Why luxury real estate in Thailand remains a solid investment

But only for buyers willing to play the long game

Thailand has for years represented something of a paradox for economists and investors. While traditionally more stable than some of its regional neighbours, the nation has experienced more than its share of political and social upheaval. Yet despite 21 different constitutions and 19 attempted coups — a dozen of which were successful — in less than a century, the country’s markets have proved remarkably resilient.

The economy rebounded after the Thai baht all but cratered in the Asian Financial Crisis of 1997 and surged again in 2012 in the wake of devastating floods that caused more than USD45 billion in damage and left more than 800 dead. Through it all, property values remained relatively consistent or increased, encouraging a building boom that has left Bangkok’s CBD littered with glitzy high-rises. So impressive was the country’s ability to shrug off setbacks throughout the 2000s that it earned the nickname Teflon Thailand.

Recent political upheaval has again raised questions as to just how durable that non-stick veneer might be.

“It is widely accepted that the Teflon days have passed,” says Risinee Sarikaputra, research and consultancy director of Knight Frank Thailand. “We are now facing new challenges in our overall economy such as our continually declining exports, which we depend greatly on, and a global economy no longer functions the way it used to.”

Related: Thai developers chasing overseas investors 

The Erawan Shrine bombing last year, a spate of smaller attacks this year, and the smouldering insurgency in the south have cast a shadow over the tourism industry, while the presence of a military government and other dark clouds on the horizon have left some foreign investors skittish. A decade ago the Thai economy was one of the fastest-growing in the world. Growth continues today but at a rate well below that of fellow ASEAN nations such as Indonesia, Philippines and Malaysia.

Sarikaputra suggests that short-term investment might not be the wisest decision in light of the slowing growth. Nevertheless, she retains an optimistic outlook.

“We do feel that most affected by the current economic situation would be speculative buyers who purchased units for the purpose of quick resell,” she says. “Thailand remains a positive long-term investment option. Properties at the top end of the market in Bangkok’s CBD and central districts have performed consistently well in recent years.”

It’s a sentiment that many have echoed and the general consensus seems to be the luxury sector of the Bangkok property market will remain a solid investment for the foreseeable future. “Experience shows the market is highly resilient,” says Bunthoon Damrongrak, head of Residential Project Sales at JLL Thailand. “Demand for condominiums in Bangkok has remained very strong. JLL has seen increased interest from foreign buyers who are looking for condominiums in Bangkok, particularly from Hong Kong, Singapore and China.”

According to the Bank of Thailand, the Bangkok housing index rose by 4.9 percent last year and the condo index rose by a full 14 percent. To meet demand the city continues to build at a brisk rate. Roughly 40,000 additional upmarket condo units will be completed by the end of 2016, bringing the total stock up to 446,000, or almost double that of 2012, according to JLL’s Thailand Property Intelligence Centre.

Bangkok’s property market has always been dominated by domestic investment. According to a study by Knight Frank, Thai buyers represent 76 percent of the total market. While some are purchasing condos strictly as a future investment, many are doing so with the intention of living in them. Over the last couple of decades, affluent young Thais have become less inclined to live with their parents into adulthood. This rising demand for high-end, urban residences in desirable neighbourhoods around Sukhumvit Road and Sathorn has served as the backbone for the local luxury market.

“Any market needs to be really underpinned by domestic demand,” says James Pitchon of CBRE. “If it relies on foreign demand, that can be fickle and fluctuate depending on currency changes or measures to restrict foreign purchasing.

While the luxury market in downtown Bangkok is still roaring along, the situation in other parts of the country, especially those without the benefit of a beachfront location, is looking less rosy.

“Provincial real estate, even in supposedly prime markets such as Hua Hin, has been very slow,” says Pitchon.

Though much of this has to do with the country’s generally sluggish economy, a number of diverse other factors have come into play. Pitchon points out that the weak rouble in Russia has taken its toll on locales such as Hua Hin and Pattaya. Economic ructions at home have left Russian high rollers hoarding their cash rather than splashing out on pool villas.

Phuket has fared somewhat better, but the volume of sales is not terribly high and demand for ultra-luxe villas costing THB100 million or more — previously one of the most sought-after categories — has been waning, according to a 2015 report by Knight Frank.

An ongoing government crackdown on corruption on the holiday island may also work in the island’s favour. Since 2014, military officials arrested more than a hundred unlicensed taxi and tuk-tuk drivers and wiped out illegal commerce on the public beaches. Vendors selling tacky trinkets have been replaced instead by armed guards. Though it is hard to say at this stage if the new regulations will directly impact the value of beachfront real estate in the long run, Phuket’s coveted coastline certainly feels more ordered. The island’s infrastructure is still flawed, but a long-delayed, promised expansion of the international airport towards the tail end of 2016 may help bolster foreign interest and investment.

Related: Phuket Town is easily one of Thailand’s most endearing enclaves

On the whole it seems that the country is no longer impervious to economic blows, but that has not deterred investors at the upper end of the market. “The Thai property market is in a special position where the poor economic climate is offset with land scarcity,” says Sarikaputra. “That’s why the property market has outperformed the overall economy in the past few years.”

Analysts seem confident that Thailand will roll with the changes, very much as it has previously done. “The property market is driven much more by the rules of supply and demand than Thailand’s constantly changing political situation,” says Pitchon.

Fortunately for high-net-worth investors, the market’s strong domestic base ensures that there will be a reasonable demand for well-constructed residential units for many years to come. The country’s natural beauty and status as one of the world’s top tourist destinations give its property market a staying power that transcends political fluctuations.

Source: http://www.property-report.com/why-luxury-real-estate-in-thailand-remains-a-solid-investment/