Property in Thailand and the currency equation

The baht still holds strong - and that makes property in Thailand more expensive in other currencies, particularly the Euro and Sterling.

Published in Property Report Thailand magazine, April 2010.

Since early September last year the pound sterling has been on a slide against the Thai Baht, dropping from B56.60 on September 10 to around B49.

That means that the 20-million-baht dream home in Thailand, which would have cost around ?353,000 in September last year, will cost ?408,000 today – an extra ?55,000.

The story’s almost as discouraging if the buyer is paying in Euros. That currency has dropped over the same period from B49.5 to B44.5. The same dream home has gone up in price from €404,000 to €449,000 – an extra €45,000.

The US Dollar has fared rather better, falling 3.5%, which is more encouraging for property developers whose major market is people whose income is paid in Hong Kong dollars, pegged to the USD.

The other major regional markets for property in Thailand, Singapore and China, have hardly been affected – both the Singapore dollar and the Renminbi have remained more or less steady against the baht over the past six months.

“Our enquiries for both rentals and purchases of new and existing properties from the UK and Europe – particularly the UK – have dropped to almost zero in the last 6-8 months due to the fall in the value of the pound and euro versus the Baht,” developer Paul Moorehouse says.

“However Brits and European expatriates in the region earning in dollars, [Singapore or Hong Kong dollars or Renminbi] haven’t been affected as much and we have done reasonably well with them in terms of both sales and rentals over the high season.”

Michael Ayling, managing director of Phuket’s Laguna Resorts & Hotels, sees the problem not so much in terms of currency rates as of the underlying weakness of the UK and European economies, resulting in people in those economies hunkering down and hanging on to their money for now.

Added to this, he says, is the lack of liquidity in the banking system. “As a result we have seen property sales drop off from these previously strong markets.”

His company, too, is focusing sales efforts on countries with stronger currencies. “Our response has been to concentrate more on the Hong Kong, Singapore and China markets whose economies … have stood up far better in the face of the global recession.”

Given Thailand’s lingering political uncertainty, why is the Thai baht currently so strong? Jeremy King of Bangkok-based Knight Asset Management believes it is due to the baht’s new status as the de facto currency in the Mekong region, supported by a weak dollar.

“The Thai baht remains one of the soundest currencies in Asia, backed by US$140 billion in reserves – larger than China’s, proportionate to the economy – a record trade surplus (US$19 billion 12-months-rolling), and a strong banking system with low government, corporate, and household leverage.

“The recent strength in the baht may be more obviously attributed to … the growing role of the baht as the default reserve currency in the Mekong region as Vietnam (particularly now the dong is being devalued), Myanmar, Laos and Cambodia hoard baht rather than US Dollars,” says King.

“The silver lining to the political issues is that Thailand missed out on the global increase in leverage in the mid-2000s.”

Some in the property industry believe that factors other than currency rates are at play. Nick Anthony, managing director of Indigo Real Estate, which concentrates on high-end properties, notes that although Sterling has fallen a long way against the baht in the past six months, it climbed almost as much in the previous half-year.

“Sterling was around 52 to the baht this time last year, so year-on-year there is less than a 5% difference.”
He also points to the continuing resilience of the Thai property market as a factor in damping down sales, particularly in places popular with foreign buyers, such as Phuket, where prices have remained solid.

In his opinion, “Would-be buyers were not impacted so much by the currency, but more by a lack of distress sales or bargains in the Phuket market.”

Jay Walker, sales and marketing manager of Phuket’s Village, Coconut Island, luxury development, also doubts that currency is the “real” factor in buyers’ decisions.

“When buying property people will give all sorts of reasons not to buy into a development and generally speaking the client won’t tell the sales person the real reason. So when anything pops up around the world to use as an excuse, people jump on it. Events such as the Asian Tsunami, world financial crises, airport closures, political uncertainty and now the strong Baht have all been given to me as ‘reasons’ not to buy.”

If people really want to buy, they will, he asserts. “If you have a good product and the right attitude then it will sell.”

Anthony agrees. “Our experience in February has been that global interest remains buoyant from high-end players who continue to spend on lifestyle and quality of life [as opposed to buying for investment reasons].

“Phuket as a property market is reaching maturity. Limited land is available on the west coast, and our research suggests few new luxury projects are being launched in 2010 and few quality resales are offered.

“We expect quality luxury housing stock to tighten further and we expect developers will on average increase prices by 10% or so in 2010.”

Whether currency rates have a major effect on sales or not, every cloud has a silver lining. Moorhouse says, “I know of several UK-based owners who are looking to sell to take advantage of the rate, as they bought at B70-plus to the pound and can therefore realise a 30% profit just on exchange rate alone, never mind the capital appreciation of the past three to five years.”

He is also having success with Australians, whose currency has risen in the past six months against the baht. “Australian buyers have seen a price reduction [in AUD terms] in the past six months.”

Forbes Communications