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Door opening for Thai real estate

August 1, 2011

The pent-up foreign demand for residential and factory space will be released by new era of political stability, says real estate CEO Alastair Hughes.

Alastair Hughes, chief executive officer of Jones Lang Lasalle’s Asia Pacific operation, believes Thailand’s post-election political climate will bode well for the country’s real estate market after years of uncertainty.

Bangkok’s prime office space, for example, is currently the cheapest among major Asian cities, so rents are projected to go up by two per cent this year.

“There is a big, pent-up demand from foreign businesses who are waiting to come here when there is more political stability.

“[Besides office space], retail is also attractive. If there is political certainty, we believe the Thai economy will grow, resulting in more spending and demand for retail space. Next will be residential property in Bangkok, Pattaya and Phuket, because the last few years there have seen few foreign buyers. If they come back because they are more confident again, the market will surge and prices will go up,” he says.

Another sphere likely to experience gains from political stability is the industrial-estate market, especially via outsourcing from Japan, whose infrastructure was hit by the recent earthquakes and tsunami.

One dark cloud on the horizon could be the interest rate, a hike of which is generally not good for the property market. However, higher interest may be necessary to curb inflationary pressures arising from the new government’s policies, such as the hefty hike of the minimum wage to Bt300 per day.

On the global economic outlook, Hughes says: “No one knows for sure at the moment. You can paint a very miserable picture or you can paint a relatively optimistic one. However, we plan our own business in the middle scenario, in which the Europeans manage to sort out the debt problem, while the Americans find their solution to the current stalemate.

“If that happens, some more confidence will return to the world economy and things will move on. In Asia Pacific, we’re lucky that we don’t have those problems. On China, at this moment it’s the fastest growing market of our business. We have about 5,000 people over there as business is growing quickly.

“After China, it’s India where a lot of building activity is going on, especially in Mumbai, Delhi and Bangalore as they try to upgrade their accommodation, etc.

“[Regarding] Japan, rents in Tokyo will continue to fall [due to the earthquake and tsunami] and will probably pick up in the middle of next year.

“Since the 2008 global economic crisis, Hong Kong has staged the most dramatic recovery, with rents down 50 per cent during 2008-9 and then growing in 2010 by 30 per cent, and now in the process of growing another 30 per cent this year.

“After Hong Kong, it’s Beijing and Jarkata, where rents grew 15 per cent in the second quarter of this year due to political certainty and the uptrend in commodity prices, leading to strong economic growth.”

“In Singapore, rents are expected to grow 10-15 per cent this year while Kuala Lumpur’s rents are likely to be flat this year due to an oversupply.”

“Bangkok’s rents are, however, projected to grow 2 per cent this year, and what we have heard from multinational firms here is that they want to grow in Thailand, but the political situation over the past few years has held them back.”

“If it is resolved, they are ready to expand again. Some of our big clients have already taken up more office space in anticipation of more stability and higher economic growth.”

“In fact, Bangkok’s office space is now the cheapest in Asia Pacific with Hong Kong being the most expensive – at about US$1,500 per square foot per annum, whereas Bangkok is only US$180 per square foot. And if the future is as predicted, rent will certainly go up rapidly.”

“There is also a pent-up demand for residential property for expats, who would like to buy more real estate if the political outlook is more stable,” he says.

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