Don't Panic! The Floods And Bangkok's Property Prices

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PROPERTY TALK

Don't panic! The floods and Bangkok's property prices

Dr Theerathon Tharachai

Thailand is in the grip of a flood crisis that seems to have affected everyone both physically and mentally - especially residents of Bangkok, where there is a sense of panic.

One of the questions that those in the real-estate sector should be ready to answer is how the current flooding will impact property prices. I shall try to address that question based on studies from around the world.

Floods have hit many cities around the world, prompting studies by researchers, appraisers, developers and policymakers. Those keen to study the issue can easily find articles on the Internet citing case studies such as Brisbane, North Carolina, Florida, Nagoya, Seoul, West Ontario and many other places. However, the findings vary widely and sometimes even contradict each other.

Some studies suggest that floods' negative impact on property markets depends on the depth of inundation. The areas that do not have floods will see the smallest impact. However, research also suggests that the impact is short-term; prices will return to previous levels in six months to three years. Factors that help property prices bounce back more quickly include: 1) preventive measures; 2) land improvement; 3) flood-mitigation plans; 4) legislation; and 5) the availability of flood insurance.

The floods here have hit many residential areas, especially in the western and northern parts of greater Bangkok, where the real-estate market has been booming in recent years. One short-term impact could be significant: before the floods, most customers (especially the young) may not even have considered flooding as a key risk factor in their buying decisions. That perception will change, at least for the short term. The importance of flood risk and how each developer manages flooding will have an impact on customers' decisions. The impact on the broader economy could also affect demand in terms of both income and sentiment. Construction costs could rise from the short-term spike in demand for construction materials, and the condominium market may also get a surprise boost from fear of flooding in the low-rise market.

Bangkok remains the Thai capital and this is unlikely to change anytime soon. Actually, the price of a property depends on many factors. Putting short-term panic aside and reviewing the facts, here is what I propose: The factors determining land prices include socio-economic conditions, area, infrastructure development, road width, floor-area ratios, distance from mass transit and many others. Inundation depth is one factor, but obviously not the only one.

Property is a long-term investment; you don't want to make a decision with a long-term outcome based on short-term panic. I have lived in Moobaan Seri since I was born. Moobaan Seri was hit hard by the floods of 1983, causing the price to drop significantly. But the land price has risen noticeably since then. You might also look at what happened to the price of land in Phuket after the 2004 tsunami. These are just some examples that prove that you should not base long-term decisions on extreme events.

The flooding has focused everyone's attention on the need for sustainable solutions for both the long and the short terms. The problem stresses the importance of coordination by many parties, both public and private, to share information and knowledge and find practical solutions. We should work constructively as a team, not play the blame game.

-- The Nation 2011-11-21

[netcyberg]

The topic is about everything and about nothing in particular. Nothing useful from my point of view.

Edited November 26, 2011 by netcyberg