Thailand-Property

Does Bangkok need a bailout?

As numerous observers and analysts continue to trim their expectations for Thailand’s macro-economic outlook over the next 12-18 months, the Thai government is considering a broad menu of financial stimuli to combat slowing growth.

One curious measure under consideration is reported to be designed to buoy Bangkok’s (and by extension the country’s) residential real estate market.

This measure seeks to reduce the ownership transfer fee of freehold real estate from 2.00 percent to 0.01 percent of a property’s assessed value, and to reduce the mortgage registration fee from 1.00 percent to 0.01 percent of the value of the loan. Collectively these fees account for about 40 percent of the typical transaction costs for residential real estate in Thailand.

Champions of the measure suggest that if successfully implemented, housing will become more affordable, encouraging new transaction activity and thereby providing a boost to the economy.

Yet limited precedence for such intervention and a relatively healthy real estate market despite bleak macro-economic conditions beg the question, does the market really need external stimulation?

Consider the following:

With such a large supply pipeline and a less stable demand base than other market segments, new policies to strengthen demand for condominiums could yield a range of benefits. Private consumption could increase as buyers take advantage of reduced transfer fees, clearing developer backlogs more quickly and potentially facilitating new private investment, another key component to macroeconomic growth.

While it is not immediately clear whether the market truly needs external stimuli, the policies as proposed represent a safe step towards shoring up demand.

This column was written by Andrew Gulbrandson, Head of Research and Consulting for JLL Thailand and is responsible for coordinating much of the firm’s ongoing consultancy work in Myanmar. It is reproduced with kind permission.