A view from Golden Land Property Development Plc's Ram Indra clubhouse. In June, Morgan Stanley Real Estate Fund concluded a partnership deal with Golden Land to make its first direct investment in the Thai property market. Both parties formed a joint venture to develop an upmarket residential complex costing 3.5 billion baht in Soi Polo, off Wireless Road.

Developers are confident the market will remain steady and not slump over the next few years.

The big improvement this year was due to several factors including low interest rates, strong domestic consumption, limited supply of new quality products and government tax measures introduced to further stimulate the property market.

A quickening in the pace of debt resolution between developers and creditors, especially through the Thai Asset Management Corporation, has proved crucial to improving the industry.

The year-end good news was that the government approved extensions of low property taxes for one more year to spur activity. Currently, the property transfer and mortgage registration fees are 0.01% and the special business tax is only 0.11%.

As well, the capital gains tax will be waived from Jan 1, 2003 for those who sell their houses and then buy a new residence within 12 months.

It appears that the government's decision to use the recovery in the property sector to help lift the Thai economy out of the doldrums has worked, as many related businesses such as construction materials, furniture and home appliance sales have been picking up as well.

At the same time, established housing developers, both listed and non-listed, have been enjoying rising sales and market shares.

Analysts are wary, though, that not all of the market fundamentals have been truly reformed to prevent an oversupply, resulting in a market slump in the future. The biggest test for the industry lies ahead when it will become apparent if real structural change involving all parties _ developers, banks and consumers _ been achieved.

Industry experts say housing development newcomers now face much higher barrier to entry in the property market compared with the early 1990s. Building a project now requires more equity than in the past. As well, banks are more strict and careful when extending loans to finance properties.

Today's buyers, meanwhile, are smarter and more sophisticated with a better idea about what they want. But they are willing to pay for quality.

Property speculators have virtually become a non-existent factor, a significant change from the last boom.

Low interest rates are attractive for home buyers because with every one percentage point reduction, the affordability of a monthly instalment improves by 7%. Prospective homebuyers, as a result, can now afford to buy bigger houses.

Given mortgage rates of 5-6%, a buyer would pay an instalment between 5,700 and 6,000 baht a month for a house priced at one million baht, according to a survey by the Government Housing Bank.

As well, banks have been competing heavily to make home loans, with special packages and low interest rates beginning at 0% for the first six months.

The pre-built house strategy helps some giant developers realise revenues more quickly but to do this, they need substantial cash flow.

Anant Asavabhokin, president of Land & Houses Plc, warned that the housing market could face a shortage of skilled labour and rising material prices that might cause house delivery delays because the industry has grown substantially from a small base.

Meanwhile, the lack of accurate information on the future property market is not being addressed.

Key developers are having to guess the expected annual housing demand for Bangkok, with most putting the figure at between 80,000 and 100,000 units.

Active developers are having to analyse the market and project their own figures based on their experience and capability.

In 2002, the detached house and townhouse segments outperformed all others while the office sector was the worst performer.

The second-hand housing market has become more active because the availability of brand-new houses is not enough to match the strong demand.At the same time, foreclosed properties, which are now owned by banks and financial institutions, are circulating in the market.

This has not created the ``fire-sale'' scenario many predicted but some banks could have been better prepared to handle these dud assets.

The staging of the NPA Grand Sale I in July was successful in helping banks sell some of their foreclosed properties.

According to the Bank of Thailand, the financial sector had non-performing assets worth 173.08 billion baht as of Aug 31, 2002, up from 166.02 billion baht at the end of 2001.

On the investment side, construction cranes began working again at some abandoned buildings as developers secured new investors to inject fresh funds after debt restructuring.

Investing in property market is becoming increasingly attractive as it yields returns higher than bank deposit interest.

A model of large units at the Ladawal and Nanthawan projects of Land & Houses Plc. With a 35% market share in Bangkok's detached house sector, Land & Houses recorded sales of 11 billion baht in the first nine months of 2002, the highest since its establishment.

CB Richard Ellis reported sales of four offices and five apartment blocks in Bangkok in the first nine months of this year.

The total transactions since January 2000 were 18 buildings.

In June, Morgan Stanley Real Estate Fund concluded a partnership deal with Golden Land Property Development Plc to make its first direct investment in the Thai property market

Both parties formed a joint venture to develop an upmarket residential complex costing 3.5 billion baht in Soi Polo, off Wireless Road.

Sansiri Plc found a new group of investors to replace US-based Starwood Capital, which had expressed reluctance to increase its stake in the Thai company for two years.

Newly launched condominium projects like Baan Siri Sathon-Yen Akat and Lumpini Place Rama IV-Sathon were successful with the units selling out like hotcakes in only a few days.

Many listed developers such as Land & Houses, Quality Houses, Asian Property Development, Golden Land Property Development, Noble Development, and LPN Development reported strong growth in sales and net profits during the third quarter of 2002.

Land & Houses, with a 35% market share in Bangkok's detached house sector, recorded sales at 11 billion baht in the first nine months of this year, the highest since its establishment.

Lalin Property Plc became the first developer to list on the Stock Exchange of Thailand since the 1997 crisis.

Apart from Lalin, there are many firms such as Wang Thong Group, Home Place, Prueksa Real Estate, and Quality Construction Products, lining up to become listed companies next year.

MARKET OVERVIEW: HOUSING

The housing market, spearheaded by middle class detached houses, witnessed sharp growth in 2002.

Demand remained strong and supply of brand new houses was limited.

According to the Government Housing Bank, new house registrations in Bangkok is expected to top 36,000 units this year, up from 34,023 units last year.

The projection next year is between 40,000-45,000 units and developers are optimistic about the continuing recovery with demand forecast around 80,000 units.

During the first eight months of 2002, a total of 24,111 units were registered, of which 11,574 were built by developers and 12,537 by individuals

Of these, detached houses grew 30% and townhouses 102% while condominiums saw a 60% reduction.

Jones Lang LaSalle reported that 38,300 condominium units were in central Bangkok as of September 2002 and the total would increase to 39,000 units by the year-end.

Out of the total, 91% were sold.

The average selling price of city condominiums was 39,000 baht per square metre, compared to a bottom price of 37,000 baht in mid 2001.

Resale prices are also on the rise due to the lack of supply.

SERVICED APARTMENTS

Bangkok was forecast have 7,350 serviced apartment units at the end of 2002, including 250 new units scheduled to be completed, said Jones Lang LaSalle.

Another 1,180 units were under construction and 1,100 were expected to be put on the market in 2003.

There were 48 serviced apartment buildings with 4,484 units in the central Bangkok in the first half of 2002, according to Nexus Property Consultants.

The serviced apartment sector remains prosperous with a sustainable occupancy rate exceeding 80% for centrally located grade-A buildings and occupancy of 50-60% for grade-B.

Nexus said the market grew during the crisis because of an influx of foreigners to Thailand to work in various areas such as business consultancy, finance and law.

OFFICES

Bangkok's office sector has been struggling due to an oversupply but the market improved marginally during the first nine months of 2002.

CB Richard Ellis reported total office space of 6.98 million square metres in the capital with average vacancy rates standing at 29% or 2.04 million square metres at the end of June.

The company predicted the average vacancy rate would fall to 26% by year-end.

The majority of vacant office space is in grade-B buildings.

The office market will witness no new supply in the next few years

Landlords of grade-B office blocks are improving and refurbishing their buildings to maintain tenants.

RETAIL SAPCE

Bangkok had retail space totalling 3.75 million sq m as of June 2002.

Of the total, 2.2 million sq m were grade- A space and 1.55 million sq m were in grade-B shopping centres, according to CB Richard Ellis.

The occupancy rates for grade-A space stood at 98% and grade-B 81%.

Jones Lang LaSalle reported about 82,000 sq m of retail space was under construction.

Due to the improving economy, many retailers have undertaken expansion and refurbishments.

Among newly launched projects were Siam Paragon in the Pathum Wan area, which would occupy 300,000 sq m.

Central shopping centre on Rama II Road and the retail zone covering 14,000 sq m at All Seasons Place on Wireless Road were among the major additions at the end of 2002.