Thailand’s Other Vulnerabilities

Certain external events are foreseeable (or perhaps, inevitable), and can have an oversized impact on Thailand’s tourism industry, especially when you consider that their origins may not necessarily be in Thailand, or for that matter in Asia. Even a healthy economy can be affected by “contagion” during global crises and meltdowns.

Consider a global stock market crash, and the recession which would follow. It is highly unlikely to be the Thai markets which lead to any such collapse today, but Thailand would feel the effects. A drop off in global spending would mean fewer people traveling to Thailand, and fewer Phuket properties being bought.

The reaction of Central Bankers to an economic downturn is typically to lower interest rates, which could lead to a quick rebound in the property sector. But the initial downturns in tourism and property would be unavoidable.

In every real estate market in the world prices begin to stagnate and even fall when supply outweighs demand. In Thailand, it is important to keep a close eye on over supply, and it is a consideration which must be assessed periodically for the potential risk or reward it offers in real estate investing.

Based on the numbers of new tourists currently visiting the country, and the rapidly growing wealth of Thai nationals, it does not appear over supply will become an issue, unless a major global catalyst were to simultaneously affect both the Thai middle class and the tourist numbers.

New Phuket property owners and potential buyers should nevertheless be aware of the supply-demand dynamic within the Phuket real estate sector.

Right now, while development is extremely buoyant, buyers must understand that sellers are competing with attractively-priced new developments. Economies of scale on larger developments over the years have helped to keep prices down, so sellers may have difficulty finding a willing buyer at their desired price until development slows, and new sites come up less frequently.

With so many new developments springing up over the last few years, the resale market will potentially have a massive ‘overhang’. Buyers must have a long-term approach if they are to take advantage of the supply-demand dynamics, and over the long term they will likely be rewarded.

Another troubling sales tactic which has come to light is foreigners literally being told they can wind up with one or more free properties if they buy a number of units off-plan.

Some agents are encouraging foreigners to buy multiple condominiums, with the promise that the agent will, upon completion, personally broker the sale of enough units to either break even or turn a profit. The sale will allegedly leave the foreign investor with at least 1, and possibly many “free” condominiums.

We don’t necessarily want to call this practice a lie, so let us just say it is a non-contractual promise which is highly unlikely ever to be realised. In a worst case scenario, the investor owns a slew of condos, and has paid for all of them. However, if they are committing too much of their savings or their nest egg to this strategy, it could leave the investor strapped for cash should the “highly profitable sale” (on which this whole marketing scheme is based) never materialise.

Any buyer should see through this for what it is – a sales tactic designed to enrich one person (Hint: not the investor). The years ahead may see an extended period of detente, whereby the authorities do not enforce certain behaviours. Perhaps we will also see laws more favourable to prospective foreign land ownership.

But if there are further issues related to illegal ownership, dubious marketing schemes, and non-extensions of 30-year leases, the subsequent reporting will not be pleasant. And the publicity will certainly not be positive.

While some articles engendering negative publicity for the Thai and Phuket real estate sectors may have been well intended, the foreign press sometimes do not understand what they are writing about.

Occasionally a foreigner finds a journalist with a sympathetic ear, but it is obvious that the reporter has not fully comprehended the true nature of the story they are covering. Sometimes the unfortunate event being written about was nothing but a poor decision made by a foreigner – a decision that could easily have been avoided – but this does not come across in the reporting.

It is possible (even likely) the foreigner should have had enough information to make an informed and intelligent decision, and could have avoided the predicament in which they found themselves. In some cases the foreigner actually violated the law by acquiring control over landed property, but the reporter has failed to mention this.

While we sympathies with anyone who has had bad luck (none of us wants to read about someone losing their home and/or their investment), it is important to note that bad publicity in the press is not necessarily the result of disreputable activity within the industry.

Sometimes it is, but sometimes individuals make avoidable mistakes. Unfortunately, reporters do not always take the time to uncover the truth behind the tale being spun by the aggrieved foreigner.