Raising Funds from the Rising Sun

Last year saw a wave of foreign investment in the Thai property market in the form of project-by-project development joint ventures.

Historically, foreign ownership restrictions and the availability of local funding meant there were limited foreign investments in the Thai property market, but tighter lending conditions and increased development costs due to rising land prices have forced Thai developers to look to overseas investors for funding.

This article was written by Cornellian, Rathawat (Job) Kuvijitrsuwan, and originally published in the Bangkok Post. Job, Baker ’17, is manager for research and consulting at CBRE Thailand. Job currently resides in Bangkok, Thailand.

We saw major players join hands with Japan-based companies, such as Ananda Development partnering with Mitsui Fudosan, AP with Mitsubishi Estate Group, Sansiri with Tokyu Corporation and Origin Property with Nomura Real Estate Development.

Other developers, like Charn Issara Development, partnered with China-based companies — Junfa Real Estate and Tianyuan Construction Group — for its projects in Phuket and Chiang Mai.

Most of the joint ventures are with foreign developers or construction companies. Teaming up with foreign companies not only gives Thai developers more ammunition to invest in new projects, but also lets them capitalise on the know-how and the technology that their partners could offer.

Implementing new innovations can either increase the quality and value of a project, commanding a higher price, or increase profit margins by reducing development costs.

Overseas investors need local expertise, especially in the residential market where the market is constantly changing, and successful developers need to be innovative market leaders, not market followers.

The condominium sector is the most popular recipient of foreign capital due to its fast return on investment, minimising the partners’ risk of tying up their capital in Thailand for too long.

Condominium developments typically take three years to give a return on investment compared to other developments such as rental office developments, which likely take at least 7-10 years.

However, Mitsui Fudosan, which has been in a joint venture with Ananda Development since 2013, has now expressed an interest in tapping into the office market for long-term investment.

Thailand’s infrastructure and its potential to be a hub for Southeast Asia have also attracted foreign investments, especially the opportunities created by mass transit development and expansion plans.

Most of the joint venture deals have been in Bangkok, but we started to see interests in the Eastern Economic Corridor development zones. Saha Group joined Tokyu Corporation in developing a serviced residence for expatriates in Si Racha area. Hankyu Realty, a Japan-based company who joined Sena Development in developing SENA Hankyu 1, sees Thailand as its base for Southeast Asia expansion.

Going forward, as foreign companies gain more confidence in Thailand’s economy, we expect more joint venture projects in other sectors such as offices and retail.

Foreign ownership restrictions mean that Thailand is likely to secure investments only from property developers, not institutional funds, which means that countries allowing 100% foreign ownership such as Japan, Hong Kong and Singapore will continue to be Asia’s key property investment gateways.