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Property deals and joint ventures continue, despite slow growth

Thailand’s property sector is ‘improving gradually but is expected to see renewed risks from the fragile global economy and unfavourable political sentiment in the second half, even as competition intensifies,’ says the Bangkok Post in its latest ‘Property Focus’ issue.

Although the economy is slowing, ‘housing demand in Greater Bangkok remained stable in the first quarter, compared with the fourth quarter last year…’[i]

According to the same report, sales were very good in February, March and April, and certainly, despite the slow first quarter, Thailand’s property sector quite a few high-profile deals done and joint ventures launched.

Among the most prominent of the deals was one between AP (Thailand) Plc and the Mitsubishi Estate Group of Japan. The latter is being geared towards some serious expansion across the ASEAN region. Over the next three years the Group plans to spend around 155 billion baht on expanding in Southeast Asia, primarily focusing on Bangkok, Jakarta, Kuala Lumpur, and Singapore.

The two partners have formed a joint venture company called Asian Property (2015) Company, and they are prepared to spend up to 2.507 billion baht to realize their plans.

The joint venture will see AP (Thailand) Plc hold a 51 percent stake (as per the standard rules governing land property ownership in Thailand), with a Singapore-based subsidiary of Mitsubishi Estate Group, named MUR Investment Pte Ltd, accounting for the other 49 percent.

The main project for which the joint venture has been established is to be called Life Asoke, and will be just one step from the MRT Phetchaburi Station.[ii]

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What’s worth noting is that the Mitsubishi Estate Group has invested around four billion baht across four major condominium projects in Thailand up to the end of last year. The return on those projects is expected to be around 10.5 billion baht.

Another powerhouse pairing is that between Sansiri PLC and BTS Group Holdings, who recently announced they were going to launch their first condominium project under a joint venture company.

The joint venture company is to be called BTS Sansiri Holding One Company and, similar to the AP-Mistubishi deal, the project will be centred close by the Morchit BTS and MRT stations. The difference is that this is a strictly 50-50 joint venture deal with a registered capital of 100 million baht. This fund is divided into one million ordinary shares with a par value of 100 baht each.

The venture will be worth 5.7 billion baht and has been called The Line Jatujak-Mochit. It will rise a substantial 43 stories and consist of 841 units, with pre-sales planned in Bangkok, Singapore and Hong Kong for the end of May this year.

Both Sansiri and BTS have said they plan to develop more condominiums along the Skytrain routes in coming years.

In fact, the plan is specifically to establish seven more joint venture companies between Sansiri and BTS Group Holdings. As with their other joint venture, the deals will be split 50-50, and the working capital will be 100 million baht for each project.

As with The Line Jatujak-Mochit high-rise, all seven projects will be centred within a 500 metre radius of any existing or proposed mass transit facility, be that the BTS or the MRT. The company believes pre-sales could easily reach 35 billion baht during this year.

While the above-mentioned joint ventures paint a somewhat rosy picture, it’s worth noting on the downside that the Impact Growth Real Estate Investment Trust (Impact Growth REIT) recently stated it had postponed plans to purchase four assets valued at around three billion baht until 2016. Admittedly, the management of Impact REIT view this delay more as a strategic move than any kind of signal that there is a problem.

Impact had previously planned to transfer the assets‚ the Novotel Bangkok Impact Hotel, an indoor parking, Geneva Industry Condominium and the Beehive Lifestyle Mall into its REIT by the fourth quarter of this year.

Even so, the management of the Impact REIT said they allocated two billion baht for the construction of two more hotels, which are scheduled for launch over the next two years. Once completed, they would be added to the REIT.

At present, the Impact REIT aims for an annualized five percent growth in revenue (which equates to about 2.18 billion baht), with a net profit of at least 50 percent. Impact REIT management is very optimistic about the long-term future of the higher-end hotel market into Thailand, believing their occupancy rate will sit at around 60 percent for 2015, up from 55 percent last year.

The Impact REIT generated a net profit of 632 million baht in the fourth quarter of 2014, and the signs are good for similar sorts of returns for investors during this year.

Even so, as the director-general of the Real Estate Information Center was quoted by the Bangkok Post, “Soaring land prices near mass-transit lines have pushed residential condo development feasibility to the limit.”[iii]

Land prices in the Greater Bangkok area rose an average of nine percent per annum in 2013 and 2014, and this rate is expected to continue in 2015 and beyond. As the property consultant Agency for Real Estate Affairs (AREA) noted, average land prices in Bangkok have risen 84 percent since 1998. In the inner city that gain is actually 158 percent.

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Naturally enough, the really significant gains have been witnessed along the BTS and MRT routes, with land near the Saphan Taksin BTS, for example, jumping 14 percent annually over the last two years.[iv]

Conversely, and perhaps not surprisingly, land prices in Bangkok where there are no mass transit stations or plans for same, or expressways, are either stable or dropping. Given the practically infamous reputation of Bangkok’s traffic, these areas are likely to remain in the financial doldrums for a very long time to come.

[i] Property Focus, Bangkok Post, May 2015 p.7

[ii] http://www.tivarati.com/other/163662/ accessed 26/5/15

[iii] Property Focus, Bangkok Post, May 2015 p.20

[iv] ibid., p.25

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