Will Thailand's Building Boom Prove Another Bust?

[george]

Will Thailand's building boom prove another bust?

BANGKOK, Thailand (AP) - For years Bangkok's skyline was haunted by deserted giants of rusting steel and graying concrete - half-completed high-rises abandoned when financial disaster ended boom times in Thailand and then swept the rest of Asia back in 1997.

Now cranes are whirring again across the city.

Stocks in construction companies are soaring.

Real estate prices are up and condos are being snapped up before the first concrete is poured.

Long abandoned projects are finally being completed and new ones started.

The latest building bonanza signals a return to good economic times and is being accelerated by government incentives and low interest rates.

But will bust follow boom as happened six years ago?

"It will slow down a bit, but nothing will deter the demand,'' says Isara Boonyung, vice president of the Housing Business Association.

Registration of new houses in Bangkok and its suburbs is expected to climb to as many as 55,000 units this year, up from 44,000 in 2003, according to a study by the Thai Chamber of Commerce University.

The study says the newest growth areas will be in offices-for-rent and serviced apartments, both now in low supply.

Last year, more than 400 billion baht (US10.2 billion) was circulated in land transactions, up from some 172 billion baht (US$4.4 billion) in 2001.

But the heady prospects are mixed with anxiety.

In 1997 a high-flying Thai economy was accompanied by dizzy real estate speculation.

When it tumbled, economies across much of Asia fell as well.

At that time unrealistically high investment returns and unregulated lending sparked a frenzy. When it came to a sudden stop thousands of buildings across the country were left unsold and decaying.

Some of these concrete carcasses, including several high-rises in Bangkok, are now being resuscitated.

Isara credits the government of Prime Minister Thaksin Shinawatra for reviving the industry through historically low interest rates, real estate tax incentives and soft-loan housing schemes for the poor.

He's convinced there are now enough brakes in place to forestall another crisis and that the current growth reflects real demand.

"It's speculation when the down payment is low, and the installment period long, with the belief that prices will go up.

But at the moment people are buying homes for themselves, not for renting out like years ago,'' Isara says.

Analysts believe the new central bank regulation requiring a 30 percent down payment for buildings worth 10 million baht (US$256,400) or more, and tougher lending rules will prevent a bubble-and-burst scenario.

Should any problem arise, it is likely to come from the condominium market.

Manop Bongsadadt, of Bangkok's Chulalongkorn University, worries about investors purchasing condos when projects are still in the blueprint stage.

This is a magnet for speculators gambling that prices of the completed units will escalate sharply and quickly.

"The government must make sure that supply won't exceed demand. It'll be a bubble once people start buying in hope that value will increase significantly over a short period,'' Manop warns.

Janthana Samleerangkul, an executive of a medium-sized construction firm Chai Thaweephol Company, says she also feels jittery.

"Things are going really well. But the growth pattern is exactly the same as before although not as robust,'' she says.

"The bright outlook doesn't promise anything if the government can't keep the growth in the right direction.''

Janthana and others want the government and business to work together in setting up an early warning system based on detailed past and current information that would help predict future trends.

This, together with tight controls on lending and transparent accounting systems, will eventually improve the real estate sector, they say.

"We love the boom as much as the banks and home buyers but not as much as we hate the bust,'' says Janthana.

- AP 2004-01-15

[PlanetMan]

BANGKOK, Thailand (AP) - For years Bangkok's skyline was haunted by deserted giants of rusting steel and graying concrete - half-completed high-rises abandoned when financial disaster ended boom times in Thailand and then swept the rest of Asia back in 1997.

Cranes may be whirring again across Bangkok the but there remain a tremendous number of the abandoned, derelict construction projects. Each one is further proof that the Thai financial market needs to do much more before it will be able to support smooth, sustainable growth. Think of how much money is tied up in all that unused concrete, steel, and equipment.

Some of these concrete carcasses, including several high-rises in Bangkok, are now being resuscitated.

Last year the Post said there were 508 of these buildings in Bangkok alone. I wonder how much money that is? Or what about "stonehenge", the derelict Hopewell elevated rail project. Hard to think of examples like this in countries with properly functioning financial systems.