The Thailand property market was extremely buoyant in the past few years. Now that 2019 is just around the corner, it would be good to take a look ahead and try to understand the market trends moving forward. As I have always reiterated, Bangkok is the only city which I can see an active resale and rental market for properties. There have been many property buyers who have been looking at cities like Phuket, Hua Hin, Pattaya and Chaing Mai but the bulk of economic growth is still going to come from central Bangkok. Here are some of the trends going into 2019 which may shape how the property market may pan out.
Price growth may be moderating
Prices have gone up quite a fair bit in the past few years and we have seen some buyer fatigue in the market. Just as a yardstick for comparison, back in 2013, just around THB4.5 million could get you a brand new one-bedroom apartment close to Asok BTS. Today, that same property would cost about 25 per cent more. For that same amount of money, you would be looking at an apartment at On Nut or Huai Khwang perhaps. Bangkok properties have appreciated a great deal and properties around places like Ploenchit or Chidlom are going for about THB250,000 per square meter, in some cases, in excess of THB350,000 per square meter. To put that into context, that is more than USD$1,000 per square foot. While prices have been going up and demand has been strong for the last three to four years, demand has slowed at the tail end of 2018. It was pretty common in late 2017 and early 2018 to see new projects in locations like Sathorn, Asok, Thong Lor or Ekkamai being sold out in a matter of months, or in some cases, weeks. However, late 2018 proved a more challenging period for Bangkok property sales as buyers tended to be more discerning and wanted to compare and know more about certain projects before committing to purchase. The days of developers organising hotel launches in Hong Kong, Singapore, Taiwan and many parts of China may be coming to an end as the herd mentality of rushing in to buy before the price appreciates further does not seem to hold in the current market climate.
Headwinds in the global economy may affect the Bangkok property market
End 2018 proved to be a very bad period for most stock markets around the world. Markets around the world have corrected significantly from record highs and many have entered bear market territory. The UK will formally exit the European Union in March 2019, interest rates will rise as central banks across the world scale down on accommodative monetary policies and there is the impending impact of the trade war between the two largest economies. All these will have a negative impact on investor sentiment and consequently on assets like properties.
There will be more developments in the city fringes
As the city centre expands and transportation improves, more people will want to move into the city fringes. One of the stark differences I have always highlighted to investors of Bangkok properties is that Bangkok has an extensive rail network and work is underway to further expand and improve this rail network. A highly efficient rail network can help to bring more people from various parts of the city to the city centre. As Bangkok’s rail network expands, it will get easier for people from various parts of the city to move around Bangkok. In my previous article about the up and coming property investment locations in Bangkok, I focused heavily on the expanding rail network and the highlighted a few locations. These locations were either future intersections of multiple train lines or locations which will get rail access to bring people into the city centre. City fringe areas like On Nut and Ari will see developments and buyer demand Bangkok’s city centre expands.
Developments in central Bangkok will become attractive once again
As prices in the city fringes increase, prices in central Bangkok will start to look attractive once again. Developments in Phayathai, Ari or Ekkamai are starting to be sold at prices that are just slightly lower than properties in Sathorn, Asok, Ploenchit or Chidlom. There will be renewed buying interest in prime Bangkok properties. For some time developers have been marketing city fringe locations as more affordable options but in today’s market, the price difference may not be significant and in recent months there has been renewed buying interest in Sathorn, Asok, Ploenchit and Chidlom. I would expect this trend to continue into 2019.
Demand from local buyers
The demand from local buyers should dip slightly. Demand from local buyers for many projects across Bangkok was very strong and in many cases, developers did not actively market their offerings to the foreign market. In fact, the top Thai developers, in terms of market capitalisation, do not have a strong global presence. However, due to the increase in the level of risk taking in the Bangkok property market and the consequent levels of household debt, the Bank of Thailand has stepped in to place loan curbs on local buyers. There is now a requirement for buyers of homes worth more than 10 million baht and of second homes to make down payments of at least 20 per cent and the maximum loan-to-value (LTV) ratio will be 80 per cent.
Bangkok as a safe haven
In the last 5 years, the US Dollar has appreciated about 8 per cent against the Singapore Dollar, 10 per cent against the Vietnamese Dong, 20 per cent against the Euro, 13 per cent against the Chinese Yuan, 26 per cent against the Malaysian Ringgit, 30 per cent against the British Pound. In that same period of time, the US Dollar has depreciated against the Thai Baht by about 1.5 per cent. The Thai Baht has been exceptionally strong against most regional currencies and on the back of strong, broad-based economic growth, is slated to be one of the stronger currencies in the next few years. For some foreign investors, purchasing a property is also a hedge against inflation and a play on fluctuating exchange rates. Malaysian and British buyers would have done well holding a Bangkok property for the last five years. Not only would they have seen their Bangkok property values rise, but they would also pocket the exchange rate gains when they sold the property and exchanged the Thai Baht received from the sale back to their home currency.
Demand from Chinese buyers
As the Chinese government tightens its restrictions on the outflows of monies from China, the Chinese will always look for a location to invest their monies. Being Chinese, their appetite for property is insatiable and Bangkok is one of their favoured locations. There are many Chinese companies that have set up their offices in Bangkok and the Chinese are major investors in Bangkok’s infrastructure development to become the transportation hub of ASEAN. The Bang Sue Grand Station is a key component of China’s One Belt One Road plan and there are many Chinese firms involved in the overall development of the area. Naturally, the Chinese who have been stationed in Bangkok for an extended period of time may want to purchase a property to settle down in Bangkok. We have seen very strong demand from the Chinese for Bangkok properties and expect to see the same strong demand continue into 2019.
Bangkok is developing into a transportation hub
The expansion of the Bangkok rail network that will integrate with the Bangsue Grand Station when it is eventually open will be a major positive influence on Bangkok property prices. The Bangsue Grand Station is already in its final stages of construction and is scheduled to be completed soon with testing of the signal systems concluded by mid-2020 and the station being operational in January 2021. Bangkok is strategically located right in the centre of ASEAN and crucially can provide a gateway for China to the rest of ASEAN. There will be three routes leading to Kunming, China from the Bangsue Grand Station and eventually stretch out to the rest of ASEAN as well. Bangkok is strategically placing itself as a centre for commerce and correspondingly, property prices should rise in tandem with economic growth.
Bangkok is a very viable retirement destination
Bangkok is a safe city with a rule of law. The standard of medical care is also very high and ever increasing. There are many buyers who purchase properties in Bangkok with the intention of retiring and Bangkok is proving an affordable alternative to people from Hong Kong, Singapore, the US and The UK to name a few.
The Thai government is supporting innovation and trade
In January 2018, the Thai government came up with the SMART Visa program to attract highly skilled manpower as well as investments into a few targeted industries. The Thai government is also providing a lot of incentives in its Special Economic Zones and Eastern Economic Corridor. Both these schemes provide investment opportunities to foreign businesses in Thailand. The SEX is to take advantage of Thailand’s growing border trade with its neighbouring countries and the EEC encourages investment into next-generation industries that use innovation and advanced technology. Couple this with a skilled workforce and an increasingly educated population, the chances are that Thailand’s economy’s best days are ahead.
A peaceful election
The general election on the 24th of February will be closely watched by not only political observers but investors and would be investors of Thailand. In the last four years of military rule, Thailand has seen a growing economy, a stronger Thai Baht and a steady improvement of living quality and standard. As the Thais have gotten wealthier, Thailand has gotten more expensive. In fact, Bangkok has joined the list of the 100 most expensive cities for expatriate workers for the first time in its history. The Thai people have experienced the benefits of the stable political rule and seen how their country has progressed because of this stability. The elections, if concluded peacefully, should be a precursor for further political stability and an extended period of economic growth in Thailand.
My take is that barring any major shocks to the global economy, the Bangkok property market should still have some legs to run. However, the period when buyers made large profits just by selling options is over. In the past, buyers could place a down payment of about 20 to 30 per cent for an uncompleted unit, not have to pay anything till the unit is completed and sell the option off at a later date at perhaps 20 to 30 per cent higher than what they bought the unit for. This essentially doubled their investment. Moving forward, prices are not going to rise at the same pace as before. Buyers of Bangkok properties should take a more conservative approach and understand the property market and purchase properties with a longer investment horizon. Being defensive in an increasingly uncertain global economy is also recommended. The odds for a global recession are high especially with the world’s two largest economies engaging in a trade war and with the Eurozone in turmoil due to Brexit. My advice to property investors, look for properties close to the city centre and purchase properties with a longer investment plan and not think that you can “flip” the property for a quick profit. Investors should do their homework, understand about the various taxes and legal matters before committing to a property in Bangkok.
p.s. I run a property company in Bangkok as well as run a property portal, Invest Bangkok Property which also has a YouTube Channel. My views and reviews are my personal independent views and are a result of my dealings with various developers and the various stakeholders in the Bangkok property market. I blog about the Bangkok and Singapore property market in my own personal capacity.
My other articles about Thailand property