The domestic real estate situation is not looking good, as the COVID-19 pandemic has directly impacted consumer purchasing power. This has resulted in up to 80% of potential home and condo buyers being unable to secure loans. Although the government is preparing to introduce new measures to stimulate the real estate market this week, including extending the 90% reduction in land and building tax for another year and extending the 0.01% transfer fee reduction for another year to boost purchasing power for homes priced up to 3 million baht.

       Real estate developers must find new strategies to launch sales campaigns, especially in the foreign market, where purchasing power from foreign investors, particularly from China, has nearly vanished over the past year. Recently, two major real estate development companies, Raimon Land Public Company Limited and AP Thailand, signed an MOU to join the "Elite Flexible One" membership of the Thailand Elite Card program to sell real estate projects to foreigners in exchange for the benefits of the Elite Card.

 

Rental yields for Thai condos have plummeted, making them less attractive to foreigners than before.

       Mr. Simon Lee, Chairman of Angel Real Estate Consultancy Co., Ltd., a leading marketing and sales consultancy in Thailand, particularly for the foreign quota, revealed to TerraBKK that in 2020, Chinese clients transferred ownership of about 2,000 condos. Although this is an increase from 2019, it is still considered low compared to 2018, when 3,200 units were transferred. The decline in transfers is mainly due to the difficulties Chinese buyers face in transferring money for real estate purchases, as the Chinese government controls money transfers out of the country. This has forced companies to assist Chinese clients in transferring money through other platforms, resulting in increased costs and fees for international money transfers. In 2021, it is expected that foreign clients will transfer ownership of about 3,000 condos.

            The COVID-19 pandemic has severely impacted businesses worldwide, making it difficult to rent out Thai condos. Rental yields have decreased from 5-6% per year to around 2%. The attractiveness of purchasing real estate for rental investment for foreigners is therefore not cost-effective. Additionally, countries like Turkey offer benefits such as free passports to investors or buyers of real estate, leading clients from Brunei, Myanmar, Cambodia, Hong Kong, China, Taiwan, and Middle Eastern countries to show interest in purchasing real estate in Turkey, causing a decline in the popularity of Thai real estate compared to other countries.

 

Thai real estate in the COVID-19 era: 'Brutal' conditions lead to the demise of foreign brokers.

       Mr. Simon further stated that COVID-19 has a silver lining: it has helped prevent Thai real estate prices from skyrocketing, allowing developers to adjust prices to reflect actual costs. Even with new projects, the low land prices and stable construction costs have not led to excessive price increases for condos, which is beneficial for the purchasing power of Thai consumers.

       In the foreign market, it is evident that the global COVID-19 pandemic has clearly impacted foreign quota brokerage businesses in Thailand, leaving only two players in the market: DWG, a Singaporean real estate broker, and Angel. The performance and disappearance of other brokers indicate that the foreign market will likely struggle to move forward.

 

'Elite Card' does not effectively stimulate demand from foreign clients.

       For members of Elite Flexible One, foreign investors or clients purchasing condos participating in the program will receive benefits from the Elite Flexible One program, such as a 5-year visa, airport services, and more. The criteria have been adjusted to allow clients to purchase real estate under leasehold agreements to become members as well. Additionally, regarding the transfer process, if foreign clients cannot travel to complete the transfer, they can authorize the real estate developer to act on their behalf, provided that the full amount is transferred with proof of transfer from the bank.

       Mr. Simon believes that in terms of selling to foreign investors during this time, brokers must assist clients with international transfers. However, offering condos with an Elite Card to provide clients with a 5-year visa to stay in Thailand is unlikely to significantly increase foreign demand for Thai real estate, as the costs associated with the Elite Card are included in the condo price, making it not attractive enough for clients.

      If the government truly wants to stimulate the Thai real estate market among foreigners, it should consider adjusting the criteria for special privileges for foreigners purchasing Thai real estate. For example, for condos priced at 10 million baht, provide a free 5-year visa for the entire family (4 people), and expand BOI privileges for investors living in Thailand. The presence of foreigners will help stimulate domestic spending, leading to increased foreign capital circulation in the economy.

       Regarding the domestic real estate market, it is seen that the government's measures to extend the 0.01% transfer fee reduction for another year to stimulate purchasing power for homes priced up to 3 million baht is a positive step. However, the government should also consider reducing mortgage registration fees to 0.01%, expanding the price range for homes and condos from 3 million baht to a maximum of 7 million baht, extending leasehold agreements from 30 years to 50 years, and implementing long-term measures to continuously stimulate the market for positive outcomes.

 

Thai Real Estate Association President Reveals Transfer Fee Reduction of 0.01% Not Yet Enforced, Clients Requesting Delays in Transfers.

       Mr. Pornnaris Chuanchaisit, President of the Thai Real Estate Association stated that after the government announced the reduction of the transfer fee to 0.01% at the beginning of January, clients who had booked purchases and were preparing to transfer with various housing and condo projects have requested to postpone their transfers until this measure is implemented. This has directly impacted small to medium real estate operators who need cash flow to circulate within their companies.

Therefore, in the coming years, it is suggested that the government should plan or hold meetings to obtain cabinet approval before announcing to the public to avoid a vacuum where clients delay transfers as seen this time.

"It is acknowledged that real estate development companies are like stunted trees with yellowing leaves, waiting to wither. Although the government has come to assist, it still cannot stimulate the actual purchasing power of clients, especially with the transfer fee reduction measure to 0.01% for homes priced up to 3 million baht, as this client group is the most affected, with insufficient purchasing power and often being denied loans by banks."

Thus, to stimulate purchasing power and increase tax revenue for the state, it is recommended that the government broaden the price range for homes and condos, as there are still many clients looking to purchase homes priced up to 7 million baht, and this group has real purchasing power. The government could also ease the criteria for reducing the transfer fee to 0.01% for homes priced between 1-3 million baht and maintain the 2% transfer fee for the remaining price difference, such as for a 7 million baht home, clients would pay the transfer fee of 0.01% for the first 3 million baht and 2% for the 4-7 million baht portion.

If the government can do this, it will enable clients with purchasing power to make decisions to buy homes during the period of these measures.

As for the LTV measures, it is still hoped that the Bank of Thailand will expedite the unlocking, as currently, there are no investors eager to jump into the real estate market for investment as in the past, but there may be a group of clients with purchasing power looking to buy residences.

For 2021, it is expected that horizontal real estate will continue to thrive, especially in the price ranges of 3-5 million and 5-7 million baht, as the demand from clients in some projects remains strong. However, the segment priced below 3 million baht remains concerning as it is the group most affected by COVID-19 and may need to rely on government relief measures. After the new cash injection, the government should also expedite finding job opportunities to support the growing number of unemployed in the workforce.

 

Real estate experts suggest the government offer free visas to foreign clients purchasing real estate over 1.5 million baht, granting a 3-year visa.

       Ms. Sumitra Wongphakdee, Managing Director of Terra Media and Consulting Co., Ltd. stated that the government's desire to assist the real estate sector for foreigners is a very positive move. There are various groups of foreigners entering Thailand, including tourists, business operators, and those purchasing real estate for residence or investment. In the past, foreign clients have been a significant purchasing power that helps drive our economy, as their purchasing power is higher than that of Thais.

Regarding amending laws on foreign ownership of real estate, it will take time and cannot be implemented immediately. The government’s linking of the Elite card with the right to own real estate by allowing additional purchases for visa extensions is a step forward.

However, it is important to separate two issues: the sale of the Elite card, which has not performed well in the past, and the purchase of real estate for foreigners, which has not previously had any visa-related privileges.

Thus, currently, the Elite card priced at 500,000 baht for a 5-year validity seems not too high compared to the previous Elite card. However, if we analyze the real estate that foreigners are currently purchasing, most are in the price range of 2-5 million baht. Therefore, if they need to purchase an additional Elite card, it would increase their costs by 10-25%, which is not appealing for buyers.

If developers cover these costs to facilitate clients in transferring funds, it would cut into their net profits, and in some price ranges, it may be nearly impossible due to the high costs of 15-25%. Therefore, it is not surprising that this measure has not effectively attracted foreign purchasing power back!

At this point, it is recommended that the government plan anew to unlock foreign ownership rights for real estate, allowing anyone owning property in Thailand priced over 1.5 million baht or not classified as BOI to receive at least a 3-year visa.

As for the issues surrounding the Elite card, they should be addressed in detail regarding specific offers and services without long-term implications. Countries that have implemented free visa measures have successfully stimulated their domestic economies, such as Japan, Malaysia, Australia, and even the United States.

Ultimately, Thailand must create a new S Curve that does not solely focus on the industrial sector. Our country is now an excellent international education hub, with international schools and universities. Opening the country to foreigners will help increase income in the so-called "service sector," which generates significantly higher revenue than the "labor sector," as students typically stay for more than 3 years.