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Real Estate: On the Ground in Thailand

Over the past 10 months we have spoken with real estate analysts, hotel owners, brokers, bankers and investors. The pain in real estate is real. Brokerage houses like JLL and Knight Frank have seen business dwindle. Hotels in Phuket, Khao Lak, Krabi, Bangkok and other major destinations have seen occupancy drop to a tiny fraction of 2019 numbers. That’s for those that are still open. Banks are seeing non-performing loans (NPLs) creep up. Despite the pain, investors wishing to relieve owners of their burdens at a steep discount are finding that owners are not going down without a fight. Banks are in no rush to foreclose on hotels. There would be too many to foreclose on and the process itself is very long and drawn out, lasting years. Hotel owners know this.

The only distressed transaction in the market so far occurred in Chonburi just this month. Apex sold Sigma Hotel to Asset World Corporation, one of Thailand’s largest real estate companies, for 550 million Thai baht. A Google search reveals a broker website showing the property was listed in March 2020 for 980 million Thai baht. According to public filings with the Stock Exchange of Thailand (SET), Apex will use the proceeds from the sale towards paying down debt.

In other transactions we are privy to, hotel owners are considering a sale of their assets on their own terms and for their own reasons. Some are tired of running a hotel and want out. Others see that buyers are actively looking and thus there’s a market to sell into. Many want to redirect funds to other locations and/or industries. Families transitioning to a new generation also see a reshuffling of investment allocations. In these cases, there are willing sellers who understand that they may not be able to sell at 2018-19 levels in this market, but are also not looking to sell if it means 50% discounts. They can wait.

The distress in the hotel industry is real but the urgency to sell at steep discounts is simply not there. Yet.

Forecast: Cloudy with a Chance of Thunderstorms

This month, various articles in the Bangkok Post (“NESDC revises down 2021 growth outlook”, “NPL ratio seen peaking at 4%,”, and “MPC wary of tourist dearth,”) have painted a grim picture for 2021. The new wave of Covid-19 that hit Thailand at the end of 2020, and is still causing fresh infections and counter-measures, pushed hotels and the economy in general into an uphill battle in 2021. There is no sight of relief until jabs begin piercing arms, vaccinating the population towards herd immunity. By some estimates, 60% of the population should be vaccinated to achieve herd immunity. According to The Economist Intelligence Unit, Thailand may not reach the 60% threshold until 3Q 2022 (source: The Economist Intelligence Unit).

Given the uncertainty created by the situation, it is impossible to forecast when international tourists will be allowed back into Thailand without the mandatory 14-day quarantine. In the meantime, the economic impact is affecting consumers’ immediate disposable income, inducing them to spend less and save what they can. Household debt as a percentage of the economy is at an all-time high. NPLs are on the rise. Thus the domestic tourism required to at least help the hotel industry remain afloat is unlikely to materialize despite the government’s best efforts to help spur domestic trips.

Things Will Get Better

A special report by The Economist titled, “The Future of Travel”, published in the February 13, 2021 issue, paints a rosier picture for a post-Covid world. There is no doubt that people love to travel and will begin doing so again as soon as it is safe to do so. Southeast Asia (SEA) as a regional destination looks to be a huge draw from many countries, particularly China, which may mean that SEA displaces the European Mediterranean as the most visited region in the world. This is partly due to the forecast that short-haul flights will recover much faster than long-haul flights (what that will do to the airline industry, particularly legacy airlines is a whole different story). In a destination like Thailand, where the natural beauty of the sea and islands draws so many, there may be a rethink of how tourism should continue to develop. This forced tourism break has allowed nature to begin restoring itself and it could be in the country’s best interest to temper the wave of mass tourism thereby preserving nature’s gains.

There is light at the end of the tunnel. How long the tunnel and how much fuel is left in the tank to get there will determine which businesses actually see the light.