Low interest rates keep Thai property market going as violent protests failed to impact

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Thai real estate market unpertrubed by violent protest actions

Turbulent scenes during the violent protests earlier this year in Bangkok do not seem to have affected Thailand’s real estate market, according to consultants.

In recent months there has been no significant change in the property sector, according to James Pitchon, executive director at CB Richard Ellis Thailand.

Although there was a lull in real estate launches in March and April developers are again marketing new projects although most are one bedroom units as Thai rather than foreign buyers are dominating the market.

He says there are three main types of buyer currently in the market. End user owner occupiers have increased but there are concerns about the affordability of new projects for owner occupiers as rising land prices have increased prices.

Low deposit savings rates are driving local investors to property. ‘Even after the .025% interest rate increase in July, it is tough to find savings rates for three month deposits of better than 0.75 %. Buy to rent investors are hoping for yields of 6 % or more but will still be content with any return better than current savings rates which are currently negative once inflation has been taken into account,’ explained Pitchon.

‘There are limited investment choices in Thailand, the stock market is seen a being volatile, the fixed income market is very small and so money is being driven to the property market,’ he added.

Speculators in the market are causing concern. ‘If speculators stop buying then the volume of sales will fall which may not be a bad thing, but if they buy then default on the final payment then that is where there will be problems,’ said Pitchon.

Despite the turmoil though in April and May developers are still able to sell some projects out on the launch day. ‘Interest rates are going to have to rise substantially before people decide that the keeping money in the bank on deposit is better idea than investing in property,’ he added.

Pitchon said the Thai government may decide that non interest rate measures such as higher deposits may be necessary if they feel the condominium market is overheating. Non-interest rate measures have been announced in China, Hong Kong and Singapore. ‘In the larger unit luxury sector there is some unsold inventory in completed buildings and developers are taking steps to clear this stock with incentives such as guaranteed yields and furniture packages inclusive in the price,’ he explained.

‘We estimate that unsold inventory only accounts for less than 3 % of the total downtown stock and will not trigger a fall in prices,’ Pitchon added. Indeed, in some of the better developments that have been completed over the last three years prices have continued to rise, he said.

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