Bangkok Apartments
| Higher foreign quota will spur resorts |
|
|
|
|
source: Bangkok Post/Nigel Cornick 6 May 2008 Over the past three years, Thailand's resort areas have rapidly progressed as desirable destinations for upmarket real estate investors. The tourism industry has opened the eyes of many buyers and the Kingdom has clearly established itself as a place where people want to reside, in terms of affordability, lifestyle and cost of living. There are not really any negatives except one, and it relates to foreign ownership. Regulations currently limit foreign freehold to 49% of the saleable area in a condominium, and because of this, the industry is being held back by as much as four times its growth potential. Last year, Raimon Land sold four billion baht worth of resort real estate, but it could have sold almost double that if there were no restrictions. Relaxing the quota to 70% or more would provide a major upside for the industry. If we had the ability to guarantee foreign ownership, the market would expand significantly, as there is no doubt that the demand is there. It is frustrating, not only for the real estate industry, but for the prosperity of the country as a whole, as the opportunity to attract more overseas investment is huge. Of the destinations hardest hit by the regulations outlined in the Foreign Business Act, Phuket and Koh Samui stand out. They rely on overseas investors, as Thai buyers show limited interest. Thai nationals typically prefer to buy in Hua Hin and increasingly in Pattaya, although there are indications that this is slowly changing in Phuket where attractive capital gains and rental yields are being realised. Overseas investors on the other hand, are driven more by lifestyle imperatives. They are seeking a pleasant retirement location or a second home; investment yields are often a secondary concern. Thai and foreign buyers may have different motivations for condominium purchasing, which creates an interesting dynamic when it comes to pricing and future resale. This is clear in the current quota system, which divides condominiums into two separate markets: Thai and foreign. If you are a Thai and buying into a project, your future gains are greatly limited as you are buying part of the Thai quota and can only sell to a Thai. Essentially, Thais cannot sell to foreigners. So the foreign quota system is actually working against Thais themselves and hindering them from profiting from real estate investments in the future. Because of the quota, it raises serious questions for developers regarding whether it is worthwhile investing in destinations that are not popular with Thai nationals. In Pattaya, it is a slightly different story, where we are seeing an increase in Thai buyers, as they see investment potential in terms of both capital gains and rental returns due to the active executive expatriate and retiree rental market in the area. Hua Hin presents a different case altogether, due partly to its long association with the Royal Family. But the former high percentage of Thai buyers against overseas buyers is changing. The split used to be 70% Thais, 30% foreigners. Now it is 60% Thais and 40% foreigners. Once foreign demand reaches 49%, Thais will no longer be able to sell to them. The stage is set for Thailand's property industry to continue to benefit from the international perception created by the tourism industry, but if key issues are not solved, there is a risk the industry will never reach its full potential. Perhaps we are not doing enough to create awareness in the right circles. But if there is not a change soon, we could lose opportunities to neighbouring countries such as Vietnam and Malaysia, who have adjusted regulations to entice overseas buyers to their countries. It is unlikely that Vietnam will be taking any property investment business away from Thailand soon, because there's no stock and little infrastructure. It is still not considered a "world" destination. In other words, everyone knows where Phuket is, but they don't know about Na Trang. However, they will in the future and destinations like Na Trang will certainly become competitors. The main point is that these countries are prepared to change their rules and regulations to attract foreigners. They want foreigners to come and buy their real estate. As such, it is not so much a question of how much Thailand is losing from the quota system, but how much it could be gaining if the Condominium Act increased the quota for foreign buyers. This is extremely important to a developer's investment strategy. They don't want to have 50% of their buildings sitting empty with no or few prospects of finding a buyer. Thailand's property sector and all the associated industries could receive a huge boost in investment, which would benefit the entire nation, if it raised the foreign quota in the nation's condominiums. It is what the industry, and indeed the country, truly deserves. Nigel Cornick is Chief Executive Officer of Raimon Land Public Co., Ltd, Thailand's luxury international property developer with projects in Bangkok, Phuket and Pattaya.             |
| < Prev | Next > |
|---|