Thailand lags behind in region as real estate capital flows undergo changes this year
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Thailand is not among the favourite havens in the region for international real-estate investors. These usually include property funds, private property companies, real-estate investment trusts (REITs) and institutional and individual investors.
Large global real-estate investors consider the availability of investable assets, especially core products such as office buildings; ease of market entry – for example, the ability as a foreigner to own property; transparency and availability of market data, especially prices and yields; and the depth and liquidity of the market.
In Thailand, most developers in prime locations tend to build and hold assets for themselves rather than sell them.
Despite the uncertainty in the world economy, this year has seen an increase in real-estate investment activities across the Asia-Pacific region as well as in Europe and the United States. In most prime markets, capital values have grown beyond market fundamentals and yields have been generally lower.
Based on the results of the “CBRE Investors Intention Survey 2014”, investors’ preferred form of assets has shifted from core products to opportunities in value-added assets. Globally, the office market is by far the most popular, followed by industrial and logistics, with retail coming last.
Most international investors tend to stick to their own region and developed markets where they feel risks are lower, while Asian investors have expanded their horizons by looking at Asia’s emerging markets.
With the shortage of investable assets, investors are considering several alternatives including secondary or Class B assets in key markets that are expected to provide satisfactory returns and niche markets as well as developing markets.
In Thailand, we have seen Asian investors taking further steps by becoming players in residential development. Mitsui Fudosan and Mitsubishi Estate, two of the biggest companies in Japan, and China’s Greenland Group have formed separate joint ventures with leading Thai developers to develop condominium projects.
Not only are inbound real-estate investments thin, there have been also very limited transactions by Thai investors in other countries. In the past decade, funds from Thailand have been used within the country for various real-estate investments ranging from land and building acquisitions and buy-to-rent condominiums to property development.
TCC Group and Central Retail Corporation (CRC) are the two most active investors abroad. TCC owns 14 hotels in key locations abroad, including Singapore, China, Japan, Australia, London, New York, Laos and Cambodia. TCC also bought Fraser and Neave, a Singaporean conglomerate with significant real-estate holdings.
In 2011, CRC acquired La Rinascente, an Italian department store chain with 11 outlets. Recently, the company also acquired Illum, a famous department store located on the main shopping street of Copenhagen, Denmark’s capital.
Today, there are more buyers than sellers in the property-investment market. This has been driven by the hunt for yield in a global environment of low returns from other fixed-income assets such as government debt.
Next year, we expect that the Thai residential segment, which is the country’s largest real-estate market, will become extremely competitive for developers as prices in some areas have reached a point where buyers are not prepared to or cannot afford to buy.
Expansion of property development beyond Bangkok to other provinces has also diminished. Another factor that may dull Thai investors’ appetite for property next year is the imposition of taxes such as real-estate and inheritance taxes. However, in other countries such as Britain where inheritance taxes have been levied, there has been no real impact on property investment.
The Asian Economic Community, due by the end of next year, is expected to have minimal direct impact on the Thai property market.
This has raised sentiment among Thais hoping that this will generate new demand for property investment. Thai developers and investors wanting to expand may have to continue looking at alternative markets globally.
The search for greener pastures continues.
