Impact of investment crash “too early to tell’
PHUKET: While the stock market took the brunt of the “Black Tuesday” sell-off triggered by the capital controls put in place to stem speculation against the rising Thai baht, experts say that it is still too early to gauge the long-term impact on Phuket’s property market.
Although the 30% withholding requirement on foreign capital inflows was quickly rescinded for certain transactions, including direct foreign investment and stock market transactions, at the time of going to press the rule still applied to other forms of foreign investment, including property funds.
The draconian measures, adopted by the Bank of Thailand (BOT) on December 18, initially affected all capital inflows of US$20,000 (about 70,000 baht) or greater.
Foreigners were required to make a 30% withholding deposit with the BOT. Where it still applies, the measure effectively freezes up investment capital without earning interest for at least one year, after which time the depositor can apply for a refund.
Phummisak Hongsyok, Phuket’s representative to the National Legislative Assembly, told the Gazette that the BOT’s methods were strong but effective in stemming the baht’s rise against the American currency. He agreed with the BOT’s decision to relax the measure for stock market investment, saying it was too strict.
The long-term fallout on direct investment and the real estate market can be assessed only after January 4, when the holiday period has ended and further BOT adjustments may be announced, he added.
The currency control measures were the second government announcement to have a major impact on foreign investment in the property sector this year. The first was a Ministry of Interior order issued last May instructing provincial governors to crack down on foreigners using Thais as “nominees” to set up real estate investment firms, he noted.
Investor confidence would improve if the BOT had issued an advance statement of how the currency control measures were intended to affect foreign property investment, he said.
“The government has to make a clear-cut decision as to what extent they want to open up Phuket, and Thailand, to foreigners wishing to stay and invest here. This would include revising visa regulations to support long-stay tourism as well as currency controls,” he said.
Neighboring countries, such as Malaysia and Vietnam, had already adopted measures to promote long-stay tourism, he added.
Graham Bibby, Managing Director of the Richmond Group and also an experienced currency analyst, views the BOT’s latest actions as misdirected.
“The whole problem is not about the Thai baht going up. It’s about the US dollar going down. The BOT is focusing on the wrong thing … The BOT needs to educate its exporters. They worry about the exporters, but in most countries exporters know how to hedge the the currency – to lock in the currency rate…This is not a Thai baht problem, it is a US dollar problem. In my view, the Thai baht is going to go to 30 to the US dollar in the next six to eight months,” he predicted.
“For property investment, in some respects it is not so bad. The only problem is that it was on the front page of every newspaper, which portrays Thailand in a negative way.
“What I have been telling clients is that this proves my point that Thailand is too international now. In the old days, 15 or 20 years ago, they could do this. But now they can’t do this even if they want to because the international community will not accept it,” he said.
He agreed with K. Phummisak that the government should consider relaxing its stance on foreign ownership of property, perhaps by allowing foreigners to own one property freehold or by introducing some sort of “perpetual lease”.
