A Blissful Time for the Ignorant

Earlier this week, reports came from the executive’s meeting room as they met with analysts, or known as Origin Property company’s analysts meeting. The reports were negative. The Executives summary of the real estate sector in the short and medium terms are that they are not so bright. Resulting in the decisions to tone down targets for launching new projects, and adjusting the target revenue for the years 2018 and 2019 down.

 

The downward adjustment of attitude from the rising star new comer, while having reported immaculate third quarter financial statements for this year as usual, is the second company after LPN to do so. LPN’s management also have a negative outlook for the property business next year, after facing the LTV regulation, and the decelerated demands of the, “Fairy Godfather”, Chinese customers.

The downside attitude has to be tracked with the meetings of the management in bigger property players like PSH, QH, and AP, so it can be determined that this is not just a couple of isolated cases, but a concurrent confirming the prospect that from now on, it is the downturn for this business sector, or not.

With negative factors affecting real estate from both internally and externally, it is unclear which factors are more severe. It must be admitted that they are both risky and unstable factors beyond easy control. Especially in the condominium markets, that has been clearly indicated that the upper and middle market has entered a bubble.

 

You probably remember that in mid-October, Mr. Sophon Pornchokchai, Executive Chairman of Thai real estate research and appraisal center, Agency for Real Estate Affairs (AREA) Co., Ltd., which is the first such information center in Thailand that claims to be the most unbiased and not under the influence of any land developer, came out and said that the launch of new projects in September reflects the real estate market in Bangkok and its vicinity clearly entering a bubble. Most of the products that were launched into the market are condominiums in the mid range to being quite expensive.

The conclusion came with descriptive numbers. In September, projects with sales prices lower than 3.0 million baht (50%), medium price of 3-5 million (23%), and the high price from 5 million baht and above (27%), all within the month, totalled a number of new projects launched at 60 projects with a combined 21,357 units, worth nearly Bt100 billion (Bt98,778 million).

The launch of this massive number in September alone equals to the launch of an entire quarter in the past. It is a sales festival. Many public companies want to present sales and marketing activities to influence their stock price. Another part is due to launching for sale at the recent property expo. And there’s also the gigantic project that is happening. It is expected that there will be hundreds of projects launched in the fourth quarter of 2018.

The prophecy is eerie. The real estate bubble will not end in September 2018, as there are still 369 new real estate projects that have announced or advertised in newspapers to open sales, but still lack actual sales openings (with brochures and sales offices that welcome buyers to visit), which fall outside of the survey, until their actual opening.

The bad news, and considered an important catalyst, is the demand or buying power from China that has been booming and absorbing the anxiety of Thai entrepreneurs. (with the fact that this purchase power tend to be more speculative buys, or to rent out)

From the latest real estate bubble burst in China, it has been reported that 20% of the projects that have been produced and sold out have been abandoned, causing many projects to have financial problems. This emphasizes that the abandonment of contracts by Chinese customers is likely to occur in the Thai market.

From the real estate bad news to the bad news in the Chinese tourist business. It’s clear that it is in decline. For three years now, the proportion of this business sector’s income from the Chinese tourists has been nearly 30%, which has nourished the businesses (though creating some annoyance). It is the number one contributor to the Thai economy after the coup in May 2014, and the reason why the nation’s current account is 10% higher than the GDP.

Reports of China’s major tourism stocks dropping more than 35% due to poor performance. In the latest reports, executives showed concerns about the slowing down of the Chinese economy and the weak yuan having negatively impacted the Chinese tourism sector. It’s bad news that directly affects future revenue. These additional factors exacerbate the Phuket boat capsizing factor, and the airport official’s attacking a Chinese tourist. Especially, the exchange rate and the Chinese economy beginning to slow down Chinese travel plans.

On the other front, the negative factor that can not be avoided, the US-China trade war that seeks to cut off China from the US supply chain. The consequence to Thai export orders have become more evident, with third-quarter and fourth-quarter exports slowing down.

China is a very important trading partner (No. 1-2), and recently Thailand’s cozy attachment of its products to China’s supply chain has become very intimate. To the point that, the Strait Times, Singapore’s media giant recently stated in an article that Thailand will have to pay heavy costs for leaning to much towards China.

Even though the examples of the article focused to much on the big picture, but it pretty much fits the description, and should be considered. For example, the extra high priced lessons that many nations had learned from over depending on China, like Sri Lanka being duped by China into borrowing money to build a dock, eventually Sri Lanka had to lease the dock to China for 99-year, as a Chinese military base, and still remained in debt to China.

There is also the case of Pakistan, that even though they backed out in time, the Ministry of Finance was still clamped with huge debts, which recently, they fled from China’s pocket and turned to Saudi Arabia to get a loan of $ 6 billion.

And Cambodia, about half of it now is a Chinese colony. Sihanoukville turned Chinese, having mainly only Chinese residents. Malaysia and Indonesia have survived. Malaysia canceled all projects with China, so they won’t fall into debt. And Indonesia chose Japan instead.

In the case of Thailand, for these many years, the dictator government’s return to leaning towards China has turned worrisome. The signing of free trade agreements with China has resulted in Thailand’s heavy deficit. The trade liberalization equated to China’s cheap goods being dumped to the point that small businesses in Thailand have suffocated and died.

The negative factors aforementioned are all partially due to over reliance or dependence of Thai businesses to China’s. Now, the question is, is this all part of the 20 year national strategy?

Who will be able to provide an answer to this riddle?

If the answer is none, the SET index going above 1,700 points would probably not happen. And as for speculations of it going above 1,800 points, that’s just “delusional optimism” and “a fool’s paradise“.