, as some sites now being redeveloped along Sukhumvit and Rama I, prime roads in central Bangkok, show. This welcome trend can only gather pace. Bangkok is a Cinderella city. It may just now be on the verge of tossing out its wardrobe of rags for a collection of elegantly cut, sequined ball gowns.

(Copyright 2004 Asia Times Online, Ltd. All rights reserved. Please contact [email protected] for information on our sales and syndication policies.)

Jun 17, 2004

[englishoak]

Thailand has one of the highest savings rates in the world. And I would say most of that was in banks," says Dhanji

Really?

[dr_Pat_Pong]

Thailand has one of the highest savings rates in the world. And I would say most of that was in banks," says Dhanji

Really?

I'd love to what he based that opinion on.

[BobAnderson]

I'm not sure that I know all the economic dynamics of "bubble bursting" - even thought I have a graduate business school education. But, one thing that troubles me about the housing market specifically on Phuket - is that comparable housing in my home city in the States is significantly CHEAPER than on Phuket.

A nice home in the foothills of the Catalina mountains, overlooking a golfcourse costs about half the price of a home on the Banyan Tree golf course.

Don't get me wrong, I love the island, I love the sea - but I'll never buy here as the ROI is too poor - much better returns from investments back home.

And the biggest part of this bubble has come in just the last 3-4 years. And, of course, the real estate companies are hyping it as a straight line curve that will go on for ever. Higher end properties doubled in the last 3-4 years - so according to their estimates - if you buy a nice US$500,000 house now - you'll be worth BILLIONS in just a few years as your equity continues to double double double.

Sorry, it is just another pyramid scheme. . .