As we are now in the second quarter of 2014 with the political protests still continuing in the Thai capital, the commercial real estate sector is proving fairly resilient, although the impact and the downside risk of the political situation on the real estate market and investor confidence is as yet unclear.
The protests are beginning to have an impact on the retail market in Bangkok, with declining sales and reductions in rents, but opportunities do now exist for buyers. There is a large supply of new condo units in the pipeline and buyers have greater bargaining influence than before because of higher levels variety and choice. Also, developers have started to offer discounted prices on new projects.
The commercial real estate market is holding up very well in spite of the political turmoil, but the longer it lasts the greater the impact it will have, not on the real estate market but on the overall economy. The Bank of Thailand has cut interest rates and its GDP growth forecast for the year has again been downgraded.
Amid growing concerns of the impact the protests are having on investor confidence, Thailand’s economy has largely been resilient to date. In the past, various economic sectors rebounded almost immediately when the turmoil subsided. But this time around there are signs that the conflict could continue far beyond the lengths of time it took for previous protests to die down.
The main difference between now and the disruptions in the past is that they were shorter in duration. The current situation has now entered its sixth month with no end in sight, which has led to escalating uncertainty in the market. Teflon Thailand’s economy has always bounced back following the coups, street protests and natural disasters but this time it could be different and investors and businesses are becoming increasingly frustrated with the political gridlock.
Developers have held back on launching new projects and condominium sales in central Bangkok have slowed. While real estate companies still say the residential market is buoyant for rentals, office space rentals have also slowed. Amid all the uncertainty in Thailand right now, infrastructure projects will not get going until later this year, at best, which will hamper overall economic progress.
However, with over 100,000 units expected to complete over the next three years, although many developers announced that they have shifted their focus towards lower-risk alternatives, the unrest has caused significantly lower new projects being launched this year. Land prices have flattened out but this has created opportunities in that Bangkok’s condo market. The speculators have largely been removed from the market, leaving real demand from investors and although sales will not be as healthy as last year, there is no let-up in the rental market.