Why Thailand might wobble but it wont crash

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Why Thailand might wobble but it wont fallLike every single country in the world there are concerns today that the Thai property market may well be the next casualty with a number of factors coming into play of late. However a closer look at the make-up of the market, the economy and the current political situation seems to indicate a tricky time ahead but a property market which is unlikely to crash and may see a short-term consolidation period at worst.

Thailand is one of the growing breed of so-called tiger economies in the Far East which has shown significant growth over the last decade and attracted substantial overseas investment. The fact that this increasing productivity and increased overseas investment has happened at a time of significant political unrest is a testament to the strength of the underlying market. Historically the country has reacted well to a number of opportunities which have arisen over the years and it is this quick thinking and reaction times which have seen the Thailand economy perform better than many others in the region.

General outlook

As those who follow UK football will know there has been significant unrest in the Thai political scene with the prosecution of former Manchester city owner and Thai prime minister Thaksin Shinawatra on alleged charges of corruption. While the new regime have promised to root out corruption in the country and take action where required there has been significant unrest which when added to the worldwide economic slowdown and the credit crunch has had an impact of many areas of the Thai economy.

However under the surface there seems to be real strength in the economy and the future of the country seems to be in good hands even though there is internal unrest at the moment. This internal unrest and the additional worries it has created for foreign investors must be addressed as soon as possible in order to ensure that no long-term damage is inflicted on the Thai economy.

Fall in condominium sales

While the headlines in the Thai press will show that condominium sales are down by 55% compared to September last year this is by no means a collapsing market as there are still significant transactions going through. That is not to say that the condominium sector has escaped the worldwide property downturn but it has not suffered as much as many in the region and around the world. There is some suggestion that informed property investors are looking to take advantage of concerns at the moment and pick up attractive long-term property investments on the “cheap”.

Consumer debt

One of the reasons why the Thai property market should not fall back too far is the fact that the vast majority of property transactions are carried out on a cash basis which means that very few domestic and business investors would be forced to liquidate their assets at distressed price levels. This core backbone will ensure there is no excessive downward pressure on property prices in general although a reduction in the number of potential overseas buyers will see prices soften and undergo something of a consolidation at lower levels.

This lack of debt is in direct comparisons with Western economies such as the US, UK and many parts of Europe were significant debt has been taken on by consumers many of whom are being forced to sell their property assets at crazy prices in order to avert serious financial meltdown.

Tourist market

As well as being one of the fastest-growing business centres in the Far East Thailand also has a substantial tourist sector. While there will be a slowdown in this sector over the next 12 months or so there are still many Westerners looking to relocate to Thailand where the standard of living has increased markedly over the last decade. Investment opportunities in the tourist market have also seen many overseas investors look towards Thailand as a long term growth opportunity something which should return again once the worldwide economy is more stable.

Political scene

As we touched on above there is some concern about the current political unrest in the country however the fact that the new regime has promised to eradicate alleged corruption and fraud will in due course give overseas investors more heart. While the way in which the current regime took over power may not have been as overseas investors would have hoped for it has happened and it looks as though we should see more stability in the longer term.

Thailand has always had a fairly volatile political scene so even if this were to continue along the same path in the future there would not be an awful lot for investors to worry about. Whichever party is in power is well aware of the importance of overseas investment into the country and there is very little likelihood of them putting this at risk.

Property regulations

As with a number of smaller Far East property markets there are significant restrictions on what overseas investors can purchase which ensures substantial demand from non-nationals and a constant flow of property investment opportunities for Thai locals. This not only ensures that overseas investment is controlled but has also allowed many of the Thai population to benefit from the recent property sector boom. The balance between encouraging overseas interest in Thai properties and ensuring there is no bias against Thai nationals can be tricky but is something that successive Thai leaders have been able to accommodate.

Conclusion

As with so many of these so-called tiger economies even though overseas investment plays a major role the fact that debt levels are only a fraction of those in the Western world has created a backbone of support for the local property market. The fact that so many property investors are not forced to sell because they have paid for their investments in cash has seen prices fall back slightly but nowhere near the levels seen in many countries around the world.

Some investors mistakenly assume that countries such as Thailand will literally collapse as the worldwide economy continues to shrink but many are missing the fact that unlike so many Western economies Thailand is not built on consumer debt alone. It is this underlying support which will insure the country does not fall into a serious downward spiral and should be fairly well positioned to bounce back as and when local and overseas investors have consolidated their positions in the future.

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