Foreign investors put off buying in Bangkok

The real estate market in Bangkok is largely dominated by domestic buyers as various restrictions on foreign investment is ensuring that they stay away, according to a new analysis.

There were no significant income producing property transactions in Bangkok during the fourth quarter of last year and yields did not change significantly despite the increase in interest rates, as the cost of capital remained relatively low, says the latest report from global property consultants CB Richard Ellis.

‘Although there have been concerns regarding the influx of foreign capital into Thailand, the various restrictions on foreign investment ensured the real estate investment market remained largely dominated by domestic players,’ it points out.

However, developers remained active in acquiring development sites for commercial and residential purposes. Notable deals of this type included Noble Development acquiring a 120,555 sf site on Ploenchit Road from Raimon Land for a reported THB 27,871 per square foot.

The same company bought the adjoining 49,169 sf site for a reported THB 34,839 per square foot from Thai Summit Estate. The price paid for the Thai Summit Estate site was just below the record breaking amount that Sansiri paid for a nearby site in the third quarter.

Other developers were also active in acquiring sites in central and midtown locations with Land & Houses and Rojana both acquiring development sites for residential purposes.
The market for smaller sized condominiums remained buoyant but sales of medium to large apartments slowed in the fourth quarter. The market for one bedroom condominiums has been expanding rapidly with a significant number of launches and construction starts in the second half of 2010.

The segment may be slowing however as buyers perceive that there is a high volume of supply being completed and there is the likelihood of future interest rate hikes.

‘Although there is end user demand for smaller condominiums near the city centre from a new generation of Thai buyers, a portion of the buyers are  buy to rent investors who will be affected by any increases in interest rates,’ the report says.

The capital market turned more active during the second half of 2010 with a total of five new property funds held for initial public offering on the local bourse. These included the US$27.5 million 5-star hotel of the Mercure Samui Property Fund (MSPF), the three office buildings of the Thai Commercial Investment Fund (TCIF) worth a combined US$65.2 million, the US$59.98 million 20-year leasehold agricultural market of the Talaad Thai Leasehold Property Fund (TTLPF), the US$134 million leasehold hotel and two freehold hotels of the Dusit Thani Property Fund (DTCPF), and the two warehouses and factory of the MFC-WHA Premium Factory and Warehouse Property Fund (M-WHA) worth US$42.75 million.

The second half of 2010 saw the Bank of Thailand raise the policy interest rate three times by a total of 50 bps. The Bank also announced mild measures to cool the property market by decreasing LTV’s for condominiums to 90% and LTV’s for houses to 95%. However, the move did not have any major negative impact on the property market, it concludes.