A game of risk

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Are speculators dominating Thailand’s mid-range markets?

Property Report_Jan 2015_Leading edge_Thailand

Speculators, or bullish investors, in several downtown Bangkok condominium projects have been accused of creating artificial demand in the Kingdom’s property market.

Anonymous marketing staff of some Bangkok condominium developments revealed that representatives are being hired to book units in their projects to ensure that as much as 70 percent of available units were sold within two days of the launch, according to Niwat Aunprueng, senior partner oat Bangkok-based PIA Interior Company. He added that this manoeuvre intensified demand and enabled developers to sell the units at a higher price.

“It’s something new occurring in the domestic property circle – they hire someone for THB1,500 (USD46) just to book a condo unit,” Niwat said. “Sometimes these fake investors buy the whole floor and genuine buyers are unable to get a unit. After two days all the units are gone and the price has risen.”

However, James Pitchon, executive director at CBRE (Thailand), debunked these allegations pointing out that the fee of THB1,500 per person is too low for this kind of task. “Maybe that’s their ticket number in the queue,” he quipped.

Pitchon also explained that the condominium market model in Thailand is typically dependent on achieving half the sales target very quickly because, for many developers, that is the trigger point at which they can draw down bank loans to construct the project.

“For a number of projects to get to that 40 to 50 percent you need speculators to come in,” he noted. “It’s part of the local business model that you need to get them, but obviously at the end of the day when the building is completed you need to have either end-users or you need people who are buy-to-rent investors.”

In the recovering Phuket market, speculators only operate in the mid-market segment, which primarily appeals to local buyers, according to Dexter Norville, director of JLL (Thailand). He added that there is a new dynamism on Phuket, where Thai investors are buying condos to rent, similar to strategies used in the Bangkok market.

Eugene McCain, developer of Jindarin Beach Club & Resort on the modest Coconut Island just 400 meters off the coast of Phuket, said that speculation generally takes place in active real estate markets, however.

“It’s really hard to separate speculation from non-speculation because anyone buying real estate is a speculator to some degree,” he said, adding that there are investors in the Thai market who initially intend to use the product, but often resell the unit for a higher price at later time.

Over the past three years a number of lower-end condo projects on Phuket, built by major Bangkok- developers, have become popular targets for speculators. These primarily average-income buyers’ investment strategies, however, have not been fruitful due to the market slowdown Phuket has experienced in recent years, according to McCain.

“Some of these investors discovered that they weren’t able to resell quickly at significantly higher price,” he said.

Mid-market condo projects, where total investment is often just 10 percent of a unit costing THB3 million (USD91,000), would traditionally attract these risk-takers, as opposed to units costing THB30 million (USD912,400) each, according to the analysts.

Echoing this sentiment, Dexter Norville, director of JLL (Thailand), pointed out that investors who buy five condominium units with the purpose of renting them out or reselling could be called speculators, but also said that others would simply call them risk-taking, savvy investors.

He concluded that acquiring a plot of land in the anticipation that a new mass transit line could reach that location is the true definition of speculation.

Still, such market players, regardless of how analysts refer to them, have been active in both Bangkok and Phuket and are likely to be for the foreseeable future.

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