Values of prime land plots in the central Phloen Chit area have risen above 2008’s record levels to a new peak of 1.5 million baht per square wah. Sansiri Public Company Limited acquired 2-rai plot adjacent to the American ambassador’s residence on Wireless Road. The total transaction value was 1.2 billion Baht and Raimon Land have apparently sold 2-3-42 Rai out of a total of approximately 9 Rai on their Ploenchit site.

Thai Commercial Investment Fund (TCIF) plans to launch a freehold property fund investing in the Nation Tower Building which consists of 3 office buildings and 1 car park building in Q2 2010. The subscription period for the IPO was from 15 – 23 March 2010. The fund has a market capitalization at IPO of approximately THB 1.96 billion with par value of 10 baht per unit. The fund will offer a minimum guarantee return of 4-5% for three years.

In the first quarter of 2010, the Thai economy continued to improve with many economic indicators showing a V shaped recovery. The National Economic and Social Development Board expected GDP in this quarter will increase around 6% Y-o-Y. Thailand’s Equity markets have gained about 7% from the beginning of the year (S.E.T. Index increased from 735 to 788).

Outlook

Investor sentiment in the first quarter improved, contributed by developers’ new project launches and lending competition among financial institutions. Condominium sales in the mid- to high-end segments continued to grow especially in downtown areas or in areas near mass transit routes. We also saw development companies LPN, Sansiri and Noble sell out over 3,300 units in four condominium projects in 2 days which highlights the demand for condominium units in Bangkok.

Foreign investor interest in the Thai market is limited due to the political instability.

In Q1 2010, the government has agreed to extend some of the incentives measures for two months to stimulate the property development sector, the full package of incentives was due to end on March 28. The decision was made because approximately 10,000 people who had bought their homes might not be able to transfer their property right before the expiry date of the tax incentive measures.

This is an extract from Thailand Investment MarketView Q1 2010, click to download the full Thailand property investment report.

There was an increase in the number of building transactions in Q4 2009. The most notable transactions were TPARK LOGISTICS PROPERTY FUND (TLOGIS) and CIMB Thai Bank. TPARK LOGISTICS PROPERTY FUND (TLOGIS) bought 15 warehouses with usable area of 70,731 square meters from Ticon industrial PLC, for THB 1.53 billion. According to a company report to the Stock Exchange of Thailand, CIMB Thai Bank sold its office building on North Sathorn Road for THB 1 billion to an unknown buyer. TCC Land bought the Peugeot office building on Surawong Road for THB 800 million according to the Prachachart Turakij newspaper. Pacific Star International (Thailand) announced that had sold 8 penthouses at The Sathorn Gardens condominium development covering 3,700 square metres to a single investor for around THB 100 million.

Q4 saw two major land transactions; L.P.N. Development Public Company Limited bought land in Bang-Krapi, Bangkok (7-1-70.1 rai or 2,970 sq.m.) for approximately 222.75 million Baht. Ek-Chai Distribution System Co., Ltd. (Tesco Lotus) purchased land in Kao-Yai Market Village project (26-3-14 rai or 10,714 sq.m.) from Siam Future Development PLC. 198 million Baht (equal to about THB 18,480 per wah).

Bangkok is now seeing upward trends in the property market; this is supported by a more positive outlook in the local economy (GDP turned positive to ~ 3.5% in Q4) an improvement of 63% in Thailand’s equity market from Q1 2009. The SET index increased from 450 in Q1 to 735 in this quarter.

Property Funds
During Q4 2009, property funds offered investors annualized yield of around 4.90% to 11.94%. TPARK Logistics Property Fund (TLOGIS) was listed on the Stock Exchange of Thailand during the quarter. The fund, worth 1.53 billion baht, is a specific property fund with an unspecified project life and par value of 10 baht per unit. It invested in freehold 15 warehouses with a usable area of 70,731 square meters, located on TICON Logistics Park Wangnoi (48-3-32 rai), Ayudhya Province and TICON Logistics Park Bangna, Chacheongsao Province (41-1-80 rai). The fund will offer a minimum guaranteed return of 7% for 7 years.

This is an extract from Thailand Investment MarketView Q4 2009, To download the full Thailand property investment report.

Asian real estate investment markets recovered strongly in the second half of 2009 after enduring a difficult start to the year. Investment turnover bottomed out in the first quarter but improved thereafter as investor confidence returned, underpinned by low financing costs, the recapitalisation of private and public real estate funds/investors and the stabilization of prices across key markets. Direct real estate investment in the region jumped 56% y-o-y in the second half of 2009 to an estimated US$25 billion. The rising value of investment transactions in the second, third and fourth quarters of 2009, indicating the emergence of a consistent trend as opposed to a one-off improvement. Despite the relatively high turnover in the second half, the overall transaction volume of US$38 billion for 2009 was still 22% lower than that recorded in the previous year.

The period saw almost every Asian market record an increase in investment activity on a half-yearly basis. Renewed activity by domestic investors ensured Hong Kong was the most active market, accounting for US$7.3 billion or 29% of the regional total in the second half. China, Japan and Singapore also witnessed a strong rebound in investment activity, accounting for 22%, 17% and 10% of the total volume respectively.

Easier access to local lending facilities and leverage provided domestic real estate funds and investors with a competitive edge, allowing them to dominate the Asian investment market in the second half of 2009. Domestic and intraregional investors accounted for 83% and 15% of total volume respectively during the review period. The amount of interregional cross border investment activity accounted for just 2% of the total investment volume, down from the 4.5% recorded in the first six-months of 2009 and significantly behind the usual 16% to 30% of total investment activity recorded in recent years.

Visit CBRE Research to download full report or contact CBRE Investment for more information.

There was a very worrying article in the Bangkok Post on February 3^rd suggesting that Ford would shift new investment to other countries unless the Thai government resolved issues at Map Ta Phut.

Initially the problems were limited to the Map Ta Phut Industrial Estate where the Administrative Court issued an injunction to suspend 76 industrial projects valued at 400 billion baht because environmentalists had argued that the approved permits violated the constitution.

This mainly affected the Petrochemical sector.

The article suggested that Ford is scheduled to sign a contract with Hemeraj Land and Development for land on which to build a 20 billion baht car plant but if talks including environmental issues are not finalized by the middle of this month then the company may change its investment location.  The location is in Hemeraj’s Eastern Seaboard Estates not Map Ta Phut.

The fall out from Map Ta Phut has now spread beyond the petrochemical sector.

Attracting car manufacturers to Thailand has been a great success story but past this success is now being threatened by uncertainty over the permit process.

There is no argument about the benefit of good environmental controls.  No country wants to be the base of dirty and dangerous industries that are not acceptable elsewhere.

What is needed is a clear and predictable permit process where manufacturers know if they follow the rules they will get the necessary permits.  Certainty is required to continue to attract investors in manufacturing plant not a set of moving goal posts.

Driving around Bangkok or viewing the city using Google Earth reveals a large number of empty land plots that one would not see in other cities.

Traditionally Thais have invested in land as a long term asset even willing to hold the land for several generations without realizing any return apart from the capital gain.

Unlike other countries there is almost no holding cost for vacant land.  Local property taxes are minimal and there is no inheritance tax.

Currently there is a tax on rental income which is set at 12.5%.  Leases in Thailand are often split between rent, services and fixtures to reduce the landlord’s liability for household tax.

The Democrat administration seems intent on reviewing the current taxes on property.  The Finance Minister Korn Chatavanij suggested that a draft would be proposed for consideration by the cabinet in the first quarter.

We understand that the new proposed new tax would impose an annual charge on land assets and property nationwide with local administrations given flexibility in setting rates.

Rates would very depending on use.  Owners of vacant unutilized land would possibly face a sliding scale with taxes increasing each year the land remains unutilized.

Imposing a tax which creates a holding tax for land would be a radical move.

We think the intended results are to broaden the tax base and to encourage more efficient land use.

Taxes should be equitable, economic and efficient they should be fairly spread over the population, achieve economic goals and be easy and cost effective to collect and enforce.  Property has always been a popular asset to tax by governments because it is visible and in countries like Thailand with widespread land registration there are good records.

The devil will be in the detail and effectiveness of enforcement.

A well written and enforced act could increase revenue for local authorities on both income producing buildings, owner occupied buildings and vacant property and land.

If there is a high tax burden on unutilized land then this may pressure some landowners to sell as they might be asset rich but cash poor.

The unintended consequence may be that there is a rush to develop land or sell to developers this might create oversupply.

If the law does come into effect then I am also sure we will see some landowners trying to minimize their tax liability perhaps by claiming the land is being used for agricultural purposes even though it is in downtown Bangkok.

The new land tax law has the potential to change the dynamics of the Thai property market but we shall have to wait for the exact details of the contents before we can forecast the possible impact.

Q3 saw two major land transactions, both by Pacific Assets Public Co. Ltd and with a total value of over THB 1.2 billion. Pacific Assets bought 1,766 square wah of land in the Sathorn area from the Maternity & Child Welfare Foundation for THB 750 million. They also purchased 10 parcels of land totaling 4,851 square wah on Rama Indra Road.

Property firms including Preuksa Real Estate, Land and Houses, Sansiri, LPN Development, Noble Development and Asian Property Development have increased their investment budgets for land acquisition between now and the end of the year. They intend to develop residential projects next year and in 2011, believing that the economic climate will be more positive in 2010.

Real estate investment activity has increased in Q3 2009. The Thai stock market saw a 60% improvement from Q1, rising from 450 to 720 in quarter three. The announcement of the Governments’ second economic stimulus package worth THB 1.43 trillion was a contributing factor in the improved confidence in the economy.

Outlook

There has been continued demand for development sites for condominiums both in the Central Business District and along the new mass transit routes. There has been no evidence of falling prices for land in the downtown areas.

Many larger, well capitalized property development firms have revised their investment strategies on the back of better than expected sales results. Property firms including Preuksa Real Estate, Land & Houses, Sansiri, LPN Development, Noble Development and Asian Property Development have increased their investment budgets to buy land between now and the end of the year for the purpose of developing residential projects next year and in 2011, believing the economy will strengthen in 2010.

There remains very limited foreign interest in the Thai market, as most foreign investors can still find better deals for distressed assets and more liquid markets elsewhere.

Thailand Property Investment – Full Report

Transactions
There were no major building transactions in Q2 2009 however we saw developers continue to acquire development sites for condominium development. Activity was mainly from the stronger listed developers buying sites in some cases, from other developers who had cut back on expansion plans. The land sector did fare better however with the pick of the deals coming from Major Development Plc., a publicly listed condominium developer bought development sites on Narathiwas and Payathai roads with worth more than THB 500 million for the developed residential buildings. These projects will be launched in this year.

The lack of whole building sales was due more to the absence of vendors rather than the lack of buyers. Low deposit rates are encouraging both large and small investors to seek income producing property investments. The Bank of Thailand’s Monetary Policy Committee reduced the key interest rate (One day repurchase to 1.25% and most bank deposit rates were below 1%). The lack of transactions means that it is not possible to analyse changes in yield but based on conversations with purchasers and dividend yields of public listed property funds there appears to have been little change over the last six months.

Property Funds
The unit prices of Thai Property Funds generally increased in the Q2 2009 reducing yields to 6.2 – 12.3%. There were no new listings of new property funds in Q2 2009 or rights issues for existing funds. The Securities and Exchange Commission is expected to announce that a single shareholder can own up to 50% of the units in a public listed fund, an increase from the previous 33.3%.This increase will only be for a period of five years after which the single shareholder must reduce the units held to 33%.

Dividend Yield
The major news in Q 2 2009 is that Central Pattana Public Co., Ltd. plans to increase the fund size of CPNRF, the country’s largest real estate investment trust fund, by injecting office buildings and a shopping complex to their portfolio. Initially, they would like to raise significant funds by investing in the office buildings located at Central World Plaza and Central Plaza Pinklao (Office A & B), and shopping malls at Central Pinklao and Central Plaza Chiang Mai. It looks like only the Central Pinklao transaction will go ahead possibly by the end of 2009.

Outlook
The recent cuts in the key policy rate (which now stands at just 1.25%) means that investors will also continue to search for alternative investments (rather than the money markets), including investment in property funds and all types of property.

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We continue to believe that we will not see the type of distressed assets seen after the 1997 financial crisis coming onto the market. We have not seen any decline in Central Business District land values.

The recent cuts in the key policy rate (which now stands at just 1.25%), means that investors will seek alternatives to deposits and other fixed income investments which will benefit property.

Property investment has become a global market with a rapidly increasing number of cross-border transactions.

“Property markets used to be dominated by local investors but this is no longer the case.  In many ways, property investment has become similar to the equity markets with investors looking for worldwide opportunities,” said Ms. Kulwadee Sawangsri, Director of Investment Properties at CB Richard Ellis Thailand.

Many Asian property markets have performed strongly over the last two years and international investors now see the possibility of Thailand outperforming regional competitors.

Last year, office rents in Singapore doubled, whereas there was almost no growth in office rents in Bangkok.  International investors are focusing more on Thailand because they feel that there is more room for growth.

Investors’ confidence in Thailand has improved because of some of the early policy measures of the new democratically elected government such as the removal of inbound capital controls and tax incentives to help the property sector.  An escrow law is also being put in place which will facilitate large property transactions.

The Thai market is challenging because there are restrictions on foreign ownership and a scarcity of income-producing buildings available for sale and so most international investors have focused on new development rather than the acquisition of existing assets.

High-end Bangkok condominiums, hotels and residential resort developments have been the most active sectors.

Foreign investors have in some cases formed strategic joint ventures on multiple projects with a Thai partner.  For example, Singapore-based Capital Land is in a joint venture with Charoen Sirivadhanabhakdi’s TCC Group and is just completing the Athenee Residence, a luxury condominium on Wireless Road.

IFA Hotels and Resorts, listed on the Kuwait Stock Exchange, acquired a stake in Raimon Land, a Thai publicly listed luxury property developer.

Istithmar, a private equity firm based in Dubai, has agreed to invest in the W Hotel which is currently under construction in Golden Land’s Sathorn Square project.

The resort market was also very active last year, with Hong Kong’s PCPD buying the Thai Muang golf course in Phang Nga and Destination Properties buying two hotels in Phuket.

CB Richard Ellis believes that, this year, investors will be focusing on site acquisition for condominiums, offices and hotels in Central Bangkok.  “The mass transit routes have firmly anchored Bangkok’s Central Business District.  There is now a scarcity of development sites in the Central Business District and strong competition from developers when freehold sites come on to the market,” added Ms. Kulwadee.

CB Richard Ellis has recently been appointed as sole agent to sell a prime site on Sathorn Road and already strong interest has been shown by potential purchasers.

Meanwhile, in Bangkok’s suburban locations, developers continue to acquire sites for mid-market condominium developments.

Competition will also remain strong for any grade A building that comes onto the market.  This is a rare occurrence in Bangkok, where only three grade A office buildings have been sold in Bangkok in ten years, and is because there are relatively few vendors.

Thailand’s resort markets continue to attract investors with the focus being on development because few existing properties are available for sale.

There are large amounts of both Thai and foreign capital looking for real estate investments in Thailand.  The limited number of buildings for sale means that many investors will continue to take the development route, with residential properties (for sale) both in Bangkok and resort locations being the most popular.

According to the “REITs Around Asia 1H 2007” report prepared by CBRE Research Asia, Japan remains the largest REIT market in Asia, with market capitalisation having attained the level of US$49.1 billion as of the first half of 2007, and acquisition activities by J-REITs remaining at buoyant levels. While Singapore and Hong Kong are striving to be regional REIT centres, the Thailand and Malaysia REIT markets saw significant growth through the listing of domestic REITs. South Korea was the only market to record a reduction in market capitalisation as two K-REITs reached maturity during the review period. 

In Thailand, two property funds were listed on the Stock Exchange of Thailand in the first half of 2007, bringing the total to 14 with a market capitalisation of about THB 46.4 billion. The JC Property Fund (JCP) was listed in January, with the Government Savings Bank Private Fund holding over 99% of units so that there has been no activity in the public market. JCP’s THB 620 million portfolio consists of space in the JC Kevin Office Tower A building and a car park, both held under a 30-year lease with an option to extend for five years. Gold Property Fund (GOLDPF) was listed in May. It has invested in the 30-year land and building leasehold Mayfair Marriot Executive Apartment serviced apartment complex, and has an option to renew for another 30 years. The 26-storey building is owned by a subsidiary of Golden Land Property Development. GOLDPF has guaranteed rental returns from the property for five years and will pay dividends of not less than 90% of the annual net profit. The dividend yield is expected to be about 8%.

Though only one new REIT was listed in Japan during the first half, large foreign investors such as CapitaLand, GE Real Estate and Morgan Stanley remained active in the market, purchasing stakes in J-REITs and in some cases becoming the largest shareholders. In Singapore, three new REITs, including CapitaRetail China Trust, have been listed since December 2006. The number of S-REITs has increased steadily, rising from from seven in 2005 to 16 in the first half of 2007. The market continued to diversify, with various S-REITs now focused on assets including serviced apartments, healthcare facilities and hotels. Singapore’s emergence as a regional hub for cross-border REITs, supported by the imminent relaxation of government regulations on REITs, could see the number of S-REITs reach 30 in 2008. In its recently released report, CBRE Research Asia noted that in Hong Kong, H-REIT’s stable income growth made them less attractive to investors during the bull market of the first half year. Despite the underperformance in price, H-REITs listed longer than a year have reported better income statements as a result of gains in property revaluation and growth in rental income.

In Taiwan, investors continued to show a marked preference for TREITs backed by well-known local financial/insurance groups such as Fubon and Cathay. One new REIT was listed during the period under review, and several well-known conglomerates are reportedly considering packaging their properties into REITs. In Thailand, the downward interest rate trend is likely to increase the attractiveness of REITs. Most REITs are trading at a discount of 2%-34% to their respective NAVs. Major Lifestyle Property Fund and Property Perfect are expected to list in the second half. Four new M-REITs were listed in Malaysia and existing and new M-REITs were active in the acquisition market. Quill Capita Trust, Al-Hadharah Boustead REIT and Amanahraya REIT traded above their IPO price on their debuts.

In South Korea, the government passed the latest amendments to the K-REITs Act in June 2007 and the measures will take effect in October. The revisions will further simplify and ease regulations governing the establishment and management of K-REITs.

Following the strong first half performance, the US sub-prime lending crisis sent tremors through global financial markets and led to stock market volatility across the globe during July and August 2007. However, as the generally robust fundamentals of Asian property markets have been as yet unaffected by turbulence in the financial markets, in its recently released report CBRE Research Asia stated that the recent price corrections have made Asian REIT valuations more attractive to bargain-hunting investors and those seeking long term periodic income. Also, there has been no sign of a slow down in portfolio building via acquisitions by major REIT sponsors, who are taking a long-term view in developing REITs in the region.

Looking forward, competition in the Asian REIT market is likely to grow more intense as additional cross-border REITs are listed, particularly in Hong Kong and Singapore. In Singapore, proposed amendments to S-REIT regulations currently under consideration include improving disclosure on short-term yield enhancing arrangements and their impact, allowing REITs to pay dividends in excess of current income, removing the aggregation rule for transactions with the same interested party and prohibiting discounts to institutional investors during IPOs. In its recently released report, CBRE Research Asia also noted that in the face of competition from Singapore as the regional REIT centre, the Hong Kong Securities and Futures Commission recently collected market opinions on revitalising the REIT market, which may be taken into account in regulatory revision. While further loosening in rules may provide some stimulation to the market, the implementation of a longer term growth strategy remains the crucial concern of REIT investors as they expect sustained portfolio development via acquisitions, rental enhancements and geographical diversification in their investments.