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Thai property can stay hot in chillier times
THAILAND'S booming property market is at risk of cooling this year as rampant construction threatens an oversupply of apartments amid increasing global economic headwinds.
The country has been a relative bright spot in an otherwise lacklustre South-east Asian real estate market.
Thai residential property has experienced substantial growth in recent years, much of it fuelled by buyers from China, Japan and Singapore.
The thriving hospitality sector has also drawn money from foreign and local investors to fund the building of many new hotels and resorts.
Mainland Chinese have poured roughly US$10 billion into condos in Thailand over the past three years, helping to drive annual price increases of 20 per cent in major cities such as Bangkok. Japanese investors have spent US$8 billion and Singaporean buyers US$2 billion.
At a time when Beijing and Washington are still locked in a trade dispute, affluent mainland residents consider Thai real estate a safe place to park their money.
Rental yields in Bangkok can be more than 4 per cent - far more appealing than socking money away in domestic savings accounts that offer less than 2 per cent.
Analysts estimated that one out of every five condos in Thailand is sold to a Chinese buyer.
As mainland economic forecasts grow stormy, more people are likely to gravitate to a country known in tourist brochures as the "Land of Smiles". With Thailand's benchmark interest rate at 1.75 per cent and inflation at about 0.4 per cent, developers are able to obtain construction loans at a reasonable cost.
As a result, they are flooding the market with projects. The Bank of Thailand expressed concern on Jan 10 that a condo surplus amid a global downturn could adversely affect the Thai economy. The central bank has tightened mortgage lending rules to tame speculation and the government may take measures to clamp down on excessive construction if the situation worsens.
Moreover, bank representatives are worried that foreign buyers who have already put down a deposit might get cold feet and pull out, leaving properties empty.
However, as the Chinese middle class continues to grow and accumulate wealth, the volume of people purchasing should remain steady.
Although developers may ease up on new construction projects, demand - especially at the high end - will stay strong among Chinese home buyers.
Tourism, meanwhile, which represents almost one-fifth of Thailand's economy, will remain robust. The Tourism Authority of Thailand has predicted that 40 million international tourists will flock to the country in 2019. A sizable number are expected to celebrate Chinese New Year that begins on Feb 5.
The Thai government recently announced that it expanded its visa-free entry policy till April 30 to include visitors from China.
That was partly a bid to entice visitors scared off by the deaths last summer of 47 Chinese tourists after their boats capsized in Phuket. Arrivals from the country dropped an estimated 20 per cent after the accident, but the visa waiver alone is expected to boost tourism by 30 per cent.
While Thailand's residential property market may cool slightly, it is hardly likely to slump. The combination of buoyant tourism and Chinese demand should mean that the market will weather 2019's dreary global economic forecasts. BLOOMBERG
- The writer is the founder and chief investment officer of Chartwell Capital in Hong Kong. He is also the author of The Value Investors and Behind the Berkshire Hathaway Curtain.