A number of recent surprises, including the Bank of Thailand’s reserve requirement on short-term capital inflows, the new year’s eve bombings and proposed amendments to the Foreign Business Act, have dampened the market outlook for 2007, according to real estate in Thailand services and investment management firm Jones Lang LaSalle.

Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle in Thailand, says “Before the end of 2006, we were quite positive on the prospects for the Bangkok property market and expected the market to continue to perform well in 2007. Nonetheless Thailand has unexpectedly experienced a number of events over the past one month, all of which have negatively affected sentiment for the economy and the Bangkok property market despite strong market fundamentals.”

“We believe the situation of uncertainty will be resolved shortly. Once the government policies become more stable, investors’ confidence will return. This together with measures to stimulate the economy, i.e. the progress of mega-projects, and in the most recent case, the reduction of interest rates, will benefit the property market,” says Mrs. Suphin.

Currency control concerns ease but buyers continue to wait and see
Currency control measures announced by the Bank of Thailand on December 19 last year created widespread panic, not only in the stock market but also for the property sector. Investor concerns eased slightly after the BOT later made clear that the reserve requirement would continue to apply to property funds, while real estate investments, such as in land or condominiums, would be exempt.

In response to the new measures, foreign investors considering the acquisition of property assets in Thailand postponed decisions indefinitely due to the greater uncertainty created by this policy surprise in addition to expecting the market intervention to weaken the baht.

Proposed amendments to FBA dampen foreign investors’ confidence
“In the aftermath of the new year’s eve bombings and the surprise action by the central bank, Cabinet approval of proposed amendments to the Foreign Business Act was another action that may have significant impact on sentiment and prospects for the economy and the property sector going forward”, says Mr. Dan Tantisunthorn, Head of Research at Jones Lang LaSalle.

The proposed amendments redefine foreign ownership to include companies in which foreigners control half or more of the voting rights in a registered company. Non-Thai entities were previously able to maintain control of their companies in Thailand via the use of nominee shareholding structures and by retaining a majority or more of voting rights. Since Cabinet approval, proposed amendments have been further clarified and specify that many businesses currently operating in Thailand but falling under the new definition of foreign will be allowed to continue operating.