Fitch: Thai retail developers' large investments pose risks

Real Estate July 11, 2018 16:57

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Thai commercial real-estate developers' increasing need for funding and the potential growth of REITs were discussed during Fitch Ratings Thailand Limited's semi-annual "Property Investment Outlook" briefing on Wednesday.

The growth in new supply of commercial and retail space in Thailand over the next few years will increase competition in the retail real-estate sector and developers' funding needs, said Nichaya Seamanontaprinya of Fitch's corporate ratings team.

Bond issuance by the commercial-property sector has been low, with outstanding bonds of about Bt40 billion, or 1 per cent of the total, in June. 

Fitch expects debt funding, including bond issuance, from commercial developers to increase in the medium term due to several large mixed-use projects in the pipeline. This could result in higher leverage and oversupply if economic growth weakens.

Guest speaker Yingyong Nilasena of the Government Pension Fund highlighted the benefits of investing in commercial real estate through property funds and REITs as they tend to have more stable cash flows, low entry costs for smaller investments and ease of asset and geographical diversification. 

The business needs substantial scale to diversify sufficiently and requires significant management expertise, he added. 

Investors should start by developing a model portfolio, followed by individual fund selection, Yingyong said.