How to kick-start foreign demand for condominiums

The effect of the global crisis on Asia has worn out, with most economies in the region getting back on track and key Asian cities pulling foreign investors back to their property markets.

However, since Thailand has been politically unstable over the past two years, it has yet to regain its appeal for foreign investors even though it is probably one of the most affordable places for property investment in the region.

Another factor why foreign investors are wary about returning is the strength of the Thai currency against the dollar, though we do not see this as being a major deterrent because Thai properties are still undervalued with room for further capital appreciation.

In the last two years, demand for downtown condominiums was dominated by local buyers, and concentrated on one-bedroom units. The absorption rate for high-end condominiums worth between Bt10 million and Bt20 million, which were in demand during the boom from 2004 to 2008, is very slow. One key factor that would drive the demand for high-end condominiums will be the return of foreign purchasers. Before the global crisis, foreigners accounted for up to 35 per cent of the demand for condominiums in Bangkok's central business district, but this dropped to 18 per cent after the crisis, with most of the buyers being expatriates or frequent visitors.

The result of the latest election shows a clear mandate for Pheu Thai to form the new government, which will hopefully bring about political stability - a key factor in regaining investor confidence. In essence, the Thai market is moving toward the right fundamentals to bring back foreign investors, but if we let the market take its natural course, this may well take a long time. With a new government waiting to be formed, the real-estate sector is one area that could do with more public-sector involvement.

To effectively stimulate foreign demand, there needs to be two sets of policies - one that focuses on the short-term to kick-start the market and another that focuses on sustainable long-term growth.

A short-term stimulus policy should allow special purchasing privileges, but implemented for a limited timeframe. For example, following the Asian crisis, the Condominium Act was amended in 1999 allowing 100 per cent freehold foreign ownership of a condominium's floor area in Bangkok and Pattaya for a five-year period. This is under the condition that the total land area where the condominium is located shall not exceed 5 rai and the project shall comprise no less than forty units.

The policy proved to be effective in boosting foreign demand for condominiums in the short-term and the incoming government should re-visit this policy, but with modifications that apply to current market conditions, like setting the timeframe at two years instead of five years. The policy should be implemented in specific areas including Bangkok and key resorts such as Phuket and Pattaya where demand is largely foreign. The policy should also be extended to both completed and off-plan condominiums that are due for completion within two years from now to help clear unsold inventory.

The stimulus policy should be implemented hand-in-hand with long-term policies that aim to sustain the growth momentum, as investors are looking at markets which provide gains from higher capital values as well as a stable return from rental yields. Many policies have previously been put forward by the private sector, but not considered by past governments, including offering foreigners loan facilities and extending the lease term to 99 years to stimulate demand for landed properties, particularly luxury resort villas as well as boost demand for regional offices.

The new government has many problems to tackle and resolve, and we do hope that an effective Cabinet will be installed that will do the country, its economy and its people some good. The opportunity is in Yingluck Shinawatra's hand to make independent decisions and changes that will help move the country forward.