Investment outlook good in tigerish Thai market

Profile/Thailand: From Bangkok to Phuket, there are good opportunities for overseas investors in both residential and commercial markets, as the Thai property market bounces back. Clifford Coonan reports

Thailand is to Asia what Italy is to Europe, a beautiful and sophisticated land where people like to celebrate life and where visitors from other parts of the continent are keen to settle.

Everything looked rosy for the Thai property market until 1997, when the baht collapsed and the Asian crisis was on. People ran scared as the region plunged into crisis and Bangkok still has half-finished buildings to testify to that difficult period.

But now, just over a year after the devastating tsunami, some people are talking about a boom. The buyers are coming back to the market, somewhat more cautiously, and investors are gradually seeing Thailand as a great investment opportunity.

The country's economy is growing strongly, with the focus of this tiger-ish activity in the capital Bangkok while its coastal resorts are fantastic places to buy beachfront homes.

The outlook for the property market in the capital in 2006 is positive, although real estate experts advise investors to be "innovative".

Rents and prices are on the up, in both residential and commercial sectors. In the short term for an Irish investor, the retail and office sectors are looking more appealing because supply still outstrips demand in the condominium market.

"2005 was another good year for the Bangkok property market, since 1997. The growing economy contributes greatly to the Bangkok property market boom today," said Suphin Mechuchep, managing director of Jones Lang LaSalle in Thailand.

Bangkok is a huge Asian city, but it is still less chock-a-block than cities like Hong Kong or Singapore and the lifestyle is fantastic.

Also the city has built a lot of infrastructure, like the Skytrain, an overhead monorail mass-transit system, and is expanding its airport, which is already a regional hub.

"Realtors will be forced to be innovative . . . Market conditions in the office sector are more favourable in this year as rents continue to rise and vacancy rates continue to decline," said Ms Suphin.

Thailand is getting hotter. Engel & Volkers, the German real estate company which recently entered the Irish market, will enter Thailand with the opening of its first office in Phuket and plans to open 30 more in the country over the next five years.

Martin Phillips, managing director of Engel & Volkers in Thailand, said the company would focus on premium residential properties in both primary and secondary markets with overseas buyers as the main customers initially.

Dubliner Peter Wood is managing director of Island Homes in Phuket. He says that while there was a slowdown following the tsunami, which caused widespread damage in southern Thailand on St Stephen's Day 2004, things are getting back to normal.

"Things have really picked up here, especially with the high season approaching. The property business is just getting bigger and bigger all over the island," said Mr Wood.

His project, Tamarind Valley, will be made up of 35 two and three-bedroom bungalows in the €100,00-€200,000 price range, near Chalong Bay on the south-east part of the island.

Part of his company's concept is to sell the properties in Ireland, the idea being to combine the holiday home with an investment property.

"It's a complete package with everything. We'll go on the market with two-bedroom bungalows. It means you get a house for €100,000 to €150,000, with furniture. You just need to bring your togs and jump in the pool," he said.

Phuket is likely to be given a big boost by the addition of an Austrian Airlines flight direct from Vienna, which means travellers from Ireland can skip many of the hubs and fly direct. "As an investment, property prices here have doubled in the past four years and I'd expect them to double again in the next four years," said Mr Wood.

The possibility of zoning regulations being introduced has been dangled, something that would be expected to push values up.

"For the next 10 years I expect the market to continue to grow," said Mr Wood.

David Simister, the chairman of CB Richard Ellis in Thailand, told The Nation newspaper that property was a good bet in Phuket, a fact underlined by the takeover of a development in Kamala beach's "millionaires' row" by a Hong Kong businessman, for around €200 million.

"The commitment to move upmarket with the project has already brought a response from buyers," said Mr Simister.

There are legal issues for Irish investors wanting to buy property in Thailand, a key one being that the government effectively prohibits foreign ownership of land. The two ways around this are to take a lease, for say 90 years, or to set up a company with a Thai investor.

In this case you need a 51 per cent Thai shareholding but people get around this by effectively setting up a small business using one of the many international solicitors' offices in the area.

And the feeling is that Phuket will be opened up as a kind of test case to see how foreign ownership works in Thailand.

"Asia and the bureaucracy can be a bit daunting, but with these branches of international firms setting up, you can feel fairly secure," said Mr Wood.

Construction costs have been a worry, having increased significantly over the past five years by 25 per cent, but there are signs that these costs are starting to stabilise.

"Construction cost has not grown at a faster pace in this year as many might have expected, though fuel price has witnessed a significant increase from the beginning of the year. This is due to falling prices of some construction materials, like cement and steel," said Dilokpol Sundaravej, country head of project and development services at Jones Lang LaSalle.

The other negative factor, the rising interest rate, is expected to have minimal real estate impact.

Most realtors are optimistic that interest rates will not rise to a level that would stop the growth in the property market in the foreseeable future.

In 2005, interest rates rose from 5.9 per cent to 6.59 per cent and a rise of another 1-1.5 per cent in 2006 is probably on the cards.

Increasingly the infrastructure is there. People are excited about a government decision to invest in mega projects over the next few years, particularly mass transit and road network projects, which will make property more accessible.