As governments all over the world advise their citizens to stay at home, buying property has been put on hold. Global real estate investment dropped by 43% in March as the pandemic spread and there has been little activity in April. As the effects of lockdowns in America, Africa and Europe take effect, the market will continue to slow.
In Thailand, where 90% of real estate buyers are from China, Hong Kong and Singapore, the real estate market faces its biggest crisis yet. The real estate market contributes 6% of Thailand’s gross domestic product and is heavily linked to the tourism sector, which saw arrivals drop by 76.4%—with visitors from China down by 94%.
The Asia-Pacific real estate market saw a record US$14 billion in investment in 2019. In recent years, Thailand has closed the gap between it and Malaysia as the third biggest real estate market in Southeast Asia behind Singapore.
However, before the coronavirus put a stop to everything, the growth of Thailand’s real estate market was slowing—down from around 5-7% to 3-5%. Several factors contributed to the contraction. The Chinese yuan weakened against the Thai baht, and a global slowdown saw both China and Thailand’s economies take a hit.
The Bank of Thailand introduced new mortgage regulations as household debts rose, squeezing local purchasing power. This left the real estate market more reliant than ever on foreign investment. The move was unpopular within the industry. “Frankly, I want the Bank of Thailand to recall the measure,” said Thai Real Estate Association President Pornnarit Chuanchaisit.
The pandemic hit Thai developers hard. They were already expecting worse returns in 2020 than in 2019 and were cutting costs as much as they could. With hundreds of thousands of unsold units to shift, they now fear the worst: 18 months of slow growth and difficult recovery.
When the economy gets moving, the market will favour buyers with property prices lower than before the pandemic. In the short term, any deals in the pipeline have been delayed or postponed. Developers are doing what they can. They are allowing investors more time to transfer funds in order to complete their purchases. They could also turn their attention to selling to the local market, given that foreign investors cannot yet enter the country.
There will be hard times ahead for real estate developers, but there is some cause for optimism. Now is the time for developers to innovate and improve on their existing offerings to tempt investors.
For example, some may take the opportunity to build in new features to their properties, such as better air filtration systems and property management. In this way, they can attempt to future-proof buildings against similar crises to come. By enhancing their offerings and giving discounts, developers should still be able to tempt Chinese investors to part with their yuan.
Thailand remains an attractive proposition for prospective buyers. Some experts forecast that its economy will pick up as early as late summer, or more conservatively by the fourth quarter. Others predict a surge in activity later this year, suggesting the market is resilient enough to rebound. Thailand’s real estate market is not hindered by high debt levels and there are reserves available.
Thailand’s economy and the real estate sector has a good track record of recovering from fiscal shocks, from global economic crashes to epidemics and the 2004 tsunami. As a result, economists labelled the country “Teflon Thailand”. While COVID-19 is unprecedented in its spread and impact, investors will have more confidence in regions that have proved their resilience before.
A more general trend shows Chinese buyers turning away from buying a property in Europe and the US and seeking to invest closer to home. With its stable currency, good healthcare standards and excellent universities, Thailand’s real estate market are well-placed to benefit. Furthermore, it remains one of the leading destinations Chinese people choose when retiring abroad.
Prices will drop once business resumes. Thailand’s weakening currency presents an opportunity for foreign investors who will get more for their money than they would have done a year ago. Now is a good time to buy low and wait for prices to rise. If, as predicted, the economy picks up, they will be sitting pretty: Thai properties generate good yields and maintenance fees are very affordable.
And the Chinese are still interested. Even in July, when the market was beginning to contract, they were still keen to buy property in Thailand. “Chinese investors want to choose markets that are closer to home, require less capital and offer better yields,” explained Georg Chmiel, executive chairman of overseas property purchasing website Juwai.com. “The Asia Pacific region, and especially Southeast Asia, ticks all three boxes.”
COVID-19 forced the Thai real estate market to hit the pause button. By taking time now to innovate, create new selling points and embrace technology, developers can mitigate against the declining market. This may be more of a hard reboot, perhaps, rather than a pause—but it’s one that the market could have done with anyway. For real estate in Thailand, there are challenges ahead, but it stands every chance of bouncing back in the wake of COVID-19.
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