Real Estate scores over Bank deposits

Developer’s research indicates higher returns even after factoring in inflation

At a time when fixed deposits earn interest at only 2.5 per cent, property companies and agencies suggest buying residential property located close to the masstransit system – an investment that can generate a return of 7 per cent to 100 per cent.

The returns will depend on the term of the investment.

According to research by CB Richard Ellis Thailand, resale prices for residential projects located close to the mass-transit system and the Central Business District from the Asoke intersection to Soi Thong Lor range between Bt110,000 to Bt130,000 per square metre. This shows an increase of between 37.5 per cent and 62.5 per cent from Bt80,000 to Bt90,000 per square metre last year.

The rental price for serviced apartments in Silom and Sathorn has shown a strong rise from Bt289.5 per square metre in 2004 to Bt399 per square metre this year, a jump of 33.7 per cent. The Sukhumvit area is a close second with rents rising from Bt280.5 per square metre in 2004 to Bt365 per square metre, a rise of 30.1 per cent. Central Lumpini now commands rents of Bt360.5 per square metre, a rise of 18.6 per cent from Bt304 per square metre in 2004.

The demand for residential properties in the Central Business District is coming from foreigners who work in Bangkok. The two-bedroom type unit, with covered area falling between 90 and 130 square metres, has seen the strongest demand.

Residential projects at resort destinations such as Phuket, Koh Samui and Hua Hin have also seen strong demand. Investors buying property at these locations can expect a return on investment at an average of 7 per cent a year. If they sell the property within one or two years, they can expect a significant return on investments, CB Richard Ellis Thailand managing director Aliwassa Pathnadabutr said.

Kasikornbank’s first senior vice president Chatchai Payuhanaveechai said if one has the money to buy a property at a good location close to the mass-transit system, one can expect returns of 7 per cent to 8 per cent a year. This is much better than making a long-term deposit in the bank, which earns only 2.5 per cent. When adjusted with inflation – presently at 6.2 per cent – the return is negligible.

Chatchai said if there is no ready cash to buy a property, investors can apply for a mortgage loan. This will generate higher returns if the investor selects the best location.

For example, if an investor buys a property at a price of Bt100,000 per square metre, the monthly payment on a mortgage loan comes to Bt56,000 a month. Investors can earn Bt50,000 a month by renting out the property. That will help generate money for the monthly instalment.

Chatchai said the property should be located close to the mass-transit routes or a main road which will allow for an easy commute. Such properties are easier to sell and rent out.

Harrison executive vice president Kitisak Jampathippong said residential properties on Sukhumvit Road now sell for Bt100,000 per square metre, signifying a rise of between 30 per cent and 60 per cent from last year. The frequency of resale of residential properties on Sukhumvit Road averages at two or three times a year. Resale prices are expected to rise between 10 per cent and 20 per cent each time, he said.

At a time of high inflation and low interest rates, Kitisak said buying residential properties is a good investment choice. However, investors must study the value of the property.

“An investor has to select the project that has lots of facilities and offers an easy commute. That does not mean the project has to be located close to the mass-transit system alone. If the project is located close to a main road or expressway, it is still a good location, especially if the project offers good facilities and a good environment for buyers,” Kitisak said.

SOMLUCK SRIMALEE THE NATION

LUMPHINI PARK IN BANGKOK
Bangkok

Koolpuntville eyes bangkok condo market

LUXURY HOUSING

Chiang Mai property developer Koolpuntville Group this year plans to launch its second new residential project in Bangkok, worth up to Bt1 billion. The developer has already completed its first residential project, Belgravia Residences, worth Bt1.7 billion and has made sales amounting to 60 per cent of the project value.

Koolpuntville Group president Sompak Trakarnkoolpunt said the new residential project would be a luxury condominium located on Rama III Road. The building will rise to either 18 or 19 floors and prices will range from Bt85,000 to Bt90,000 per square metre.

"We have continued to expand our investment in Bangkok because we see strong demand for residential projects, especially luxury condominiums. Now we are considering whether to invest ourselves or with a partner. That will be finalised in the second half of this year," Sampak said.

Earlier, the developer set up a joint-venture firm, Pakporn, with UK-based First Oriental Investment, a subsidiary of Libra Holding, with a registered capital of Bt200 million to develop Belgravia Residences.

The luxury Belgravia Residences on Sukhumvit Soi 30/1 offers 48 luxury-condominium units starting at Bt38 million each.

"Demand for luxury residences at Sukhumvit Soi 30/1 has shown strong growth and we have adjusted the selling price from Bt127,000 to Bt135,000 per square metre. That drives our project value from Bt1.7 billion to Bt2 billion," Sompak said.

He added that the company believed that the rest of the total project value would be recovered in the second half of the year.

The Koolpuntville Group was established by Pramarn Chansue in 1987. It is now the largest property developer in Chiang Mai, with 12 residential projects worth up to Bt20 billion. It also has a land bank of 2,000 rai in Chiang Mai, Chiang Rai and Lampang. The group announced sales of Bt1.3 billion last year and expects Bt1.2 billion this year.

At present, the company has two property projects in Chiang Mai and plans to launch three new residential projects worth Bt1.1 billion in Chiang Mai, Chiang Rai and Lampang next year.

By Property Reporters
The Nation
Published on May 12, 2008

Cash-rich buyers keep luxury real estate market healthy

Cash-rich buyers keep luxury real estate market healthy

The luxury property market is still strong due to healthy demand and high purchasing power, reflected in the fact that fewer than 20% of purchasers seek loans, according to Chatchai Payuhanaveechai, a senior vice-president at Kasikornbank.

Most buyers of luxury units pay cash as they are seeking better returns than from bank deposits in the face of inflation that is hovering around 6%, he said.

Yields on bonds and debentures are also seen as unattractive and stocks are too volatile, while prime real estate can bring rental returns of 5-8% per year.

‘‘You need to know the real estate market and each asset’s liquidity. Choosing a good location is the key,’’ Mr Chatchai said.

Developers of luxury units are offering more than 7,000 units at 24 projects in an exhibition taking place until May 18 at Siam Paragon, while three property brokerage firms are looking for combined sales of 2.75 billion baht.

Aliwassa Pathnadabutr, managing director of the property consultancy CB Richard Ellis (Thailand), said demand in the segment remained healthy.

Unit prices have been increasing at between 7% and 15% a year depending on the project and location, while units at the very top end of the market can fetch nearly 300,000 baht per square metre, she said.

Sixty percent of luxury property buyers are Thais and 40% are foreigners, up from 15-20% in the past, according to CBRE.

‘‘Confidence is a major factor affecting decision-making and demand in this segment,’’ Ms Aliwassa said.

CBRE is selling six projects worth a combined 15 billion baht and hopes the exhibition would generate sales of two billion baht. At a similar event last year, the company generated 800 million baht from five projects.

Harrison, another participating real estate brokerage, expects sales of 600 million baht from eight projects where it has four billion baht worth of units on offer.

Phanom Kanjanathiemthao, managing director of the property agency Knight Frank Chartered (Thailand), said his company was selling three projects worth 10 billion baht and expected to sell 40 to 50 units worth 150 million baht, up from 50 million baht from a single project in the 2007 showcase.

One of the three projects is the 400-unit My Resort condominium worth two billion baht at the Phetchaburi-Asok Junction, being developed by Everland. After a month of pre-sales, 20 units worth 100 million baht have been sold.

‘‘Demand in the high-end segment is strong but prices are up 20-30% due to higher costs of construction and land. Developers needed to increase their marketing budget as sales slowed down last year,’’ Mr Phanom said.

According to the company’s research, average prices of Bangkok condominiums have risen from 65,000 baht per sq m to 82,000 baht in the past year. New condominiums in Hua Hin are fetching 120,000 baht per sq m, up from 85,000 baht, as construction costs are 10-15% higher and land prices in the resort town have risen 20-30%.

Somchao Tantaterdtham, president of the Thai Real Estate Association, said transfers of residential units during the first two months of 2008 increased from the same period last year due to higher confidence among consumers.

Significantly, transactions were up even though new tax incentives approved by the government did not take effect until late March.

Transfers of single houses and townhouses totalled 1,200 units in January and 1,167 in February, up from 903 and 1,150 units respectively in the same two months last year.

Condominium unit transfers totalled 973 units in January and 888 in February, up from 616 and 759 respectively in January and February 2007.

‘‘Risks remain. Higher oil prices affected overall construction costs while steel prices never go down. Under such circumstances, the government should support building the investment atmosphere,’’ Mr Somchao said.

KANANA KATHARANGSIPORN

Raimon Land views about market

RAIMON RAISING BT1.3 BN TO COMPLETE PROJECTS

Obtaining loans for property projects has been near impossible since the US sub-prime meltdown shook up global banking recently, but Thailand is one of the very few exceptions, Raimon Land CEO Nigel Cornick said yesterday.

“For many foreign buyers, Thai properties are still regarded as highly undervalued,” he said.

“As banks everywhere are taking a cautious stance with the US fallout, Raimon Land has decided to raise fresh funds from the stock market,” said Cornick.

The company will hold a rights issue of two old shares for one new one to raise Bt1.3 billion to complete half a dozen projects.

The firm goes ex-rights (XR) next Tuesday, but Cornick said the stock is now trading at a discount because of poor sentiment for the real-estate sector.

“We will use the cash to complete key sites such as the 11- rai River project on the Chao Phya River, overlooking the Shangri- La and Oriental hotels,” he said.

Its other prestigious site includes 185 Rajdamri, a 6- rai estate where the Cambodian embassy was formerly located, and Northpoint, a twin-tower project in North Pattaya.

Much of the capital raised in the current exercise will actually come from existing shareholders, Cornick noted, as Kuwait’s IFA Hotels and Dubai’s Istithmar Group each hold about 25 per cent of the firm

“Only about 20 per cent of the shares are freely floated,” he said.

Cornick expects the new rights to be fully subscribed, as the two Gulf state companies and major shareholders are ready to inject cash into what is widely regarded as Thailand’s premium property developer.

He expects the new shares to be a t t r a c t i v e , based on the results of two separate surveys the company recently c o n d u c t e d through independent agencies to establish its share value.

“ The estimates range from Bt1.70 to Bt1.90, which is higher than the current market price of about Bt0.90,” he said.

On a recent visit to Singapore, Cornick said a group there with US$300 million ( Bt9.5 billion) to invest had indicated to Raimon Land that it was keen to form ventures to develop projects in Thailand.

Echoing this sentiment is Ananda Development’s CEO Chanond Ruengkritya, who said its European partner Primeamerica and other funds all indicated they were keen to invest in Thailand as it could provide solid returns with minimal risk.

“ The general view of the global financial sector is that Thailand remains one of the few markets capable of delivering a decent return,” said Cornick. “ This is different from the grimmer picture in many Asian markets that have been reeling from a post-bubble implosion.”

Observers note that Thailand is in a very special position because, as a net food exporter, it is gaining from the run in commodity prices. This gives it a solid buffer at a time when Asian food importers are facing a crisis. Its economy is therefore seen as being able to weather the financial storm much better than those of pure service economies such as Hong Kong and Singapore.

Sheltering Raimon Land’s projects is its strict adherence to build only in the city centre and other prime locations.

Raimon Land marketing chief Henri Young said: “ The River continues to book Bt150 million worth of sales a week. More than half the project, estimated to be worth Bt12 billion, has been sold.”

Real estate is not the flavour for banks these days, said Cornick. But there is also the belief lightning does not strike the same place twice.

The 1997- 1998 stock and property crash was Thailand’s worst. Property only started to recover about six years ago. It is therefore not likely to see a repeat of the kind of housing crash that is now ripping through the US and other markets where property bubbles formed over the past few years.

Crystal Design Centre

KE LAND MAKES A BIG MOVE INTO RETAIL BUSINESS

Crystal Design Centre will highlight furniture and home decorative items

KE Land Group yesterday signed a Bt1-billion contract for construction company EMC to build the Crystal Design Centre as part of the real-estate developer’s expansion into the retail business.

Managing director Kaveepan Eiamsakulrat said the project would be the first one-stop service design centre in the country for brand-name furniture and home decorations.

Strategically located between Lat Phrao and Kaset- NavamIndra roads, the project covers 70 rai of land stretching 370 meters along PraditManutham Road (Ekamai-Ram-Indra expressway) with a total showroom area of 100,000 square metres and parking for 1,500 vehicles.

The centre’s first of two phases will accommodate more than 150 outlets showcasing top quality furniture and decorative items from both international and local suppliers. The accessories will range from lamps and chandeliers, tapestries and tiles to sanitary ware.

The property will also serve as a complete business and resource centre for home decorative design, with a comprehensive library, meeting rooms and a large exhibition hall fully equipped with state-of-the-art facilities.

Its main targets include all premium market groups, focusing on general purpose users, such as residences, office buildings, businesses, retail shops, department stores, hotels, architects, landscape architects, interior designers, electrical and system engineers, contractors, developers, importers, exporters, expatriates and students. The centre has already secured prestigious tenants such as Siam Cement Group – with the SCG Life Style Centre costing more than Bt400 million – and SB Furniture, with its Bt300 million, 10,000-squaremetre SB Design Square offering a complete line of furniture.

When the centre opens next March, it is expected to receive a warm welcome as well as much interest from its target groups, since all products and services are already well-known and popular in the market. The centre will help add to the flavour by giving its offerings “the final touch of perfection”, Kaveepan added.

Luxury Condo Market

ASIAN PROPERTY EYES LUXURY CONDO MARKET

revenue estimate based on demand for detached-house projects

Property firm Asian Property Development is studying the market with a view to expanding its business to luxury condominiums. It wants to develop units with a price range of Bt7 million to Bt10 million, reacting to the strong demand in the market, the company chief executive Anuphong Assavabhokhin said.

The company has also revised its revenue estimate from Bt8 billion to Bt9 billion for this year, given the strong demand for detached-house projects following the government’s tax stimulus package.

Anuphong said demand for city and luxury condominiums still holds growth potential especially for projects near the Central Business District and the mass-transit system.

Consequently, the company is looking for the best location to develop a luxury condominium-project which is suited to the existing customer demand.

“Before we launch our new product, we have to research the customer profile, the kind of product that meets our customer’s demand and how much our customer can pay,” he said.

As of now, the company has five brands that focus on the middlemarket segment for town-house and condominium developments.

The town-house brands include Baan Klang Muang – priced between Bt3 million and Bt4 million per unit – and Baan Klang Krung – average price Bt5 million per unit. The three condominium brands include The Life, in which pricing is between Bt2 million and Bt3 million per unit; The Address, average price Bt5 million; and The City with an average price of Bt5 million per unit.

Anuphong said the company has revised its pre-sales target for the year from Bt15 billion to about Bt17 billion for this year.

“We believe that our pre-sales figures will meet the new target after the first quarter of this year. Our sales growth has been 15 per cent higher than our estimate for detachedhouse and town-house projects in the first quarter,” he said.

The company has projects which garnered pre- sales Bt17.55 billion last year. This figure will reflect in the company’s revenues for this year to 2010.

The company also set aside an investment budget of Bt3 billion to buy land that it will develop next year. This sum is expected to come from the company’s cash flow.

The company will launch 13 residential projects this year. Of these, six will be town-house projects valued at Bt3.87 billion, five will be citycondominium projects worth Bt8.38 billion and two will be detachedhouse projects.

Asian Property Development posted a revenue of Bt7.87 billion and a net profit of Bt898.83 million last year.
SOMLUCK SRIMALEE THE NATION

Fire Sale (Bids Open)

Developer invites bids for assets near mass-transit system

FIRE SALE

Harrison has today opened biding for its assets including undeveloped land, an office building, serviced apartments and apartments – a total of 26 items worth about Bt2.5 billion.

Most of the assets are located close to the mass-transit system in areas such as Sukhumvit, Phahonyothin, Ratchada and Petchburi.

People interested in bidding for the assets can visit the company’s website at www.harrison.co.th

The company also plans to organise the Thailand Investment Property Exhibition this year – part of an effort to promote the resale market, the company’s vice president Kittisak Jampathipphong said. – The Nation

Financial institutions raise cash in Asia Pacific

Buyers’ market for property
Financial institutions with sub-prime problems are looking to raise cash in Asia Pacific, reports Nina Suebsukcharoen
Financial institutions hurt by the credit squeeze in the US and are unable to get fresh funds as refinancing deadlines approach are selling assets across the region, turning it from a sellers’ to a buyers’ market in just six months, says Robert McKeller, the CEO for Asia Pacific of the property firm Savills.

Aside from Australian funds selling their real estate, those in Japan, Hong Kong and Singapore are also doing so, he said in a recent interview in Bangkok. ‘‘Savills has never had so many instructions to sell.’’

Wealthy individuals are benefiting from this trend, some re-entering the market after having obtained handsome profits from selling properties to these funds two to three years earlier.

Savills recently sold the Trade Square building in Hong Kong to a private buyer for HK$1.518 billion, or approximately US$200 million, the biggest deal in the territory this year.

‘‘They (private buyers) are making a big, fat profit and what you are seeing in Japan, Australia and other parts of Asia where some of the American funds that are highly leveraged . . . may be forced to sell and sell at a price that maybe they otherwise would not have wanted to sell at, say, six months or a year ago,’’ said Mr McKeller.

The discount in a forced sale was typically around 20%, he added.

Real estate prices in the US have also come down by more than 10%, and the country is unlikely to work its way out of its problems in six to 12 months as some optimistic commentators have said.

‘‘There was a study done saying that it may take up to 2017 before prices come back to anywhere what they were like in the last year,’’ he said.

There is also a major difference, he says, between previous recessions and the one the US is now entering. ‘‘The previous recessions . . . have been corporate-led recessions that have been quick, short and sharp. You clean out some of the defaulters, the companies that have gone bust, that haven’t performed, fine.

‘‘But this is a consumer-led recession based on the fact that the value of their homes and equity has come down and that . . . won’t won’t go away in six to 12 months.’’

The UK is also looking very difficult with real estate prices down.

Mr McKeller mentioned a recent article in The Times which said that 40,000 jobs would go in the City of London financial markets this year.

Asia cannot escape because the theory about Asia ‘‘decoupling’’ with the US is questionable when one realises that 60% of the region’s exports go to G8 countries.

‘‘Having said that, there is still so much money in Asia — the sovereign wealth funds, the Chinese, the Singaporean, the Taiwanese and Middle Eastern money coming, those who have cash and don’t rely on debt are still looking to buy real estate,’’ said Mr McKeller.

‘‘It’s a very interesting situation because you have a lot people who are being forced to sell because of financing, the cost of debt, they can’t get financing or interest is getting more expensive, and those who are waiting with cash are waiting for prices to fall even further before they buy, so this is a little bit of a stalemate. Hopefully that will soon pass and we will see more transactions in the marketplace.’’

While the outlook is for the region to turn into a buyers’ market, there are pockets that buck the trend, Taipei among them.

The Taiwanese government’s warmer stance toward China, which has led to direct flights being started, has boosted property transactions. Tokyo too is looking robust despite the fact that the Japanese economy has been stagnant for years. Savills is not seeing a major shift in prices there except for sales by heavily leveraged Americans.

‘‘Most of the Japanese real estate is held by Japanese funds and Japanese companies and they don’t trade assets, they keep them for generations.’’

Another pocket is Thailand which has not seen overall prices increase at the pace they did in Hong Kong and Singapore in the past two to three years.

Robert Collins, Savills’ chief in Thailand, said Thai banks did not have significant exposure to the sub-prime crisis and therefore local lending had not had a direct impact and this was one of the reasons prices are not softening here.

‘‘Also, on the back of tourism, the overall residential market is still holding up very well,’’ said Mr Collins. ‘‘Private investment is still very good generally speaking, there is a lack of stock and supply that is investment grade but overall the sentiment still remains quite positive.’’

While real estate developments are still taking place in China, financing is getting difficult there too with the government placing some curbs on lending to cool the market.

‘‘We have been advising some sovereign wealth funds, Middle East buyers about . . . co-investing with Chinese developers who need money, otherwise the developments they are working on will not happen,’’ says Mr McKeller.

Hong Kong residents are among those eagerly waiting for lower prices because they can borrow at 2.5% a year.

Meanwhile, Singapore, where property prices soared over the past few years, is going through very testing times.

Mr McKeller cited research showing that luxury property prices will fall by 18% this year followed by 10% and 15% respectively in the following years.

‘‘In Singapore we advise them that for those blocks with luxury residential, you’re going to have to look at 10, 15, or 20 percent reductions in the sales price if you want to get that stock away. If you want the sales, forget about last year’s prices. It’s a different market and you are going to have to drop your prices.’’

The Sea (Koh Samui)

The Sea Samui, worth Bt550 million. ( Sinthoranee Property)

Wuttichai said the company was also studying a possible residential project in Hua Hin, in order to support strong demand in that market.

“We believe in the next two years, we’ll launch new property projects – residential, retail, hotels and resorts – that will generate more income for our property business,” he said.

The Sea Samui is part of its business expansion this year and has sold 40 per cent of its Bt550-million value. The Sea Samui will have six villas and 15 units of low-rise condominiums starting at Bt7.6 million per unit and covering 66 square meters.

Wuttichai said that up to 70 per cent of its customer target for The Sea Samui was foreign investors wanting a vacation home or a second home on Koh Samui, with the rest coming from the domestic market.

The company expects Bt200 million worth of sales from The Sea Samui this year. Total revenue is expected to be Bt310 million, with Bt50 million of that coming from rental fees for Pavilion Place and Bt60 million from the two villas of La Bay Buri de Pran. Sinthoranee’s total revenue target for this year is double last year’s Bt100 million.