| Abstract | Housing development in Thailand, particularly in the Bangkok Metropolitan Region
(BMR), is a peculiar subject for research. Housing development in the BMR during
the last three decades has been exceptional in that the private sector has led the push to
house the population while the public sector has played a subordinate role. It is
interesting to note that subsidized public housing has played a very small role in the
housing market. Most people, including lower-income groups, could afford a house
sold in the open market during the period of economic boom during the late 1980s and
early 1990s. As a result private property developers were encouraged to produce more
housing units and slums and shanties decreased in number. However, at the same time
a new housing problem emerged in the form of oversupply, particularly of low-income
housing, leading to massive waste in economic and social investment.
This study focuses its attention on the role of the private sector in the housing market
after the economic crisis. The study begins with an extensive review of previous
studies on the real estate market conducted during the period of economic boom.
Similar cases on market speculation in other countries are reviewed to understand the
phenomena from a theoretical point of view. Special attention is paid to recent
housing developments in the BMR between 1997 and 2002, which is the period after
economic bust. Selected housing projects were surveyed to understand the patterns of
sales, changes in prices, and trends in occupation involving time series data from
1990-2002. In addition, interviews of occupants were conducted to understand their
decision making process in housing investments. Lastly, developers were interviewed
to explore their experiences in housing development during the periods of economic
boom and bust.
Both developers and regulators were found to possess limited experience with high
risk decision making. As a result of their gigantic and careless investments, some
350,000 unoccupied housing units were available by 1998. During this whole period
only a few government interventions were reported. This implies the lack of prompt
reaction by regulators. Policy instruments, which have been introduced subsequent to
the economic bust, seem ineffective in solving the problems of real estate market.
A survey of housing projects constructed after 1990 revealed that only 71 % of the total
. units built were actually occupied. Moreover, only half of the occupied units belonged
to end-users. This indicates the persistence of speculation, which was rampant during
the boom, even in the current housing market. The survey also revealed that the rental
housing market has been expanding. In addition, a significant portion of owneroccupied
housing units have been converted to rental housing after the onset of the
financial crisis. This is due to the fact that owner-occupiers have not been able to sell
the units during the bust or early recovery period. Another reason for this trend is the
ability to receive higher returns from renting houses compared to depositing money in
a bank. In the long run, there will no longer be massive housing projects since
they involve too much of risk. Due to the bitter lessons learned, developers who
experienced the rise and fall of the housing market will be more professional, while the
amateur ones will not be able to come into the business easily.
Most large developers had related experience prior to becoming property developers.
The majority of the smaller ones never had such experience but entered the market
because of possible high returns from investment or prior possession of resources such as land. This is the reason why over 50% of the smaller developers left the market
after the economic bust while over 80% of larger ones remain. This leads to the
conclusion that prior knowledge on project financing, marketing, management, and
economics were instrumental to their resilience against adverse market forces.
However, their weaknesses in forecasting, business development and technical knowhow
have affected them during the economic bust. Therefore, it is vital to make the
new generation of property developers aware of past experiences in the housing market
during previous booms and busts.
A SWOT analysis conducted on the present housing market reveals that the strengths
of the market are: efficient supply/production of housing units, high affordability,
availability of building materials, and ease of entry for new developers into the market.
The weaknesses include: lack of proper control of the industry, inadequate market
research and studies, inadequate knowledge by developers and lack of awareness
among the general public. The opportunities are: availability of an efficient housing
finance system, standardized land title deeds and efficient land transfer process,
continuing urbanization, and increasing demand for urban housing over time. The
threats include: slow economic recovery, the existence of non-performing loans and
government procrastination and inertia in providing guidance and controls. The SWOT
analysis leads to realize that the housing market in Bangkok is still somewhat efficient
and effective, yet still needs several adjustments to come out from the slump.
In light of these findings the study draws several lessons, which are beneficial for
producers and buyers of houses in Thailand and other emerging economies.
Recommendations of this study include the establishment of a real estate information
centre, which is useful to protect against adverse market forces as well as for the
protection of property buyers. This study also makes recommendations for a fair
auction of property, which would help to liquidate properties in a just manner, and also
a proper property valuation management system that would help standardize fair
practices in property transaction. Moreover, recommendations are made for
establishing a real estate investment trust, which will help to secure investment in
housing and other properties. For consumer protection and to stimulate more
transactions in the market this study proposes to establish escrow accounts securing
down payments from homebuyers. |