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Negative impact of the baht strength on Thailand’s real estate sector

October 26, 2010

Thailand’s property services firm Jones Lang LaSalle pointed out a growing concern over the potential negative impact of the baht appreciation on the country’s real estate sector.

According to Jones Lang LaSalle Thailand’s managing director Suphin Mechuchep, the property sectors including Bangkok high-end condominiums and resort properties in key holiday destinations  like Phuket have been directly affected by the baht strength as foreign buyers are the major source of demand in these markets.

Jones Lang LaSalle Thailand’s managing director said: “The stronger baht currency will diminish the attractiveness of the country’s real estate from foreign buyers’ point of view”.

However, in the short term, Suphin does not anticipate a significant negative impact on Thailand real estate as the current demand in Thailand’s markets has come mainly from local buyers, while demand from foreign buyers has dropped during the past few years.

“The number of foreigners buying Thai property as a second or retirement residence, or even for investment purposes has seen a marked decline due to the country’s continued political uncertainty, dampened by the global financial crisis.”

She added: “Since late-2008 when the global financial crisis escalated, buyers from the US, Europe, and also from the Middle East have disappeared as the economies in these regions suffered a lot from the global financial crisis. Meanwhile, buyers from Asia, who have been less affected by the global financial crisis,  seem to concern more on the continued political uncertainty in our country.  And as a result, they have continued to adopt a wait-and-see approach.”

However Suphin believes that if the stronger baht continues to pose a threat to the export and tourism sectors, demand for real estate will inevitably be affected at a later stage as it is tied tightly with the country’s economic condition.

She also suggests that if the reduction of interest rates could help slow down the appreciation of the baht, the government should keep the measure into consideration.

“The measure will also benefit the residential sector as mortgage for home purchases will be less costly for buyers, and also help property developers burdened with borrowings,” she concluded.

Thailand Real Estate

Although the Thai real estate industry has continued growing significantly since 2008, we have not seen a real estate bubble environment manifesting. The industry seems to have learned its lessons during the 1997 financial crisis and has successfully implemented the following safeguards: The banking industry has become much more cautious providing project financing and mortgage loans.

Being a developing country, the cost of property in Thailand is much lower than in the more developed European markets. But, on the other hand, prices for Thai property, in general, are rising at a much faster rate.

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