Thailand Property Development Crisis

Real Estate Investments in Thailand, buying Vacation Homes, Thai Real Estate Agency Directory, Foreign Property Ownership in Thailand and off-plan Condominium Purchase.
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Mon Apr 13, 2020 6:18 pm

Thailand’s Developers and the Property Crisis

There is one key underlying fundamental for hotel branded residences returns, and the truism that best sums it up is that returns are a function of hotel trading performance and marketplace. In Asia, the largest branded residences market is Thailand. According to C9 Hotelworks market research, the country represents 29% of regional supply with key markets being Bangkok, Pattaya, Phuket, Hua Hin and Chiang Mai.

In an evolving hotel ownership model that has developers passing on risk to residential property buyers, the question has to be what risks are inherent in this, given the current Covid-19 crisis? The answer is twofold in that some owners of existing units are currently under guaranteed return programs or those who are buying new projects and are expecting contracted returns.

One indication of stress in the market has come out of Australia, where the Quest Group who operate 160 serviced apartment properties in Australia, New Zealand and the Pacific have told investors who own units that have lease-back arrangements that they cannot pay due to the Covid-19 downturn.

Her in Thailand there are a variety of rental programs ranging from top line rental revenue splits to bottom line profit splits between the hotel and unit owner, and the increasingly popular lease-back arrangement. The latter was thought to be beneficial to the operator so that tenure is ensured in the project, and for unit owners who thought the lease amounted to a fixed-rental guarantee.

Commercially in Thailand, these types of contractual obligations are reflected in civil contracts and in the case of guarantees rarely are they backed by corporate undertakings, escrow accounts or bank guarantees. So in the case of a default, the only real remedy is a direct legal action. This sadly is often too costly or time consuming for single unit buyers to pursue.

With Covid-19, if force majeure is considered to be in place, a court action will have to determine who’s right and wrong. So essentially, let’s just say it’s complicated. During this past week we have seen three different projects in Thailand suspend guaranteed returns to buyers, and you can expect the number to jump in coming weeks.

The warning which is important for buyers of branded residences is that they are not purchasing a traditional real estate model, with the likely end game of capital appreciation. They are becoming de facto owners in a hotel, and as such need to carefully understand Thailand’s hotel supply and demand and performance metrics. Hotels are capital intensive and require a different standard of fit-out, operation and reinvestment vs pure residences.

It is still early days in the Covid-19 crisis, and it remains to be seen how developers who have promised guaranteed returns will fulfill these obligations, or look to negotiate a suspension of payments. For buyers of off-plan projects it’s a good time to pay closer attention to guaranteed return returns that are for extended periods of time or at high return percentages. If something looks too good to be true it probably is!

The local Covid-19 crisis will undoubtedly reset the Thai hotel industry and it’s a serious mid-term path to recovery, so expect branded residences to face these same challenges and adjust the investment outlook accordingly.
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Sun Apr 26, 2020 9:04 am

Thailand Condominium Sector with a 10-Year Low
  • Covid-19: Thailand’s condominium sector headed for 10-year low as Chinese buyers disappear amid outbreak
  • The postponement of new launches and discounts on unsold units have hit the real estate sector hard, continuing a downward trend from last year
  • While Chinese buyers have tailed off after travel restrictions imposed by Beijing, experts say they remain active online and are still interested in Thai property
Thailand ’s condominium sector is heading for a 10-year low as the Covid-19 pandemic continues to wreak havoc on economies around the world. The postponement of new project launches, discounts on unsold units and the disappearance of Chinese buyers have all worsened the situation. According to Phattarachai Taweewong, researcher at global real estate services firm Colliers International, this downward trend continued from last year when the Thai real estate sector was affected by a stronger baht, weaker yuan, the slowing Chinese economy and underperforming Thai economy amid a global slowdown. “This is a very difficult time. Some developers have postponed their launches indefinitely because it is difficult to estimate how long the outbreak would last,” he said. “Sales activities and campaigns have stopped. Sales offices have also seen fewer walk-in customers. In the first quarter of 2020, we expect condominium sales in Thailand to be below 35 per cent, which is the lowest in 10 years.”

“Sales activities and campaigns have stopped. Sales offices have also seen fewer walk-in customers. In the first quarter of 2020, we expect condo sales in Thailand to be below 35 per cent [for new units launched], which is the lowest in 10 years.” Sales for new units are usually between 50 per cent and 55 per cent each quarter, Phattarachai added. The real estate sector accounts for 6 per cent of Thailand’s GDP, according to economic think tank Krungsri Research. Thai law stipulates that non-Thais may only legally own condominiums, but no more than 49 per cent of a building’s total saleable area. The significant fall of demand from Chinese buyers has been caused by the travel restrictions Beijing has imposed since the outbreak began, as well as a slowdown in economic activity following the lockdown of several Chinese cities.

Thailand’s tourism sector has borne the brunt of this. According to tourism and sports minister Pipat Ratchakitprakarn’s estimate, if the coronavirus situation concludes by the end of the year, Thailand will have seen about 10 million tourist arrivals – compared with almost 40 million in 2019.

While the outbreak has also been a challenge for the Thai condominium sector, Georg Chmiel, the executive chairman of property portal Juwai IQI, said Chinese buyers “are still very active online and still have great demand for Thai property”. While these buyers still account for half of all foreign purchases of condominiums in Thailand, Chmiel said there were “practical obstacles to closing transactions and to buyers taking possession”.

Somsak Chutisilp – the managing director of IQI Thailand, Juwai IQI’s local property-brokerage counterpart – said examples of such obstacles included developers having difficulty locating mainland customers and agents to complete the purchase after the buyers had transferred a down payment of around 30 per cent.

Colliers researcher Phattarachai said this meant developers could not forecast their exact revenue this year. Combined with a coronavirus-forced freeze on launching new projects altogether, he said the sector stood to lose about 28 billion baht (US$868 million).

“There are online activities for sales, but they won’t affect the market so significantly,” Phattarachai said, adding that developers also have to deal with oversupply in the market as sales slowed last year due to the Bank of Thailand’s tightening loan policy and the effect of a new land tax deal that saw a previously flat tax rate change to varied rates depending on how a property is used. “There are about unsold 60,000 condominium units in Bangkok, and it would take about 25 months to release this inventory,” he said.

Sopon Pornchokchai, president of Thailand’s Agency for Real Estate Affairs, estimated there would be some 100,000 vacant condominium units left unsold around the country this year, and that Chinese buyers could return by the year’s third quarter at the earliest.

“Foreigners accounted for 14 per cent of condominium purchases last year, down from 17 per cent the year before,” he said. “Among them, Chinese buyers account for around 60-70 per cent.” Sopon said in the long run, Thailand could still be an attractive destination for condominium buyers as “it provides better yields, does not limit the minimum spending amount and provides affordable maintenance fees”. But at this time, he advised developers to reach out to existing customers abroad and in the country “because it will be difficult to have new customers during the slow economy”.

However, Juwai IQI executive Chmiel said there would be a sharp rise in purchases once the crisis is over. “We expect a surge in transactions later in the year, after the coronavirus outbreak settles down,” he said. “Buyers who were held back by travel restrictions and other coronavirus-related challenges will finally make their purchases, and it will feel like they are all doing so at once.” Thailand’s health care could be a major motivating factor for Chinese buyers to return, according to Chmiel. “Thailand can win Chinese-buyer market share from other Asian countries that are not as successful at handling the coronavirus outbreak or that don’t have the same high-level medical care,” he said. “Over the longer time frame, Thailand should remain a popular destination for Chinese buyers – most likely one of the top two destinations in the world by number of enquiries in 2021 and 2022.”

Phattarachai from Colliers said that with the negative factors surrounding the property sector in Thailand, it was likely to only see a recovery next year. “If the outbreak is under control by the third quarter, developers will recover by the fourth quarter and the market will revive by 2021.”
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Fri May 22, 2020 1:27 pm

Thailand’s Property Market set to Experience Brokerage Megashift

It’s clear that Thailand’s real estate sector is expected to undergo a megashift as a result of the Covid-19 pandemic and search for a ‘new normal’, if that’s even possible. That said, one of the country’s leading PropTech groups FazWaz says the crisis has only accelerated dynamic charges to the sector that have been bubbling to the surface over the past two years. “Big data and virtual seamless transactions are recurring trends whose time has come”, according to FazWaz CEO Brennan Campbell. “The current crisis has created a great wall between property buyers and sellers can easily be demolished through a complete overhaul of the legacy brokerage transaction process. “

FazWaz, who are a PropTech start-up under Thailand’s BOI (Board of Investment) technology development platform has methodically pursued an enhanced big data platform by focusing on creating a forward-looking property transaction model. Over the next few months the next domino to fall is a new FazWaz product using online data to create dynamic property valuation, which can be used by financial institutions, developers and prospective buyers in obtaining real-time appraisals. Commenting on the new business model Campbell says that it’s time for reality to bite.

“The old method of real estate valuation in Thailand, that requires an arduous paper chase, walking around neighbourhoods, staring at ‘for sale signs’, and looking back versus looking forward, makes zero sense.”

Big data allows FazWaz to understand dynamic demonstrated trends 24/7 and uses algorithms that can predict future values. Thailand’s shifting property landscape is seeing lines blur between primary and secondary sales. This is magnified even more, given both rely on market valuations as a lever for transactions. A recent FazWaz deep dive into the Phuket real estate sector showed a market value of properties for sale in excess of 100 billion baht.

Lessons learned in the current crisis, that is moving away from traditional brokerage, has prospective buyers taking virtual tours of property (VR) instead of going to show units. VDR (virtual data room) is also becoming a new standard in the transaction process. It has been accelerated into the due diligence process by sheer necessity. Add in the use of big data for AVM (automated valuation model) property valuations is clearly a more accurate methodology given emerging market volatility.

As Thailand’s property sector goes into reopening mode, and the long journey towards recovery, Campbell weighs in with “the new path is one that the industry has not been on before, big data doesn’t sleep, nor do disruptors to the sector. Ultimately PropTech will change the sector in ways you cannot even imagine today.”
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