THAI PROPERTY as a Safe Haven
The global currency, equity and commodity markets have shown some strange moves of late, many of which have been explained away as “safe haven” trades.
The term is used specifically to describe the flow of funds from one instrument or asset that the market deems of high risk to one that is less risky. In recent years, with the US dollar continuing to depreciate and uncertainty about the Euro and the British pound, Gold and real estate have both seen a huge amount of interest as an ultimate safe haven when traditional reserve currencies no longer fit this description.
Helping gold prices has also been the plethora of ETFs (or electronically traded funds), which allow anyone to invest without actually buying any the underlying commodity. Indeed participants simply invest not in gold itself but the price only. This type of derivative can be found in many markets, yet whilst welcomed by many as an easy way to get into the market, it is frowned on by others as fuelling unrealistic price rises as has been seen. Indeed with gold in mind, and with its price now at its highest levels in decades, if not centuries, it could now be anything but a safe bet.
In the same way that ETFs exist for gold they also exist for the real-estate market. Buy buying Property funds that are exchange traded or simply by buying shares in listed property development companies, anyone can become involved with the real-estate market without actually owning any property.
As a safe haven there are some big differences between gold and property. Gold will provide no interest as would a bond, nor rental yield as would a property. It is purely a hard asset that has enjoyed inflows at the expense of other, previously rock solid, currencies or instruments. Property on the other hand does have the potential to provide a good rental yield, and so there is distinct value in this sector from that perspective.
So when it comes to property in Thailand is it really a safe haven? Given that the actual real estate, the Thai Baht, Property Funds and Property stocks on the Thai stock market are arguably enjoying safe haven status to some extent, has the price risen already to the extent that real estate is losing its status as a safe bet?
In answering this it is worth looking at overseas property markets in the US and Europe and the UK. These markets have not enjoyed any upsurge and are still in the doldrums. Yet these stories are all distinct from the Thai market
. There is an overburden of consumer debt along with sovereign debt issues leading to austerity and belt tightening for all citizens. In addition with prices leveraged and debt levels unsustainable the markets there are awash with foreclosure properties. Combine this with the lower spending power of buyers and the reluctance to lend by banks and it can be seen that these markets are at the mercy of many factors that don’t exist in Thailand. In fact since the 1997 Asian financial crisis, the property market in the Kingdom remains on a strong footing compared to many western nations.
Prices certainly have risen in Thailand but city centre apartments in both Pattaya and Bangkok are still barely 1/5th of the price of a similar place in neighboring Asian cities such as Hong Kong or Singapore. Quality of build remains good and facilities and infrastructure in Thailand, whilst maybe not perfect, are arguably in much better shape then those in many surrounding nations.
However one thing to keep an eye on is increasing supply and so when choosing a property it is worth taking into account any upcoming projects in the same location. This is a trait that is not unique to Thailand but was one of the factors behind the 1997 events.
Still, with continued growth in demand from domestic buyers, credit markets working much more effectively in Thailand than in many other countries, relatively little debt burden for most citizens and additional new wealth being created, it will take a long time before supply starts to dampen prices.
Other assets globally that are currently regarded as safe havens are currencies such as the Australian Dollar, Swiss Franc and Japanese Yen. These currencies are considered safe because they are very widely traded and liquid like their USD and EUR counterparts, but yet are not affected by the debt and other uncertainties. Still these are now very expensive with they Yen at close to all time highs, and the Swiss central bank recently taking steps to curb speculation in the Swiss Franc, they may turn out to be risky.
So, with many of the safe haven places in the market already over priced and starting to look risky, property in Thailand may turn out to be the last remaining real safe havens for long term investors who want to retain the value of their assets.