January, 2012

Thai flood crisis lasting implications for Pattaya

By Guy Van Harten

Welcome to 2012, the year the world ends (according to Hollywood). Joking aside, with everpresent concerns regarding global warming as well as a spate of lethal natural disasters throughout the world over the past decade, acts of force majeure are increasingly at the forefront of customer consciousness. More specifically, the recent flooding which left huge swathes of Thailand and its capital city Bangkok completely submerged under water has left an impact on the residential real estate market, with potential buyers avoiding flood-prone areas and low-rise residential housing. Thailand is a country where flooding is a major issue, which influences the country with varying degrees of risk with the Central, Eastern and Southern regions generally being affected the most. However, throughout the rainy season the weather in Pattaya is generally drier than most parts of Thailand, with the Pattaya and Eastern Seaboard area receiving the least average annual rainfall. This places Pattaya at a distinct advantage to other regions in Thailand, some of which receive double the amount of rainfall throughout a calendar year. Certainly we all noticed the influx of Bangkok refugees during the height of the flooding, who brought with them not only terrible gridlock to our coastal city, but also a shortage of food, water and accommodation as well! Although all of these issues have seemingly subsided for now, what are the longer-term implications for the real estate market here in Pattaya? I believe that the existing trend of Bangkokians relocating to Pattaya or buying second homes here will accelerate dramatically as 2012 begins to unfold. Although this is in part due to the recent flooding, we must also acknowledge existing factors which include: The concerted efforts of the Pattaya City municipality to continually draw tourists to Pattaya (both Thai and foreign) by hosting major events and staging large-scale festivals; The regular arrival of multinational brands to Pattaya & Thailand including Hilton, Movenpick, Ducati, etc.; The continuing strength of the Thai economy as the fastest growing in South East Asia which experienced GDP growth of 7.8% in 2010 and unemployment of only 1.2%, one of the lowest in the world; Continuous improvements to national and local infrastructure including the new BangkokChonburi motorway, inter-city Pattaya monorail and high speed rail link between Bangkok and Rayong.

One of the main factors which will increase demand for residential real estate in Pattaya and other areas which are less flood-prone among Thai buyers will be derived from a significant change in banking policy. The mortgage sector will change significantly following the flood crisis as banks readjust their debt approval criteria with project location, appraisal prices and home insurance to be scrutinised more closely in the immediate future. A recent report by the Bangkok Post has

indicated that appraisal values in flooded areas will decline by 10-20% this year while credit line approval in these areas will also decline from the current level of 80-90% of the home value. Multinational corporations including well-known giants of the automobile industry such as Honda and Toyota were some of the worst affected by the flooding in Bangkok. Although many of the industrial estates in Northern and Eastern Bangkok which house manufacturing plants for multinationals have agreed to build floodwater reservoirs as a key defence against future flooding, it is inevitable that many will relocate or choose to build new facilities in less flood-prone areas such as Map Ta Phut industrial estate & Rayong. This will result in an increased number of industrial companies and professionals seeking to rent and ultimately buy property here in Pattaya. Although the flooding in Thailand will have positive implications for residential real estate demand in Pattaya as outlined above, we must temper this view with the macroeconomic ramifications for the country as a whole. Estimates in the reduction of GDP growth have been placed at between 2-3% while the total costs associated with residential and industrial sectors could take years to calculate; early indicators place the figure at anywhere between $20-30 billion US dollars. A disaster on this scale will lead to the insurance industry re-evaluating weather and other natural disaster risks to Asias rapidly expanding industrial zones. Thailands worst natural calamity in terms of economic cost is unfortunately part of a global pattern in which weather-related catastrophes have more than tripled in the last 30 years something even those of us in sunny Pattaya will ultimately have to come to terms with.