THAILAND - Thailand's government is being urged to relax foreign ownership regulations governing real estate, in a bid to shore up its residential property market during the global economic downturn.
David Simister, chairman of CB Richard Ellis Thailand, said changes to the rules would give a huge boost to residential markets in regions such as Phuket and Bangkok where there is a regular influx of tourist traffic.
"The easiest relaxation would be to increase the permitted ratio of foreign ownership in a condominium building from 49% of the total saleable area," said Simister.
"Many of the best residential condominiums in Bangkok and the resort markets have fully sold out their foreign quota so any relaxation would in our opinion produce more sales, even given the present global situation," said Simister.
"Thailand remains relatively inexpensive both for real estate and as a location to live and retire, and for an increasing number of foreigners a desirable place to live. Resort villas are very popular and currently sold on a leasehold basis. Being less than half the price of comparable Mediterranean costal property, the chance of freehold would create a huge amount of fresh interest," he added.
During the Asian financial crisis in 1997, this 49% foreign investment ratio was temporarily raised to 100% for projects completed at the time.
The current regulations stipulate to buy and register a condominium under the foreign quota, buyers must show they have brought in funds covering the full purchase price from abroad, so Thai real estate has become a very cash-driven market which does not rely on the availability of debt finance.
"The principal result of this is that Thai real estate is far less dependent on debt than most global property markets. The Thai property market is actually well-insulated from a debt crisis," suggested Simister.
A troubled political base has in the past made foreign investors cautious in the past to investing in Thailand, resulting in real estate sales in regions outside of popular tourist destinations - such Phuket and Koh Samui - being sold mostly to Thai nationals.
According to Simister, market caution has resulted in muted demands, a low level of speculation and low borrowings to value.
"Foreign resort property is driven by external liquidity and there are clearly fewer potential international or regional buyers as the global crisis washes through Asia," said Simister.
Westerner developers, which make up the majority of high-end property buyers, are expected to have to accept lower profit margins in order to adjust to the current real estate business climate, as a result of the credit crunch, according to the firm.
In order to counter the possible market downtrn, Aliwassa Pathnadabutr, managing director of CB Richard Ellis Thailand, recently issued a report urging the Thai Government to take measures to support and protect the Thai property sector.
His recommendations included reducing the special business taxes from 3.3% to 0.1%, increasing the tax allowance for mortgage payments for first-time buyers, improving the transparency of information related to the property sector and reviewing consumer protection measures.
According to the MarketView Thailand Investment report by CB Richard Ellis for the second quarter of 2008, investment in the property sector was driven by a series of hotel purchases in Bangkok and other major resort areas.
Existing property funds had an average annualized dividend yield of 8% and received returns of between -7% and 23.7%.