Bangkok A residential area right next to Bangkok’s main street Sukhumvit has recently become an unfamiliar sight: between high-rise complexes, an international school and a shopping center, a 24,000 square meter field has been growing for a few months now, on which corn, pumpkins and chili peppers grow. It belongs to the real estate group Sansiri, one of the largest housing associations in Thailand.
Instead of building new apartment blocks on the site for millions of euros, the company is initially content with rather low yields: residents here pay around four euros per basket if they want to harvest fresh ingredients themselves.
The vegetable field in the Phra Khanong district is not the only place in Thailand’s megacity where agriculture has found its way: While concrete and steel were still the main focus of the city of ten million inhabitants, bananas are now mixing , Mango and lime plantations in the cityscape between the skyscrapers.
The trend towards fruit and vegetable cultivation in the best locations is the result of new tax law and the corona crisis, which has been particularly hard on the world’s most visited city in the past year.
Economists expect Thailand’s economy to shrink by up to seven percent this year – the recession is unlikely to be as severe in any other country in Southeast Asia. The economic downturn is fueling a turnaround on the Bangkok real estate market: until recently, housing construction groups bought lots of land for their high-rise projects – markets, restaurants and single-family homes had to make way.
Building land remains unused
Land prices in Bangkok have recently increased by more than ten percent per year. The city has by far become the most expensive place in Southeast Asia’s emerging markets. But now the real estate developers are in crisis and several vacant lots in the megacity remain unused.
The problem worsens for landowners because from August they will have to pay new property taxes, which are particularly high for unused land. Up to 1.2 percent of the land value is due. The new plantations in the city center help to avoid the tax burden: only a fraction is due for agricultural land. The savings can amount to over 90 percent. “For landowners who want to pay less tax, the plantations are the best option,” said Surachet Kongcheep, one of the managing directors of the Bangkok property consultancy Phoenix Property.
The loophole is about a lot of money: According to local media, an undeveloped plot of land almost four hectares north of the center has a value of the equivalent of at least 285 million euros. Limes are now being planted on the site. Banana trees are now growing in the Sathorn district, in the immediate vicinity of the business and embassy district, where square meter prices of the equivalent of 10,000 euros have been achieved in the past. Measured by the price of the soil on which they grow, it is arguably the most valuable bananas and limes in the world, wrote the online portal “Thai Enquirer”.
The owners are often wealthy Thai families. Due to the current crisis on the property market, they are currently not able to achieve the desired prices or even find a buyer, real estate consultant Surachet believes. “The market is directly affected by the corona virus crisis,” he says. “No property developer currently wants to buy land.”
Because the demand for apartments is low: According to the brokerage firm Knight Frank, hardly half as many apartments came onto the market in the first quarter as in the previous year. But there was a buyer for less than a third. This was also due to the fact that many buyers stayed away from abroad. They were an important target group for high-rise projects – until the virus came.
Thailand has largely been spared the pandemic itself. But the protective measures that are supposed to prevent a second wave of infection are an immense burden for the country’s economy: Since the beginning of April, foreigners have had considerable restrictions on entry. Only since the beginning of July have there been some easing for expats and people entering for medical treatments. The business with mass tourism is painfully lacking for the Thai people. It has recently been estimated to represent around a fifth of total economic output.
“In view of the economic crisis, which is likely to last longer, real estate developers will have to reorient themselves,” commented Jeremy O’Sullivan, chief analyst for real estate service provider Savills in Thailand. The housing associations are now trying to postpone their projects: For the full year, Knight Frank is expecting only 11,000 to 12,000 new residential units to come onto the market – 80 percent less than the average of the past eight years.
As a result, there are massive drops in sales in the industry. The listed real estate developer Raimon Land, whose price has plummeted by more than half since the beginning of the year, expects up to 35 percent lower income. Local groups like Pruksa, Supalai and Sansiri rely on discounts of up to 50 percent.
Knight Frank analyst Risinee Sarikaputra sees this as an interesting buying opportunity for investors looking for bargains. You would have a good chance of reselling cheaply bought apartments at a good price as soon as the economy recovers. But such speculative deals are risky. The corona crisis posed even greater challenges for Thailand’s real estate industry than the Asian financial crisis in the late 1990s, warns Sansiri manager Thavisin Srettha.
Memories of that time can still be seen in the city of Bangkok today: on the banks of the Chao Phraya River, the unfinished shell of a luxury residential building has been standing for more than 20 years, with money running out in the middle of the construction. The homebuyers never saw their promised luxury apartments.
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