Despite the ongoing political instability prices for condominiums in Bangkok have not dropped – and in some cases they’ve been rising as demand from local buyers continues to drive the sector.

Research from CB Richard Ellis (Thailand) showed the majority of condominium sales during the first quarter of 2010 came from Thai nationals – not only as end users but also as buy-to-rent investors.

The Market Focus report noted that property developers are almost all focusing on new launches of one bedroom units. The amount of unsold developer inventory in recently completed projects and projects to be completed in 2010, together with resales prior to completion, will slow the launch of new real estate projects for 2- and 3-bedroom units downtown.

“Developers are going to focus on smaller units to keep the total price down, but there appears to be having been a move away from studios to one-bedroom units,” the report concluded. “There was a significant increase in numbers of new projects launched in peripheral areas, and in many cases there were strong sales.”

The report found the average achieved resale price of units in completed upscale and above units increased by 18.4 per cent year-on-year. The majority of new supply in Q1 consisted of one-bedroom units, followed by two-bedroom types.

Other key findings of the report were:

• During Q1 2010, the total supply of downtown Bangkok condominiums reached 67,176 units (up 3.2 per cent quarter-on-quarter and 15.8 per cent year-on-year) an increase of 2,109 units (six projects).
• During Q1 2010, the average asking price for an off-plan condominium unit (high-end and above) in downtown Bangkok was THB156,460 per sqm (US$4,835), an increase of 19.2 per cent quarter-on-quarter or 3 per cent year-on-year.
• A total of 1,759 units in four projects in the downtown area were launched during Q1 2010, with the majority of new units targeting the high-end market.
• The average achieved re-sale price of units in completed upscale and above buildings increased by 18.4 per cent year-on-year to THB121,805 (US$3,760) per sqm. Central Lumpini was the area with the highest average achieved resales price level (THB143,338 per sqm).

The majority of condominium sales have come from Thai nationals not just looking to be end users but also to be buy to rent investors. The growing numbers of Thai buyers reflects the improvement in local consumer confidence.

The biggest surprise for many people this quarter is that generally prices did not fall in fact it was in many cases the opposite where prices in some recently completed projects actually rose. Developers are almost all focusing on new launches of one bedroom units. The amount of unsold developer inventory in recently completed projects and projects to be completed in 2010 together with resales prior to completion will slow the launch of new projects for 2 and 3 bedroom units downtown. Developers are going to focus on smaller units to keep the total price down but there appears to be having been a move away from studios to one bedroom units.

There was a significant increase in numbers of new projects launched in peripheral areas and in many cases there were strong sales.

The average achieved re-sale price of units in completed upscale and above units increased by 18.4% Y-O-Y.

The majority of new supply in Q1 consisted of 1 bedroom units followed by two bedroom types.

In Q1 2010, the overall occupancy rate decreased by 0.2% Q-o-Q to 74 % in this quarter.

The number of newly launched units in peripheral areas was 4,814 units.

Outlook

In this quarter, the focus of developers was on small units both in the central area and peripheral areas. Three developers – LPN, Sansiri and Noble reported that they had sold all the units at launch. Sales of larger units by developers in both projects that had been completed and were still under construction were slow. Land prices continue to increase especially in the Central Business District. We will see in the second and third quarters if developers can raise prices and still sell in high volumes.

This is an extract from Bangkok Residential Sales MarketView Q1 2010, click to download the full report

LPN acquired a 1,704 square wah site for 255,600,000 baht equating to 150,000 baht per square wah according to a report made to the Stock Exchange of Thailand on January 28, 2010.

LPN will develop a 900 unit, 28 storey condominium tower on the site.  LPN estimate that the total project value will be 1.55 billion baht with construction starting in March 2010 and expected completion in July 2011.  The developer expects a gross profit margin of 30%.

This is another example of developers focusing on small units in the downtown area.

LPN is one of the only developers to report their site acquisition prices and so we have added it to the list of their previous transactions.

The company will develop 4 low-rise 8 storey buildings with approximately 790 units for sale.

The expected total project value is 650 million so the units will be priced at less than one million baht per unit.

LPN expect that they can complete the project within 10 months with construction commencing in January 2010.

The expected gross margin is 27%.

We have added this transaction to our table of LPN’s recent land transactions which we have set out below.

2010 has begun with a more positive market sentiment. The improving economic outlook globally and perception of Thailand’s political situation, together with low market prices compared to other mature property markets, have had a positive impact on consumer confidence in property investment in Thailand.

Following the economic crisis, the supply of new office, retail and industrial space is at an all-time low. These sectors are expected to improve this year, in line with the global and local economic recovery.

Thailand’s residential market in 2009 was primarily driven by local demand. This year, CBRE believes that local demand will continue to be strong and that individual foreign property investors will start to return to the market. Thai condominium prices remain attractive compared to other cities in the region, such as Shanghai, Hong Kong and Singapore where prices have risen sharply in the last six months.

Average Price of Luxury Residential Units in the Region (THB per sq.m.)

However, there are continuing concerns about Thailand’s political stability and the strength of the global economy.  If Thailand’s economy and politics are stable in 2010, the residential sector will see consistent positive growth.

Government Policy

The Government stimulus package will expire in March 2010 and it remains uncertain whether it will be extended.  CBRE believes the extension of this package will benefit buyers and developers of large condominium projects launched during the crisis which are due for completion and transfer within this year.

The initiative of this government to reform property and land taxation with a view to creating fairness sounds positive, but it will only be possible to determine the effect on the property market once the details of the proposed legislation have been finalised. “So long as the new tax legislation is on a fair basis and the tax rate not so excessively high as to discourage investment, CBRE sees this reform as beneficial for the market,“ Ms. Aliwassa Pathnadabutr, Managing Director of CBRE Thailand said. An additional measure that CBRE urges the government to consider is the extension of the long lease term from the current 30 years up to a maximum of 90 years. This will help improve the market mechanism and make large-scale commercial projects viable which would not be feasible if such developments were freehold due to the high land cost or if they were on a 30-year lease due to the limits on lease terms. The extension of the lease term will also have a direct benefit for resort destinations such as Phuket and Samui where the property markets are primarily driven by foreign demand.

Looking at 2010 and beyond, environmental issues are a key consideration for all industries including the property market. There will be more restrictions which may increase the cost for developers. The Environmental Impact Assessment (EIA) process is one of the key concerns and risks for developers as there are uncertainties in the details and timing required to obtain such a permit. This is one of the factors which are likely to delay the emergence of new supply.

Any additional incentives that would attract foreign direct investment in both manufacturing and the service industries would be welcomed, in order to enable Thailand to compete with rival destinations.

Office : The Market Should Improve in 2010

Bright future due to limited new supply

In 2010, there will be very limited new supply in the office sector.  Only 78,380 sq.m. are due to be completed, including Sathorn Square (72,500 sq.m.) and Sivatel Wireless Road (5,880 sq.m.). CBRE sees the limited increase in new supply as a positive indicator for the office market because any increase in take-up will reduce vacancy rates and lead to rental increases. At the end of 2009 the vacancy rate stood at 12%.

Even though net demand in 2009 dropped by more than 50 % to only 52,000 sq.m., average grade A CBD office rents fell by 7.26% to THB 690 per sq.m while grade B CBD office rents fell by 12% to THB 509 per sq.m.  This is considerably better than in other markets.  Rents fell by 52.6% in Singapore and 49.9% in Hong Kong in 2009.

Average Grade A CBD Office Rents in the Region (THB per sq.m.)

Following the recovery of the global economic, CBRE believes that companies will be less cost conscious and that 2010 will be a good time to take advantage of the low rents to relocate to newer buildings.

Sathorn Square – the only new grade A office building to be completed in 2010.

Condominium : The Most Exciting and the Most Competitive

Supply Outlook : More competitive market in 2010

The total supply of downtown condominiums increased to 61,522 units by the end of Q3 2009, up 14% year-on-year. In total, there are 17,664 units under construction in downtown Bangkok, of which 78% of which have been reportedly sold, leaving 3,879 units being marketed (completed and under construction).

In 2009, there were 3,912 units in 15 projects launched in the downtown area, with the majority being one-bedroom unit types. In 2010 CBRE expects a much more competitive market, with an increasing number of project launches as there is pent-up supply from developers who have delayed their projects since the onset of the economic crisis in late 2008 and also new supply from large developers who acquire plots of land for new developments.

Newly Launched Condominium Projects* Broken Down by Unit Type

Demand Outlook : Demand continues to be strong

CBRE sees a growing demand for condominiums driven primarily by a change in lifestyle which has led to the need to own a first or second home in the CBD or near mass transit routes to reduce the need to commute.  From an investment perspective, investors also increasingly recognise condominium purchases as an appreciating long-term investment asset. In the past, there were few Thai investors in the market. However, with lower interest rates and proven returns, investing in condominiums has become a popular investment choice for many Thais. It is also considered a safe and secure investment compared to the equities market which is much more volatile.

New Trends : Good locations, small furnished units with affordable prices

From the development side, developers need to ensure they are ahead of the game in trying to predict future location trends. The danger is that a popular location can quickly become saturated with new supply. The key to success is either to be the first to launch in an upcoming location, or to find a location with high barriers to entry.

New supply especially for the middle income market will focus on smaller units at affordable prices. In a competitive market with experienced buyers, products must offer quality as well as innovative and functional design in order to be successful. The reliability and reputation of the developer is another key consideration for buyers.

Luxury and Super Luxury Segments :  Limited future supply

The luxury and super luxury condominium segment is expected to slowly recover and develop into a niche market. Prime downtown land is rarely available for sale and prices will remain high, CBRE, therefore, does not expect many new launches for luxury condominiums in prime downtown locations.

With a wave of new launches focusing on smaller one-bedroom units along mass transit routes with prices ranging from THB 3 to 8 million, the majority of unsold two to three-bedroom units priced at over THB 15 million and developed before the crisis should soon be absorbed.  There will then be a shortage of two-bedroom units in the luxury market especially in prime locations. Short-term investors will speculate on one-bedroom units whereas long-term investors will focus on two and three bedroom units which are in demand among expatriates in the rental market, while smaller units are driven by local demand. With a limited supply of newly launched larger units CBRE believes the existing supply of such grade-A units in prime locations will continue to appreciate in value.

2010 Pricing Trends : Completed prime condo prices on the rise

In terms of price movement, CBRE sees no significant increase in prices per sq.m for mid-market condominiums as the economic recovery is still underway with the prevailing political problems which continue to concern buyers. The best selling segment is priced at THB 50,000 – 80,000 per sq.m in mid-town locations or within 15 kilometres of the CBD. Prices in this segment are unlikely to increase as the purchasing power of the target market is limited.  The developers have to compete on cost control and pricing.

Prices for completed high-end and luxury downtown condominium have increased slightly by 5.6% from THB 117,875 per sq.m from Q4 2008 to THB 124,539 per sq.m in Q3 2009 and CBRE believes that the prices of completed buildings in prime locations will continue to rise in 2010.

Prices of the future supply of high-end and luxury downtown condominium in 2009 fell slightly by 6.3% from THB 142,133 per sq.m in Q4 2008 to THB 133,134 per sq.m in Q3, 2009 due to the slow market conditions. New launches in 2010 are likely to see an increase in price per sq.m due to the higher construction costs but, as unit sizes are smaller, total unit prices will be on par with current levels.

Retail : More Focus

Improvement expected following return of consumer confidence

In the first three quarters of 2009, the supply of retail space grew by 6.6% or 327,125 sq.m. Whilst occupancy was stable throughout the year, rents were flat and even fell in some cases during the earlier part of 2009. The fourth quarter showed signs of consumer confidence and spending returning.

The trend for new retail centres in Bangkok is evolving from one-stop mega shopping complexes to more focused community malls and medium-sized lifestyle and entertainment complexes such as Esplanade Rattanathibet.

The major players in the retail market are Central, The Mall, Siam Future and Major Cineplex.  Retail developments to note this year are Terminal 21 which is currently under construction and located in Sukhumvit at the Asoke junction, Central Rama 9 and Mega Bangna which will house Thailand’s first IKEA store.

Serviced Apartments : Highly Competitive

Occupancy rates are likely to be flat and downward pressure on rents

The serviced apartment sector, which partially depends on tourists and business travellers as well as expatriates working in Bangkok, has suffered from growing supply which led to an overall drop in occupancy and rates in 2009.

Total supply increased to 12,392 units, up by 6.84% year-on-year, with a further 610 units expected to be completed by 2010 and approximately 2,000 units by 2013. Occupancy rates remained at 75% in Q3 2009. Occupancy was partly protected by a number of long-term contracts which are less volatile than the daily rate market. Average rates, however, fell by about 20% year-on-year.

The biggest challenge faced by this sector is the volume of new supply targeting both long-stay expatriates and short-stay businessmen and tourists.

Serviced apartments compete against apartments and particularly small condominium units for rent in the long-stay market and the rapidly growing supply of hotels in the short-stay market. The influx of new supply of both serviced apartments and hotels will continue to exert a downward pressure on both rates and occupancy.

Expatriate Rental Apartments

The total supply of expatriate-standard rental apartments in Bangkok increased to around 11,151 units, up by 4.5% year-on-year

Occupancy remained high at 91%. CBRE has not seen a dramatic drop in the number of expatriates in 2009 but, since companies are trying to maintain or reduce costs, so CBRE does not expect any increase in housing allowances.

Multinational companies continue to be cautious on their expansion plans given that the global economy is yet to fully recover. Thailand’s political problems are also an added factor which has restrained business expansion plans in Thailand.

CBRE does not expect that there will be a significant increase in the number of expatriates in 2010. There will be increased competition from individual “buy-to-rent” condominium owners seeking to lease out units in recently completed developments.  There are about 620 apartment units under construction but there are also 17,664 condominium units under construction and CBRE expects that up to 50% of the new condominiums have been bought by purchasers who want to lease out their units on completion. This increase in supply combined with little or no growth in demand will dampen any potential for overall rental growth.

New well-designed condominium and apartment buildings will continue to perform better than older buildings that have not been refurbished or redecorated.

LPN one of the leading developers of entry level condominiums announced to the Stock Exchange of Thailand that they had acquired a 5,921 square wah (23,684 square metre) plot of land at Ratchayothin from another smaller publicly listed Developer, Metrostar Property.

This is further evidence of confidence among the larger developers to proceed with major projects.

It is also evidence of further consolidation in the property development industry which is now dominated by the larger developers.

It appears that Thai banks have decided to focus on supporting a small group of larger developers, mainly publicly listed companies which has made it harder for smaller listed and private developers to obtain funding.

LPN paid 680,915,000 baht for the plot (115,000 baht per square wah) where they intend to develop four 22-storey condominium buildings with a total of 1,964 units.

The company expects that the total revenue will be three billion baht with construction commencing in April 2010 and completion in June 2011.

The company estimates that the gross profit margin will be 30%.

This is the most expensive land plot that LPN have acquired over the last 12 months and it is also the closest to the city centre.

A recent press release from another agent highlighted the drop in the house price index, placing Thailand’s residential market 38th out of a sample of 42, above Dubai and three Eastern European countries. Whilst the Thai House Price Index reflected the launch of cheaper houses, either of smaller size or more fringe locations, the implication that prices are dropping could not be further from the truth.

In terms of take-up, price per sq.m., transfers and occupancy the residential market continued to grow despite external economic conditions. A testament to the strength of this sector.

Achieved prices of re-sale condominium units in Bangkok saw:

• 5.4% increase year on year
• Occupancy up 8.4% to 73% (which in the current climate is impressive performance)

Buyers have reacted to the improving market by snapping up 78% of all units which are under construction.

In the luxury sector in central Bangkok, most recently completed condominiums like The Met, Athenee Residence, The Park Chidlom and Millennium Residence have seen rising re-sale values throughout the year and a marked reduction in units available for sale. Typically prices have moved up by THB 25,000 per sq.m., taking average luxury re-sales into the THB 150,000 per sq.m. segment.

Like other property markets globally, the Thai residential market was faced with challenging conditions in 2009. With 2010 approaching, sentiment is more positive. Several listed residential developers have earmarked significant funds for housing development next year. Preuksa Real Estate plans to launch 15-20 new projects and has set aside 4 billion Baht to purchase land in 2010. In addition, Quality House plans to launch 13 new projects worth around 15.6 billion baht.

The Government tax incentive packages are due to expire at the end of March 2010 and whilst the incentives may be extended at the last minute, we expect to see a rush of purchases in the first quarter of 2010 and hope that the positive sentiment continues beyond the March deadline.

For the second consecutive quarter the majority of sales have come from Thai nationals, who are not just looking to be end users but also to be buy to rent investors. Thai purchasers believe that prices have reached the bottom and are going to rise and see property as a reliable investment when compared to equities or the fixed income market. End user purchasers are focusing on projects approaching completion where they can see the end result.

The third quarter continued to post positive sales levels, demand remained strongest in the entry to mid levels (below THB 60,000) with a sales rate of 80% and 89% respectively.

The third quarter of 2009 has seen a slight rise in the number of completed condominium units with 1,015 being built. This brought the total number of condominium stock in the downtown area to 61,522 an increase of 1.7% Q-o-Q and a marked increase of 14.1% Y-O-Y. The increasing condominium supply doesn’t look like stopping with a further 4,854 units planned for completion by the end of 2009.

The overall occupancy rate slightly decreased by 0.4% from 73.4% in Q2 2008 to 73.% in Q3 2009 this is mainly due to the increase in new completed supply.

In Q3 2009 the average asking price of off-plan condominium projects in the high end and above bracket in downtown Bangkok was 122,076 THB/m2 declining from 128,040 THB/m2 or 8% Y-O-Y.

The average achieved re-sale price of units in compled upscale and above units increased by 5.4% Y-O-Y from 103,830 THB/m2 to 109,393 THB/m2.

The construction of the Airport Rail Link (ARL), this is both an airport express and a commuter train that links Phaya Thai to Suvarnabhumi International Airport is now complete. The State Railway of Thailand (SRT) will start one-day trial operations on December 5th 2009; further official trials will run from December 15th to April 2010 before the line’s planned opening. April 2010. Several developers have launched projects around the Airport link and are hoping their developments will mirror the success of condominium projects located along the BTS, however just being located next to a mass transit system is not a prerequisite for success.

Outlook

The amount of new supply due to be completed over the remaining months of 2009 and in 2010 means that the stress test will continue. We will see if developers are able to sell their unsold inventory and if speculative buyers can resell units where they do not want or are unable to make the final payment. The progress on these sales will determine both price levels and when we will see an increase in new launches. The growth in the number of Thai buyers is re-assuring and it will be the appetite of Thai purchasers to buy into buildings that are being completed that will determine the course of the Bangkok condominium market.

Read full residential sales report

Five apartment buildings were completed, with a total of 62 units. The total supply of apartments units was 11,151 increasing by 0.56% Q-o-Q and 4.5% Y-O-Y. The total number of condominium units in downtown Bangkok grew by 1.7% Q-o-Q and 14.1% Y-O-Y to a total of 61,522 units.

Grade A rents rose 1.5% Q-o-Q but were down 5.4% Y-O-Y from 414 THB in Q 2 2009 to 420 THB in Q2 2009.

We expect that around 348 new apartments will be completed by the end of 2009. In the same period we expect there to be around 4,845 new condominium units completed raising the total stock of downtown condominiums to 66,376.

Many purchasers of condominium units are “buy-to-rent” investors and the competition between apartments and condominiums for the expatriate rental market will increase.

Many of the new condominium units are small studio and one bedroom units, competition will be greatest for these unit types.

Tenants prefer new buildings and there is a constant turnover of expatriates. The buildings that will suffer will be older apartment buildings that have not been refurbished and older individual condominium units in buildings with outdated common areas and decoration and interiors that have not been refurbished.

In Q3 the number of expatriates holding work permits dropped to 104,267 from 145,493. This was due to the department of employment revising numbers to adhere to the Working Alien Act of 2008. The system for monitoring expatriate work permits was reviewed once before in 2001 with similar results, however rebounded quickly in 2002. We also contacted a number of local international schools in Bangkok who reported steady numbers of expatriate pupils, with no notable changes since Q2.

Read full residential leasing report

LPN launched and sold 1,026 units at Lumpini Ville, Ladprao Chokchai. The average unit size was 29.5 square meters and the average achieved price was 1.43 million Baht per unit or around 48,500 Baht per square metre. LPN also reported that they had sold 2,200 units (81.5%) of their 2,702 units at Lumpini Park Pinklao. All of the 2,702 units in this development are 1 bed which come in 4 size options ranging from 28 – 36 square metres, and pricing ranging from 46,000 – 52,000 Baht a square metre.

The company expects to complete Lumpini Ville, Ladprao Chokchai in Q4 2010 and Lumpini Park Pinklao in Q1 2011. LPN has been offering potential purchasers down payments of 10% with 90% on completion.

Supalai reported that they had sold 600 units at Supalai Park Ratchayothin out of 804 units which were 131 two-bedroom units, 643 units were one bedroom, 30 studio units. The average size of the one-bedroom units was 49.5 square meters and we understand that

Prices achieved for the one-bedroom units were 3.22 million Baht ( 65,000 Baht per square metre)Supalai also reported that they sold out all 544 units at Supalai Park Asoke located 600 metres of the Rama 9 MRT station.

We understand that there were 24 studio units, 436 one-bedroom units and 84 two-bedroom units. The studio units of around 32 square metres were priced at around 2.14 million Baht to 2.54 million Baht or 66,875 Baht to 79,375 Baht per square metre.

The 48.5 square metre one-bedroom units were priced at between 2.62 million Baht to 3.38 million Baht or 55,157 Baht to 68,282 Baht per square meter.

The 66 square metre two-bedroom units were priced at between 3.64 million Baht to 4.25 million Baht or 55,151 Baht to 64,393 Baht per square metre.

In addition The Seed Memories development by Preuksa Real Estate located on Soi Kasemsan 2, adjacent to the Jim Thompson House, is also reportedly sold out. It is an 8 storey development with 303 units, of these 229 units are 1 bed with an average size of 40 square metres, they have a starting from of 3.2 million Baht or 80,000 Baht per square metre.

The sales show the latest trend for one bedroom units.

We do not have an exact idea of whether the buyers are end-users, buy to

rent investors or speculators hoping to resell before completion.

We expect that it is a mixture of all three and understand that some buyers have been purchasing multiple units.

In our opinion investors are being driven towards property investment by low bank deposit rates rather than low borrowing rates and the low total cost per unit has attracted a wider range of investors.

Other Asian governments are becoming worry of asset bubbles being created by low interest rates.

As we mentioned previously the Hong Kong and Singapore governments have already taken some action to try an cool property speculation.

In Bangkok we have not seen dramatic price inflation but in a city with a plentiful availability of sites, the problem tends to be the risk of oversupply rather than rapid price inflation.

Condominiums offer investors a leveraged bet on the market because the downpayment during construction is only 10-30% of the price providing an opportunity for profit if prices rise and the unit can be resold before completion.

The success of these recent projects may encourage ot

her developers to launch projects – the risk is that a particular product in a particular location can quickly become over supplied.

We will be watching the volume of new launches and their reported sales in the coming weeks to monitor the possibility of certain areas of the condominium market becoming oversupplied.

Our view and that of many other participants in the Thai real estate industry is that reforms are needed that will address both maintaining the attractiveness of Thailand  for foreign retirement and second home buyers and the Thai concerns about ownership of land by foreigners . We continue to believe that acceptable solution would be extending the maximum period of a lease term to 99 years and an increasing the maximum area of a condominium that can be acquired by foreign purchasers.

We have stressed before the economic benefits of retirement and second home buyers who are large consumers of services and whose presence boosts local economies and allows them to move away from traditional hotel based tourism market which is very vulnerable to both political and economic events.

FOREIGN PROPERTY OWNERSHIP
Scrutiny of nominees about to get serious
Bangkok Post – October 26th 2009
In-depth scrutiny of the shareholding structures of companies suspected of holding land plots and having exceeded the foreign shareholding limit will start next year, according to the Department of Business Development (DBD).

The focus would be on companies suspected of being nominees, said Samruay Daengduang, director of the department’s Business Enforcement Bureau.

“We should have a clear regulation on nominee checking. It should clarify for which purpose foreigners are holding the plot, such as for a residence or for business,” he said.

The bureau would work with the Lands Department, the Department of Special Investigation (DSI), provincial governors and Commerce Ministry offices in 20 major provinces and tourist destinations.

Checks began on suspected nominee firms in 2008 but only at random in the first year to get an overview. This year the department has selected clearly suspected targets and would start in-depth scrutiny next year, he said.

“We will ask the Lands Department for help in taking a look at the size of land plots that suspected firms hold. Then we will check their shareholding structure,” said Mr Samruay.

According to the Phuket Lands Office, around 250 plots were in the scope of the Lands Department and the DBD for checking. Then both departments would select which are in the risky group.
“If we do not have enough authority to act, we will co-ordinate with the DSI to help us,” Mr Samruay said. “Since the DSI began checking into nominees in the past year, the number of cases of wrongdoing has been reduced.”

Thanan Tanpaiboon, president of the Phuket Real Estate Association, said the government should have a policy and procedure to close legal loopholes as it was earning fewer benefits than it should.

“Foreigners illegally holding land plots in Phuket have been a problem for over a decade,” he said. Phuket is a major tourist destinations attracting 4-5 million arrivals each year, some of whom turn into property buyers.

Mr Thanan identified four property holding methods used by foreigners:

The foreigner has a Thai spouse acting as a nominee to hold a property. As the property will be personal property of the spouse, the foreigner who is the real owner rents the property for 30 years from the Thai nominee. Most properties in this category are houses on land plots smaller than one rai with prices of between one million and 10 million baht.

The foreigner sets up a Thai firm in which he holds 49% or less and the Thai partner 51% or more. The Lands Department will check the Thai partner to verify sources of funds. The Thai partner will sign a document to transfer all shares to the foreigner without an actual transfer taking place. The foreigner then has authority as a director to make any transaction. Most properties in this category are land plots priced above 10 million baht and intended for development.

The foreigner sets up a 100% Thai firm which will not be checked by the Lands Department. As soon as this company obtains the land transfer, there will be a transfer of some shares to the foreigner. Most property in this category involves large land plots for investment or development of residential, hotel or resort projects worth hundreds of millions of baht.

The foreigner sets up a foreign firm in which he holds more than 49%, which is regarded as illegal, and will mortgage property with other foreign companies.

This move is in a response to demand particularly in the office market. We believe that more multinational tenants are going to require that the buildings they occupy be environmentally certified. At the present time there are only a limited number of environmentally certified buildings in Asia but once a number of buildings become certified in each market they will have a competitive edge over non certified buildings.

LEED (Leadership in Energy and Environmental Design) is the US certification developed by the US Green Building Certification Institute under the US Green Building Council. Australia has Green Star, Singapore has Green Mark and the UK BREEAM.

In the absence of a Thai certification standard some Thai developers are using other countries’ standards.

Millennium Residence a condominium under construction in Bangkok due for completion by the end of this year has recently received the Singapore B.C.A. (Building Construction Authority) Green Mark Gold Award the first such award in Thailand.

Millenium Residence

The Energy complex a 119,000 square metre office development in Bangkok’s northern corridor is applying for LEED certification as is the Park Ventures office building and hotel development on the corner of Wireless and Ploenchit road.

Energy Complex

The Park Ventures

We believe that once there is a critical mass of office developments with Green Certification in Asia then it will become a significant factor in a tenant’s decision making process.

In Thailand we believe that the process will be demand lead rather than legislated by the authorities. Legislation in terms of building standards will then catch up with demand.

This has happened in the past. Before 1992 high rise buildings in Thailand did not require sprinklers as part of their fire suppression systems. Multi-national tenants however demanded that buildings have sprinklers and so developers constructed office buildings with sprinklers before they were legally required to do so because of tenant demand.

This is likely to happen with environmental certification where tenants will start to insist on a building meeting a certain environmental standard.

This will start in the office sector but multi-national companies may also start to require environmental certification for other properties that they use such as hotels.

We are advising any developer considering constructing an office building in Thailand today whose target market is multi-national or large Thai corporations to seriously consider obtaining environmental certification.

The next step will be the retrofitting of existing buildings to obtain environmental certification. This is already happening in other countries.

CB Richard Ellis is the sole leasing agent for the Iconic Empire State building in New York. The owner is currently undertaking a retrofit programme for the building with the aim of securing LEED gold certification by 2013 and reducing energy costs by 38%.

Empire State Building

The 102 storey Empire State building was completed in 1931.