Property SnapshotCOLLIERS INTERNATIONAL THAILAND | RESEARCH & FORECASTING

THAILAND ECONOMY & PROPERTY MARKET COLLIERS INTERNATIONAL THAILAND - MONTHLY VIEW DEC 2009

Economy

Thailand’s GDP contracted by 2.8% in Q3 y/y, an improvement from a contraction of 7.1% and 4.9% in Q1 & Q2 respectively y/y. This represented an increase of 1.3% for Q3 from the previous quarter. The tentative signs of recovery were attributable to the global economic recovery and domestic stimulus measures spurring consumption. The Bank of Thailand has forecast the economy would grow 3.3-5.3% next year, compared with 3-4% projected by the state planning agency NESDB and 3.5% expected by economists polled by Reuters.

The Krung Thai Business Index (KTBI) saw a rise in business confidence for Q3, topping the 50 point level for the first time since Q2 2008. At 52.31, this was the third consecutive quarterly rise and represents the high-est number since Q2 2005. The entrepreneurs surveyed were confident on four out of five aspects, namely overall economy, market conditions, production and investment and financial conditions. However, there was anxiety over raw material and energy costs as well as interest rate costs going into 2010. Confidence for Q4 2009 has also risen to 53.44 from 50.56 in the last quarter, reflecting positive views towards the Thai Khem Keng (Strong Thailand) Stimulus Package and budget disbursements expected in Q4.

The Weighted-average Interbank Exchange Rate stood at 33.212 baht to the US dollar at the end of Novem-ber, a rise of approximately 0.66% from the corresponding end of October figure. There has been a consistent strengthening of the baht against the US dollar over the current year, in which the dollar has weakened by 4.9% against the baht. However the baht depreciated in November by 0.16% m/m against a basket of cur-rencies of its biggest trading partners as expressed by Nominal Effective Exchange Rate (NEER). In fact for 2009 up to November, the baht has actually devalued by 0.51% using the NEER index. This suggests that dollar weakness is the main factor and that overall the baht remains competitively priced. However the re-

cent devaluation of Vietnamese dong by 5% may create strains for Thailand’s lower added-value exports such as agriculture. Further devaluations caused by black market pressures could further weaken Thailand’s trading position vis-à-vis one of its most significant and growing trading competitors.

Core inflation stood at 0% m/m and only a negligible 0.1% y/y in November. For headline inflation (including food and energy prices) the figures were 0.3% and 1.9% respectively. This shows the firm monetary footing under-pinning the Thai economy and any instability will likely be in the form of volatile oil and gas prices. As a result, the Bank of Thailand’s Monetary Policy Committee de-

cided in early December to keep its 1-day repurchase rate at 1.25% in order to maintain the current fragile growth prospects in to the new year. Many commentators predict rates to possibly rise in H2 2010 if inflationary pressures take hold.

The construction materials price index in November 2009 decreased 1.3% from the previous month and registered a decrease of 2.5% y/y. This was attributable to slackening construction activity but could act as a further spur for future development activity as material costs account for 40-60% of overall construction costs.

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The tentative signs of recovery were attributable to the global economic recovery and domestic stimulus measures spurring consumption. Many commentators predict rates to possibly rise in H2 2010

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Effects of the Dubai World debt “standstill”

On November 25, it was announced that Dubai World, the largest corporate entity of the Dubai emirate, would seek a “standstill” to its US$80 billion in debts. The news sent shock waves through the global financial community and questions were raised in relation to Thailand’s exposure to Dubai World and its offshoots. The first Islamic bond payment of US$ 3.59 billion, due on 15 December for its real estate arm Nakheel, was covered by the Dubai government; based on a 10 billion dollar loan from the Abu Dhabi emirate.

Overall Thailand’s exposure to Dubai is very limited and a greater impact is likely to come about through overall downturn in sentiment globally if the situation deteriorates. However it is predicted that flows of funds from the other emirates, notably oil-rich Abu Dhabi, will continue to be made available to prop up the stricken emirate.

DP World is one of the largest marine terminal operators in the world, with 49 terminals and 12 new developments across 31 countries. DP World owns a 34.5% share of Laem Chabang International Terminal Corporation, operators of the largest port in Thailand near Chonburi. DP World had received no financing from Dubai World since 2007, when it became an independently listed company. The company claims to have plentiful cash to meet their finance and investment needs for the foreseeable future.

Istithmar World, which is an investment offshoot of Dubai World, is also independent of its parent. Dubai World stated that the company is also on a firm financial footing. Istithmar World sold its 14.92% share of property developer Raimon Land in August 2009 and only retains 6.27% in the company through Thai NVDR. No announcement has been made as to the current status of this shareholding.

Bumrungrad Hospital Plc said it had already scrapped a planned joint venture to build a hospital in Dubai with Istithmar. They suspended the venture plan last year and sold back its entire stake to Istithmar earlier in 2009.

Nakheel, the real estate arm of Dubai World is directly affected and has some US$ 6 billion in Islamic bonds. It is a joint venture partner in the W. Koh Samui Retreat and Residences and W Bangkok in Sathorn Road. Both projects are at various stages of development; and capital and debt have been put in place so it is unlikey to impact both projects.

Italian-Thai plc and Nawarat Patanakarn plc have been investing in the construction sector in the UAE through two subsidies: ITD-Nawarat, 60% owned by Italian-Thai and 40% by Nawarat Patanakarn, is involved in The Palm Jumeirah-Crescent Plot No.36 and 37 projects in Dubai as a sub-contractor. The projects have been completed but the companies could not collect a total of Baht 800 million, for which both companies had already set aside reserves for doubtful debt. They are now in the process of debt settlement.

In March, 2009, both companies invested in QINA Contracting L.L.C., in which Italian-Thai holds 24% and Nawarat Patanakarn 20%. QINA Contracting was established with the objective of conducting construction business in UAE. The investment the company made in QINA Contracting L.L.C. as of 30th September 2009 was Baht 7.11 million for Italian Thai and Baht 5.92 million from Nawarat Patanakarn. Presently, QINA Contracting L.L.C. has not started executing any construction project, only preparing for bidding in the UAE.

Minor International Plc has a contract to manage a 300-room hotel owned by Nakheel in Dubai due to open in 2012. The company is confident that the situation regarding Dubai will be resolved by then.

The Thai construction business in the Middle East is concentrated mainly in gas rich Qatar. Some impact could be felt from Thai construction workers in Dubai returning home.

Overall Thailand’s exposure to Dubai is very limited and a greater impact is likely to come about through overall downturn in sentiment globally if the situation deteriorates.

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Investment

Foreign Direct Investment (FDI) in real estate stood at Baht 2.524 billion in September 2009. This represents a 29% fall y/y but the highest monthly figure for the year so far. Tentative signs that foreign investors are considering Thailand again.

There were no listings on Stock Exchange of Thailand (SET) over the past few months. However the Thanasiri Group became the first property developer to list on the Market for Alternative Investment of SET. The company specializes in landed housing projects in Nonthaburi and Phuket and has a registered capital of Baht 255 million.

Thailand’s CH Karnchang, Thailand’s second-largest contractor, said in November that it would issue 206.57 million new shares in a rights issue to raise Baht 1.1 billion ($33.12 million) for working capital and expansion.

Transactions

L.P.N. Development Public Company Limited completed the purchase of land for developing Lumpini Ville Latphrao-Chokechai 4 in October, 2009. The plot has a total area of 7.425 rai or 11,000 sq m in Bang-Kapi District, Bangkok. It is currently vacant land and the overall value is Baht 222,750,000. This plot of land will be developed into a residential condominium consisting of two buildings with 18 levels each.

CIMB Thai Bank entered into a sale and purchase agreement with undisclosed buyers for just over Baht 1 billion for CIMB Thai Sathorn buildings in North Sathorn Road. The two freehold buildings consist of an office building with NLA of 21,633 sq m plus 3 basement levels and a canteen building of 699 sq m. They are currently the headquarters of the bank and the bank is expected to vacate in March for premises in Lang Suan Road.

Bangkok Union Insurance (BUI) Building on Surawongse Road was bought by the TCC Group from the Leenuttapong Family for Baht 500 million in October 2009. The building has a total floor area of 28,000 sq m and land area of 2 rai 1 ngan 94 sq wah (3,976 sq m).

The Sathorn Gardens condominium development on Sathorn Road recently completed a private sale to the investor who purchased units covering 3,700 square metres. The purchase was made through a Hong Kong company for an undisclosed amount.

Office

No major new office developments were completed in H2 2009 and the current demand has remained weak during the period. Most vendors cut their rental rates by 5%-10% during lease renewals in an attempt to keep their premises occupied during Q3 2009. Fit-out costs remained the key factor deterring tenants from relocating to other premises.

The overall take-up was slower than expected during H2 2009 as individual tenants reduced their floor area requirements, putting upward pressure on the vacancy rate. There have been no major relocations since the beginning of 2009. The current trend is expected to continue for the first few months of 2010.

No new supply will added for Q4 2009 but in November the Chartered Square Building in Sathorn was relaunched.

MAJOR TRANSACTIONS for Q3

UM Tower (lease) Lufthansa Airlines 8,100 sq ft Athenee Tower (lease) USAID 32,300 sq ft Sermit Tower (lease) The Value Systems Company Limited 26,900 sq ft CRC Tower, All Seasons Place (lease) UAE Embassy 25,800 sq ft Thai Military Bank Building (sale) CP Real Estate Group N/A

Tentative signs that foreign investors are considering Thailand again.

The overall take-up was slower than expected during H2 2009 as individual tenants reduced their floor area requirements, putting upward pressure on the vacancy rate.

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Condominium

It is forecast that approximately 70,000 units will be sold for the whole of 2009, a 4-5% reduction from 2008.

New launches of high-end condominiums have slowed, as developers have focused on new projects aimed at the middle and upper-middle income segments. These are primarily located in the suburbs of the city, especially in the vicinity of the new airport link, subway and sky train extensions that will come online over the next five years. There will be around 60 new condominium projects launched this year, totaling approximately 22,000 units, an increase of 9.8% from last year.

The price of new condominium units has increased 5-10% by Q3 2009 compared to last year, but some developers have reduced their prices by 5-10% and incentives have been introduced to attract customers, such as free management fees for the first three years, gift vouchers and furniture. Developers are focusing on smaller unit sizes priced at Baht 1 million to Baht 3 million per unit, targeting the biggest buying segment with an income of less than Baht 50,000 a month.

The first half of 2010 is expected to be a buoyant period for the residential market due to the impact of the government’s economic stimulus measures, low interest rates, potential termination of tax breaks for buyers at the end of March, relaxation of the Board of Investment’s regulations for low and mid-income housing, more affordable units and increasing consumer confidence. The second half of 2010 is likely to see an upward trend in interest rates which is likely to temper activity somewhat.

L.P.N. Development Plc sold out a total of 3,000 units of its two new condominium projects in Chok Chai 4 and 75% of the Pin Klao project in November with Baht 4 billion in sales. The average price of apartment units were Baht 1.3 million baht and Baht 1.2 million respectively.

Supalai Plc sold out all of its units at Supalai Park Asoke - Ratchada for a total of Baht 1.42 billion. Prices started at Baht 1.9 million. Also this month Supalai Park Ratchayothin sold 70% of its units within 3 days of the launch. The total value of this project is Baht 290 million.

Industrial

Improved economic indicators such as stronger GDP growth, increasing order & production rates, lower unemployment rates, etc. lead to the belief that the industrial sector could be on the road to recovery. This is supported by an increase in inquiries and more transactions so far in Q4.

However, the current situation at Map Ta Phut, Thailand’s largest industrial estate, continues to cast a long shadow over the industrial sector, especially foreign investment in the oil and gas sector. It was only partially resolved when the Supreme Administrative Court in November allowed only 11 projects out of 76 in Map Ta Phut suspended by the Administrative Court in September to proceed. The rest remain suspended pending environmental assessments.

The 76 ventures have a total value of Baht 400 billion ($12.1 billion) and delays in their implementation could lead to a cut in GDP growth next year by up to 0.5 percentage points, according to the Bank of Thailand.

Developers are focusing on smaller unit sizes priced at Baht 1 million to Baht 3 million per unit

The current situation at Map Ta Phut, Thailand’s largest industrial estate, continues to cast a long shadow over the industrial sector

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Hotel

Tourism arrivals were up 14.97% in October y/y, with significant increases being registered from travelers from Russia, China, Hong Kong, India and Vietnam. The increase in travel tax in the UK in November could dent tourism from one of Thailand’s biggest markets. Despite the political uncertainties, Thailand still remains a strong magnet for travelers.

Occupancy rates in November for luxury hotels in Bangkok averaged around 70% but with wide variations of between 42-89%. This is a sign that the hotel market is bouncing back after the closure of the Bangkok airports about a year ago that crippled the hotel industry for months. It would be unfair to compare occupancy rates and room rates with those of last year when some hotels’ occupancy stood at single digits.

The level of advance booking at hotels during the high season this year is reported to be lower than last year due to the continuing global economic and domestic political problems, according to the Thai Hotels Association. These bookings were made prior to the events last November and December and may be a better reflection of overall sentiment.

Bangkok hotels had advance bookings of 50-60% of capacity for December which is lower than the average of nearly 70% for the same month in 2008. Many big hotel operators have offered 50% discounts or one free night when staying two nights, even in the high season. Some operators in Thailand had already reduced their room rates or packages tour by up to 32%.

Best Western opened its Premier Amaranth Suvarnabhumi Airport hotel on King Kaew Road. About 10 minutes drive from the airport, the seven-level building features 238 de luxe suites and 39 executive club floor rooms.

The Ibis Phuket Kata opened at the beginning of the month. Located on Kata Road, the hotel is a15 minute walk to Kata Beach. The three-star hotel features 250 standard rooms of 20.55 square metres, and eight family rooms of 30 square metres.

Kasemkij has opened the Kantary Hotel and serviced apartments in Kabin Buri district in Prachin Buri. The 12-level building consists of 180 rooms of three types.

The Ritz-Carlton Hotel Company, L.L.C., will open Phulay Bay, a Ritz-Carlton Reserve on December 22, 2009, in Krabi, Southern Thailand.

Retail

Thailand’s retail business in the fourth quarter 2009 is encouraging. The government stimulus package has released money into the system, ultimately increasing consumer spending and sales. Thailand’s consumer confidence rose to 69.1 in November after falling a month earlier. All eyes will be focused on Christmas and New Year sales for further signs of growing confidence.

The 23rd Robinson branch opened in Khon Kaen on Dec 3. The Baht 680 million store covers 20,000 square metres. Robinson is due to add eight stores in three years

The property giant Land & Houses Plc (LH) is preparing to launch its first shopping mall, Terminal 21 worth Baht 6 billion, hoping the new complex will help expand its rental income. Terminal 21 comprises a nine storey shopping complex with a total rental area of 40,000 square metres for at least 600 retail shops and a 20-storey hotel. It is due to open in the third quarter of 2011.

The new retail law is still in the process of having a final draft readied for approval. The focus of the law would be to regulate larger retail developments, especially in the inner city areas. Any retail development over 120 sq m would need official approval from a committee. Such developments would be divided into 4 categories based on floor area. Local and foreign retail developers will have to adjust their strategies to cope. Tesco Lotus are continuing to expand their smaller Value and Express stores throughout Thailand for example.

Despite the political uncertainties, Thailand still remains a strong magnet for travelers.

The government stimulus package has released money into the system, ultimately increasing consumer spending and sales.

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Serviced Apartment

The 300-room Sukhumvit Park Bangkok Marriott Executive Apartments in Sukhumvit Soi 24 opened in November, targeting demand for long-stay apartments from business travelers.

There is a continuing trend for serviced apartments offering daily rates which technically can only be offered by those who possess a hotel license.

Infrastructure

The Bangkok Metropolitan Administration plans to develop a monorail and light railway system, hoping the first link will emerge somewhere near Chulalongkorn University in Pathumwan district in about three years. The new rail system would serve as a feeder system for the BTS electric train and subway systems in the inner city as well as the Airport Rail Link which goes to Suvarnabhumi airport.

The diplomatic dispute between Thailand and Cambodia is threatening to derail the Baht 500 billion Asian rail link from southern China to Singapore. This relates to the 6 km section of rail track needed to connect Aranyaprathet in Thailand to Poipet in Cambodia which is key to the functioning of the 5,300 km Singapore to Kunming Rail Link. The large scale project is for cross-border cargo transportation in the region and is estimated to be completed in 2015. The Transport Ministry has proposed a long-term plan for the development of four high speed trains: Bangkok to Chiang Mai (754 km), to Nong Khai (615 km), to Chanthaburi (330 km), and to Padang Besar (985 km).

There is a continuing trend for serviced apartments offering daily rates.

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The current situation at Map Ta Phut, Thailand’s largest industrial estate, continues to cast a long shadow over the industrial sector

Antony Picon Senior Manager | Research & Advisory

antony.picon@colliers.com

Surachet Kongcheep Manager | Research & Advisorysurachet.kongcheep@colliers.com

PROPERTY SNAPSHOT | DEC 2009