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Outlook money finance

 

I think it is fair to say that during the course of the last month or so, there have been some quite shocking events unfolding in the West, of such significance that many people seem to believe that they have the potential to affect the local property market here.  In particular, I am thinking of the downgrading of the United States credit rating, the continuing Eurozone debt crisis and the outrageous riots in London and many of the other big cities in the UK.  
 
Focusing initially on the sovereign debt crisis that exists on both sides of the Atlantic, it clearly has had a significant effect on equity markets here in Asia, although whether it should have had quite that effect it has had is undoubtedly open to question.  But what about the property market here in Pattaya?  As I have said on many occasions, certain sectors of the Pattaya real estate market have, for much of the last decade, been driven to a significant extent by foreign money.  This has meant that since the start of the global economic crisis  many of those sectors have slowed very considerably.  
 
MoneyThus, I think there is no doubt that events such as those mentioned above have the potential to affect the local property market very significantly.  However, they already have.  The vast majority of prospective purchasers who would be affected by this news, were already affected when the global economic crisis first hit.  Accordingly, those individuals left the Pattaya property market some time ago and have never really returned, at least not in any significant numbers.  Therefore, the extent to which the continuing deterioration of the economic situation in the West has the potential to affect the local property market negatively is, I think, limited.  I am certainly not saying that some individuals won’t decide against buying property in Thailand because the problems are apparently getting worse.  However, I do not believe there will enough of them to cause a significant change in the market.  
 
The sector of the real market in Pattaya that has been doing best in recent months is off plan sales in new developments.  A high proportion of the units sold have been purchased, in some developments, by Thais and, in others, by Russians.  If this is to change, and this sector of the market to slow, it will have to be an indirect result of what is happening in the West and is thus far from certain to happen.  
 
Insofar as the secondary market is concerned, what best categorizes those who are buying is that no two buyers appear to be looking for the same thing or are from the same background.  I don’t anticipate the limited demand coming from these individuals to change to any significant extent due to the sovereign debt crisis because I think that Thailand and Pattaya will continue to attract people from overseas and a proportion of them will love it enough such that they will buy real estate here.  
 
In the circumstances, then, I think the market is unlikely to change very significantly simply due to the on-going economic problems in Europe and the United States.  Of course, if the domestic economy starts to struggle as a result, then that may change.  Moreover, it might be fair to conclude that the eventual recovery that we have all been hoping for may now be further away than one might previously have thought.   
 
As for the outlook for Thailand generally, while it is easy simply to panic and assume that these Western problems are bad for everyone in the World economy, I am far from convinced that this will actually be the case.  Whatever happens, we all still have to live.  We continue to need food, clothes, homes, etc.  Thus demand for goods will not simply come to an end.  The nature of that demand will however change in that people will want more for less, i.e lower prices.
 
In order to offer cheaper prices, manufacturers have to lower their costs and the most common way that has been achieved in recent years has been to move manufacturing operations to Asia where labour is cheap and plentiful while expensive regulatory measures are far more scarce than in the West.  Thus, one could easily argue that if there is to be another significant economic downturn in the West it could, in the end, prove to be good for Asia with more manufacturing operations moving here, and so continuing the shift in the World’s economic balance of power which has been moving to Asia for some time now.
 
China is no longer as cheap as it was and thus places like Thailand are becoming ever more attractive for multi-national manufacturing companies, a fact that was borne out when I drove past the Amata City industrial estate last week.  The amount of new development over there is huge, with massive new factories continuing to be built.  Pattaya is a focal point for the 38 industrial estates in this region and thus their growth contributes directly to the growth of the City, both generally and from a real estate perspective.
 
Therefore, while the news from the West is far from ideal, I don’t think that it necessarily need be interpreted as being quite so negative for Thailand and Pattaya as some think it should be.
 
If you have any questions or queries in relation to the above, or if you would like to discuss any other matters related to the local real estate market, please call me on 087 137 0392 or email me at tgladwin@sallmannsthailand.com.