Baht strengthens- real estate suffers

Baht strengthens- real estate suffers
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The rapid increase in the US dollar and Thai baht exchange rate has largely been explained as weakness of the US dollar around the globe, and more recently by continued inflow of foreign capital to Thailand (particularly via the stock market). Thai baht strength has not only become a major concern for exporters, but also has implications for Thailand´s real estate sectors.

Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle Thailand, said "Whilst certain economists encourage the government to reduce interest rates further in effort to curb the baht strength, low interest rates would help property developers burdened with borrowings. They would also benefit the residential sectors as mortgage for home purchases will be less costly for buyers. However, we expect the impact of the strong Baht to be more negative than positive on the real estate sector."

With the recent poltitcal implications to plague Thailand its economy- domestic consumption, investment and government expenditure has slowed considerably. In response to this, the Thai economy has mostly been driven by exports. Conditions for the domestic factors are set to improve if poltical issues can be resolved over the medium term .However, the threat that the strong baht poses to the export sector is weakening the near term outlook. According to Jones Lang LaSalle Thailand, the industrial property sector is likely to be the sector most negatively impacted by the strengthening of the Thai baht.

Mr. Subyagorn Sansugtaweesub, Head of Industrial at Jones Lang LaSalle, said "Despite high capacity utilisation rates, manufacturers, particularly those in the export sector, appear unwilling to invest further at this time, in part due to concerns that further appreciation of the currency will damage their competitiveness in global markets."

"With a number of existing facilities having been reportedly shut down, manufacturers are actively looking at other locations in the region that offer more competitive resources. Besides the factories themselves, this could negatively impact other industrial real estate, such as warehouses and logistics centers," he added.

Manufacturing is not the only sector to suffer due to the stronger Thai baht- the residential and resort real estate secotr in Thailand, looks set to experience a downfall. Most of the investors looking at these propertities in Thailand are either residing in Thailand as a second home buyer or a retirement residence. As the domesitc currency as strengthened, these buyers are getting less for their dollar, which is deterring people from buying.

The same trend applies to real estate from a broader investment perspective. Though Thai properties still appear inexpensive relative to comparable product in many other markets around the Asian Pacific region, the prices have risen significantly when quoted in US dollars.

"If overseas investors decide to acquire real estate assets in Thailand now, they may have to pay approximately 8% more, comparing to the beginning of the year, due the baht appreciation," Mrs. Suphin said.

Jones Lang LaSalle is the world´s leading real estate money management and services firm, operating in over 430 cities worldwide.