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Chinese Investors in Thailand Selling Off Condo Units and Heading for UK

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For Chinese who already own a condo, the strong baht gives them an opportunity to cash in. Selling off their condo units and converting the cash to yuan. Leaving a glut of condo units on the Thai property market.

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BANGKOK – Thailand’s residential property developers are being forced to rethink their project strategies as  Chinese buyers dwindle. The residential property sector has shrunk by 13% year-on-year in the first half of 2019.

“We are an aggressive company, but we need to be more careful,” said Thitima Rungkwansiriroj, chief financial officer of Singha Estate.

The developer, which is listed on the Stock Exchange of Thailand, has recently postponed a new condominium project in Bangkok.

It was originally scheduled to launch in October, but the company is delaying it until February 2020.

Thitima admitted that the postponement was due to sluggish market demand. “The sales rate of a new project should exceed 30% soon after the pre-sales kickoff and should keep rising. If not, we should delay the launch,” she said.

According to Resinee Sarikaputra, director of research at London-headquartered real estate company Knight Frank, the sales rate for newly launched condos in the quarter ended June dropped to an all-time low of 15.7%.

As of the end of June, the number of unsold condo units in Bangkok rose to 92,815 from 89,765 at the end of 2018.

Singapore’s real estate market is far ahead of other Southeast Asian nations in terms of size, according to index provider MSCI.

Chinese Owners Selling Off Condo Units

Thailand is the third largest in the region but is rapidly catching up to Malaysia, which holds second place. The kingdom was enjoying a boom until last year, with Chinese investors. Bangkok emerged as a popular destination for Chinese tourists.

The Thai residential market has become heavily dependent on the sentiment of Chinese investors. Of the $3 billion transferred from abroad to purchase condo units in Thailand in 2018, 43% came from China.

But Chinese money is now ebbing away from Thailand. Thai properties have become relatively expensive due to a weakening Chinese yuan and strong Thai baht.

Central bank data shows that a monthly average of about Bt2 billion was transferred from China in the first half of this year. A significant drop from more than 3 billion baht in the same period in 2018.

The yuan has depreciated due to China’s economic slowdown and the U.S.-China trade war. Meanwhile, the Thai currency has appreciated because of its large current account surplus.

Since the Sino-U.S. trade war broke out, the yuan has fallen by the largest margin against the baht among major Asian currencies at 13.9%.

Condo Developers Struck by the Slowing Residential Market

Singha Estate joins a line of developers that have been struck by the slowing residential market. One large developer, Noble Development, in May presented a “special” starting price of 4.7 million baht ($150,000) for units of a condominium project in central Bangkok.

The price was 19% lower than its initial starting price of 5.8 million baht. Noble said the project achieved 80% of its pre-sales booking in just two hours.

The discount is seen as a move to generate cash flow in a sluggish market in order to be able to move on to another project.

Ananda Development, one of Thailand’s 10 largest property developers, introduced a project in May but quickly backtracked. The company decided to modify the project further to fit current demand and reintroduced it in early August.

For Chinese who already own a condo, the strong baht gives them an opportunity to cash in. Selling off their condo units and converting the cash to yuan. Leaving a glut of condo units on the Thai property market.

“Investors’ money is heading for places like London, where property is cheaper due to the weak British pound,” Phanom Kanjanathiemthao, managing director at Knight Frank to Nikkei.

The pound is falling as the U.K. looks closer to a no-deal Brexit.

In the meantime, Thai domestic demand for residential properties is not strong enough to make such Chinese owners stay.

Thailand’s High Level of Household Debt Slowing Condo Sales

The country’s high levels of household debt has led the Bank of Thailand to implement measure of restricting mortgage loans. The kingdom’s household debt covered 78.2% of its gross domestic product in 2018.

Since 2013, the figure has been hovering above 70%. In the 2000s, it was below 60%.

The rule restricts loans to 90% for the first home, 80% for the second home and 70% for the third home. Since its implementation on April 1, rejections of mortgage loans by commercial banks have risen by 50%, according to property developers.

Subdued foreign and domestic demand shrunk the Bangkok housing market by 13% in the first half of this year.

Only two out of 12 major developers were able to clinch pre-sales of more than 50%. The average price of Bangkok condos per sq. meter fell by 6% year-on-year.

According to an estimate by local consultancy Agency for Real Estate Affairs, developers are expected to launch 98,251 residential units in 2019. Down 21% from the previous year and the lowest number since 2011.

Source: Nikkei Asian Review

 

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