Like much of Thailand's economy, the country's real estate sector is under significant pressure from the ongoing financial crisis, which along with continuing political instability is sapping consumer and investor confidence.
In early April, the World Bank predicted that the Thai economy would contract by 2.7%, slightly below the government's own estimate of around 3%, as the country's export markets dried up and industrial production slowed.
Of equal concern, especially to foreign investors in the property market, was a renewed surge of political unrest in early April, which saw thousands of demonstrators take to the streets to protest against the government. A similar wave of demonstrations last November saw tourist arrivals plummet and consumer confidence plunge. However, this time the crisis did not paralyse the airports.
Along with a drying up of credit from banks uneasy over the political and economic climate, these factors have affected the local property market.
One of the segments of the real estate sector that has been hardest hit is sales to foreigners. A report carried by an English-language daily said that residential property projects valued at more than $280m in resort districts had been put on hold due to dwindling foreign demand.
According to Phanom Kanjanathiemthao, the managing director of real estate firm Knight Frank Charter (Thailand), there had been a 50% fall off in demand for properties by overseas investors in March compared to the same month in 2008.
Developers were being advised to postpone the launch of new residential projects until the second half of 2010, Phanom said in an interview with The Nation.
This trend was borne out by a report issued by real estate firm CB Richard Ellis in early April, which said there had been a significant drop in real estate transactions, fewer property launches and an increase in the number of projects being cancelled at the resort region of Phuket in the last quarter of 2008.
While the report did not predict a crash in the local property market, which it described as being "foreign-driven", it did say the economic slowdown and the closure of Bangkok's main airports by antigovernment protestors late last year had hurt the sector.
David Simister, the chairman of CB Richard Ellis (Thailand), said that despite a spate of projects being put on hold, the long-term outlook for the Phuket property market was positive, though less glowing in the short term.
"That being said, it is unlikely that demand for these high-end properties will recover before the global economy improves," he said in a statement accompanying the report.
The local property market has also witnessed a slowdown, with a decline in property sales in Bangkok, though it has been suggested that this is in part due to buyers waiting for prices to fall while owners and developers have not felt pressured to lower their expectations.
Though property prices are likely to decline, the drop should only be moderate, according to Suphin Mechuchep, the managing director of Jones Lang Lasalle (Thailand), and be nothing like the near-crash experienced in the wake of the 1997 Asian financial crisis. Suphin highlighted that the 1997 crisis was one of Thai financial institutions, forcing developers to sell projects cheaply because their investment relied on project finance.
"Developers' debt-to-equity ratio was very high as their investment leveraged at only 20-30%, compared with the current 50-60%," she said in the February 9 edition of Property Report Asia. "With no forced sales, prices will not collapse but just weaken to the initial selling prices during the launch period."
Concerned by the weakening position of the real estate sector, and the associated construction industry, both the government and the central bank have moved to shore up the property market, the former with tax relief and the latter with a series of interest rate cuts.
As part of its initial $3.3bn economic stimulus programme, unveiled in January, the government announced a new tax allowance of up to $8000 for people who buy a new home this year, the extension of a tax allowance of up to $2800 a year for mortgage interest payments and property tax breaks for companies. According to the Finance Ministry, the relief measures would cost the government about $1bn in lost revenue.
On April 9, the Bank of Thailand reduced its benchmark interest rate by 25 basis points to 1.25%, its lowest level since June 2003. Since December, the bank's Monetary Policy Committee has cut key interest rates by 250 basis points in an effort to encourage lending and bolster consumer spending.
As yet, it does not appear that either rate cuts or tax breaks have served to boost property sales, though these measures will take time to have an appreciable affect. Until then, the Thai real estate sector is expected to experience slow trading and have to bide its time before the markets pick up.