Boston, MA -- (ReleaseWire) -- 04/30/2014 -- As political protests continue in the Thai capital, the commercial real estate sector is in general proving resilient. However, our key downside risk for the sector this quarter is that the impact of the protests on investor confidence in the country as a whole increases.
While we believe that the commercial real estate market in general will hold up well in the face of the ongoing political turmoil in Thailand, the longer it last the more of an impact it will have. The Bank of Thailand cut interest rates, and its GDP growth forecast for 2014, again in March 2014, amid increasing concerns of the impact of the protests on investor confidence.
We note that the protests are beginning to have an impact on retail in Bangkok, with reports of declining retail sales and reductions in rents. However, in other areas we believe that investors may retain a view that bouts of political unrest, which have largely been confined to Bangkok, are 'the new normal' in Thailand, and the country's attractions may compensate.
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These include Thailand's location in the heart of South East Asia. From 2015 the ASEAN Economic Community is set to create a single market for the countries of the Association of South East Asian Nations (ASEAN). This should particularly support office and industrial real estate.
Meanwhile, Thailand is an enduringly popular holiday destination, and as such hospitality-related real estate is thriving. We are expecting an increase in the number of tourist arrivals into the country over the next few years, particularly as economies in the region recover from the global economic slowdown.
Thailand currently has a large number of property funds, but from January 2014 only real estate investment trusts (REITs) will be approved, and it is hoped that this will lead to the creation of a REITs market in the country. While there have appeared to be questions over how REITS will be taxed, there have been reports that some property firms are planning to list REITS in 2014.
Bangkok has been the centre of the political turmoil, but as the capital and the country's economic hub, we do see continued demand for space in the city, and note that the pipeline of retail developments continues to be strong.
The other two cities that we cover are key industrial areas, and in the long term we see them benefiting from the creation of the ASEAN Economic Community, which we believe will boost manufacturing and exports, and will encourage foreign direct investment into Thailand.
- Since January 1 2014 property funds are no longer be allowed to make initial public offerings (IPO) on the Stock Exchange of Thailand. Instead, REITs will be used. There are already reports of REITs preparing to list, although we note that there are also concerns over a lack of clarity on how REITs will be taxed. -
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