Foreign Interest Begins To Dry Up

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Foreign interest begins to dry up

Post-crash deals at fire-sale prices turned out to be more limited than anyone imagined, but some good investment niches remain

NINA SUEBSUKCHAROEN

The party is over. Overseas investors' high hopes of buying Thai property at fire-sale prices are now merely a flash in the pan. Unlike the period from 1997 to 2001, the opportunities in the Thai property market are now limited, according to James Pitchon, executive director of the property consultancy CB Richard Ellis.

Foreigners are now competing more against domestic property investors, who have access to significant financial resources, Mr Pitchon said, adding that local purchasers are also able to pay higher prices than overseas investors because they have access to lower-cost funding and do not face currency risks.

Consequently, foreigners have not been too active in the Thai property market, lately with the most successful investors being those who focused on new developments such as the ones being undertaken by major property firms. An example of this is Golden Land which has significant amount of overseas shareholders.

``Golden Land has been most successful in developing residential properties. It was one of the first developers to focus on providing single detached houses in mid-town locations,'' Mr Pitchon said.

Jones Lang LaSalle's country head, Spencer Roberts, said the interest in the Thai property market was still there but it varied from segment to segment.

``Foreign interest in hotel and leisure (segment) certainly has continued, in Bangkok and on the islands,'' Mr Roberts said

Where non-performing loan portfolios are concerned, which essentially involves buying debt backed by real estate, foreign interest is now drying up, Mr Roberts said.

``This is primarily because the economy is stronger and, more importantly, the huge liquidity in the market has resulted in fewer people defaulting and those that have already defaulted are in a better position to repay and restructure their loans,'' he said.

Foreign entities were active buyers of these types of distressed-asset portfolios at the end of the 1990s.

As for the residential sector, Mr Roberts said foreign interest had been increasing sharply while Jones Lang LaSalle director Robert Collins pointed out that there was definite interest in buying Thai residential property not only in Bangkok but in Pattaya, Hua Hin and the islands.

``The foreign investor is expected to bring in the money from overseas. The low interest rates from Thai banks aren't readily available to foreigners,'' Mr Collins said.

Mr Pitchon agreed with this, saying the number of potential overseas investors is limited by requirements that funds for property investment come from overseas as foreign currency, restricting the ability of an overseas investor to borrow money.

These restrictions do not exist in a lot of other places including Singapore and Hong Kong.

Another obstacle for foreign property investors are Thai laws limiting their purchase of land.

Nexus Property Consultants' managing director Apisit Limlomwongse said that while some people may feel that Thai laws governing foreign purchases of land are too strict, it also is a psychological issue as many Thais are afraid of foreigners taking over their country.

``I don't believe there will be any politician coming out to say that he or she will change this law because it would not be popular among voters,'' he said. ``This is a very, very sensitive issue so I think this is not something that will change very easily.''

Currently, a foreigner investing 40 million baht in a business or government-approved investments, as opposed to simply placing the money in a bank, may buy up to one rai of land. Companies may also buy land but the majority shareholding must be Thai.

Foreign investors can also get permission from the Board of Investment (BoI) to buy industrial land to build a factory. However if they change their line of work or move elsewhere, they have to sell the land and plant and not rent it out, Mr Apisit said.

``BoI approval to buy land for industrial development can be for 100% foreign-owned firms such as General Motors. Permission is given on a case-by-case basis,'' Mr Apisit said.

For condominiums, a rule restricting foreign ownership to 49% of a building was eased from 1999 until the end of the year. Foreigners, for the time being, are allowed to own more than 50% but not up to 100% of a property in Bangkok with land plots of not more than five rai, he said.

Foreign interest is steady in the commercial and industrial sector, with foreign firms keen on acquiring industrial space. A prime example is the recent deal between SET-listed industrial park developer Amata Corp and the San Miguel brewing giant of the Philippines for the latter to build a large plant in Thailand, Mr Roberts said.

However, there has been very little foreign investment in the office market because the return from rental revenue compared to the overall investment in a building is too low for investment purposes in Bangkok, Mr Collins said.

CB Richard Ellis's Mr Pitchon said Thailand currently had the most dynamic property market in Southeast Asia, which offers good prospects for the mass and the luxury residential market, rising rents in the office market and strong consumer confidence underpinning retail development.

``Even the industrial sector has seen a considerable increase in demand and we expect to see the best industrial land sales since 1997,'' he said.

Mr Roberts said prospects could improve if the Bank of Thailand were to soften rules and regulations governing foreign ownership, making owning landed property and borrowing funds easier and more accessible.

``Thailand would probably find itself with a huge influx of overseas buyers, further fueling and sustaining the current boom in the residential sector,'' he said.

--Bangkok Post 2003-11-10