A panoramic view of Bangkok at dusk. The Thai capital has been the world's most visited city for four years. Photo: iStock

Bangkok condominiums should be a great buy with some 40,000 unsold units on the market and 53,000 new ones expected to be launched within this year.

But a combination of tighter Bank of Thailand (BoT) regulations and currency controls slapped on outflows from China are likely to put a damper on speculative interest that has been one of the main drivers of the market.

Thailand was the most popular country for Chinese property buyers last year, judging by the number of inquiries received on Juwai.com, a Chinese international property portal.

“This reflects excellent offerings from developers combined with quality, lifestyle and investment prospects,” Carrie Law, Juwai’s chief executive officer, told a recent press conference in Bangkok.

She estimated that 15,000 new condos were sold to Chinese and Hong Kong buyers last year, with sales valued at US$2.3 billion.

Thailand now ranks as the fourth most popular destination for Chinese foreign property purchases after the United States ($30.4 bn), Hong Kong ($16.2 bn) and Australia ($14.1 bn). Condos bought in Thailand are generally one sixth the price of similar properties in Hong Kong or Shanghai.

Law expects Thailand to become more popular among Chinese buyers this year as the China-US trade war cools interest in US property as regulatory and other risks rise.

Prospective Chinese buyers gather around a Thai property development model. Photo: Facebook

But there are other factors which could effect the Thai market, including the gathering slowdown of the Chinese economy, the weakening yuan currency against the baht and growing constraints on currency transfers out of China.

Central bank governor Veerathai Santiprabhob has expressed concerns about property developers banking on Chinese buyers, given these uncertainties.

Last year, 60,900 new condominium units were launched in 138 projects across the Thai capital, most of them built along new mass transit lines.

That brought the city’s accumulated supply to 610,900 units, or close to one condo per 13 urban dwellers, according to Nexus Property Marketing Company, a Thai real estate agent and consultant.

About 70% of those condos are in the lower to medium price range, ranging between 2.5 to 5 million baht ($78,700-$157,400), generally deemed as affordable for Thai nationals who remain the main buyers.

For years, young Thai salary earners have been moving out of the traditional extended Asian family nest into their own 25-50 square meter condos.

More recently, they have also been investing in second and third condos to resell or rent out, preferably to deep-pocketed foreigners. As of April 1, however, the BoT will start to curtail the speculative side of this trend.

Under the new regulations Thais buying a second or third property will need to put down 20-30% as a down payment and for those who buy a luxury condo, above 10 million baht, they need to pay a down payment of 20-30%. For first home owners the down payment is only 10% of the property’s valuation.

Bank of Thailand governor Veerathai Santiprabhob. Photo: Youtube

BoT Governor Veerathai has rung warning bells for almost a year about Thai banks’ growing exposure to mortgage loans before announcing the stricter down payment requirements last November. The regulations will go into effect on April 1.

The central bank has also intensified its monitoring of banks’ mortgage loans to check that they are sticking to their required loan-to-value ratios, currently set by BoT at 90-95%.

Some banks have reportedly been making mortgage loans of 100% the property’s value by ignoring discounts property developers are offering buyers.

The central bank’s new prudential measures are generally viewed as proactive and not indicative of an impending property or financial crisis, industry sources say.

Thailand was at the heart of the 1997-98 Asian financial crisis, sparked in part by the BoT’s failed attempt to protect the baht currency against speculators who smelled blood when the country’s current account deficit ballooned in 1996.

At the time corporate and bank dollar-denominated borrowing was soaring, much of it for dubious property developments in Bangkok. After the crash, a World Bank report dubbed Bangkok the world’s most overbuilt city.

“This is definitely different,” said Parson Singha, a banking sector expert at Fitch Ratings (Thailand) Ltd, a credit rating agency.

For starters, the Thai economy is still plugging along fine at around 4% while exports were up a healthy 6.7% in 2018.

Second, corporate Thailand has increasingly turned away from bank lending and towards the baht bond market to finance expansions. That’s also true of Stock Exchange of Thailand-listed property developers. According to BoT data, bank loans to the real estate sector account for about 6% of total outstanding bank credit.

Finally, although mortgage loans have been a strong growth area for Thai banks, they are not viewed as overly exposed.

“Looking at the bigger picture, mortgages are only about 16-17% of commercial bank lending, so it’s not a huge segment,” Singha said.

BoT Governor Veerathai has also expressed concerns about increasing foreign speculation in Bangkok condominiums, particularly by Chinese investors. The trend, however, is not new.

Chinese tourists discovered “Amazing Thailand” almost a decade ago and have consistently accounted for the largest share of foreign arrivals since 2012.

An estimated 10.6 million Chinese tourists arrived in the kingdom last year, and 11-11.5 million are expected to land in 2019, most of them foreign independent travelers rather than as part of group tours, according to the Association of Thai Travel Agents, a trade group.

Past tourist inflows to Thailand, including Scandinavians and Russians in the late 2000s, led to mini-surges in condominium purchases in popular destinations such as Pattaya and Phuket, as tourists took advantage of the relatively cheap condo or housing prices near the beach.

A similar trend has been seen with the Chinese market, although it has been centered more on Bangkok.

“Last year the largest overseas buyer market was from China,” said Nalinrat Charoensuphong, managing director of Nexus Property Marketing in Bangkok.

“They are interested in (Bangkok’s) Sukhumvit Road and Ratchadaphisek Road areas, where they may have taken up 30-40% of the new projects coming up last year.”

Most Chinese investors, however, appear to be seeking a safe investment haven rather than a get-away.

A large crowd of mainly Chinese tourists at Bangkok’s Grand Palace. Photo: AFP

“One reason Chinese people want to buy property in Thailand is because they want to move money out of the country, so whatever offers a high return on their money is okay,” Nalinrat said.

Thai and Chinese property agents flogging condominiums on the China market point out that Bangkok property prices have risen more than 10% per annum for the past five years, and are up as much as 20% in prime areas, with the jumps in part attributable to huge investments in mass transit line extensions.

Some agents have inflated the prices above prevailing market rates by 20-25%, raising concerns that some Chinese buyers will forgo their down payments and refuse to pay the full amounts when they realize they have been conned.

That could potentially add to Bangkok’s condo glut and cool future sales. So far, few have been willing to forgo their down payments that usually amount to 30% of the condo price.

Under Thailand’s condominium law only 49% of any building may be foreign owned.

How Chinese buyers are getting their foreign exchange out of China remains a market mystery. Beijing has limited the amount any Chinese national can take abroad to about $50,000 and tries to restrict this for education or medical payments, not property speculation.

Previously, Chinese buyers could get loans from the Thailand-based branches of Bank of China and the Industrial and Commercial Bank of China, but these lending channels have recently been closed. Thai banks cannot lend to foreigners for property purchases, so most sales are made in cash.

These capital restrictions are expected to intensify as the Chinese economy slows in 2019. Another disincentive will be the weakening of the yuan currency against the dollar, and even more so against the appreciating baht.

But if the demand is there, the Chinese have demonstrated a knack for getting their money abroad despite the government’s best efforts to stop them.

“It’s more a question of demand from the Chinese market itself, which can be quite fickle,” said Simon Landy, former executive chairman of Colliers (Thailand) Ltd, an international property consultant.

“If there is a surge of interest again, a lot of supply can be quickly absorbed, though for now the interest level seems to be tapering.”

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