Interview: Chanond Ruangkritya

In what ways has the recent political climate affected the pace of property development?

CHANOND RUANGKRITYA: Thailand has lacked a functioning government that supports the private sector for over a decade and, as a result, the business community has become very adept at riding out political uncertainty.

The property market always rebounds strongly after a disruption, especially in Bangkok, so developers need to be ready for an explosion of pent-up demand. We are using this downtime to refine our back-end systems and improve our workflows to prepare for when things take off again. One positive offshoot for developers resulting from the current political impasse is that the government’s announced plans for BT2trn ($65.4m) of infrastructure projects has been placed on hold. In 2013, when it came to the power play between developers and contractors, it was a seller’s market. The developers had to persuade solid and reputable contractors, who had full order books stemming from government work, to submit bids. This created challenges for smaller, single-project developers, as choosier contractors tended only to work with developers who could position themselves as potential long-term business partners with a solid stream of deals in the pipeline.

Where do you anticipate the strongest prospects for growth within the residential segment?

CHANOND: Thailand is an emerging market with a young population and a growing middle class. Both these factors have spurred housing demand as compared to countries with ageing populations. The residential space, while highly competitive and coming with higher risks, offers developers that understand the dynamics of the residential landscape much higher returns than the commercial segment.

In addition, the residential segment is less prone to international competition. It is tougher for international entrants to gain ground, as understanding and catering to local tastes is a vital factor leading to success. Retail, although it is doing well in Thailand, is a space that can be difficult to penetrate owing to the dominant position of the incumbent market leaders.

The younger segment of the market, which is our target at present, is aspirational and lifestyle-oriented, valuing connectivity, mobility and convenience above all. Given that traffic in Bangkok can be unbearable and unpredictable, properties within a catchment area of around 300 metres from a train station can fetch around 50% more per sq ft and have demonstrated much higher uptake than sites 600 metres away. Today, Bangkok has around 60 train stations, a figure that should reach 300 over the next 25 years. However, information is not always clear on how and where to buy land around prospective locations, and market leadership requires keeping pace with information and rapidly executing on available and viable transactions.

To what extent is the local mortgage industry suited to the requirements of the first home market?

CHANOND: In emerging markets, affordability is a key concern. Many people have moved to cities in the hopes of economic gain and access to credit that is proportional to their monthly household incomes. A fully functioning mortgage system could therefore act as a major engine for residential development.

The 1997-98 Asian financial crisis had much to do with a lack of regulation and transparency in the credit bureau process. Following this, all of the major domestic banks, who are also the major mortgage lenders, have complied with the more stringent central bank regulations. The overall processes in terms of properly pricing in risks are in place and compare favourably to the US, where a lack of checks and balances have failed to price risk properly, leading to the subprime crisis.

However, it must be noted that the property market as a whole is healthy. Distressed assets come about when a system that is highly geared faces a systematic shock.

Gearing levels among listed Thai property companies are very low and the listed developers can be very conservative when it comes to their financial positions.