Higher Returns in Tourism, Property, etc., after the Pandemic Ends
The Bangkok Post reported on 20 November 2020 that “Thailand’s biggest manager of distressed assets is bracing for another difficult year in 2021, as the economy faces more headwinds from the pandemic”. This article goes on to quote Bungyong Visatemongkolchai, the chairman of Bangkok Commercial Asset Management Plc (BAM) as saying he has seen loans and real estate from distressed debtors increase and property sales slow. The cause? “[R]strictions due to the coronavirus hit[ting] the economic growth drivers of tourism and exports.”
Sounds somewhat reminiscent of the 1997 financial crisis, right? But there is a major difference. And that difference is a boon for careful investors in Thailand’s property, industrial, tourism and entertainment industries. And it suggests those “headwinds” may subside mid-way into 2021.
The collapse in 1997 was attributed to the Mundell-Fleming trilemma, an economics concept that is more commonly known as the “impossible trinity”. The Mudell-Fleming trilemma provides that a fixed exchange rate, monetary policy autonomy and the free flow of capital are incompatible at the same time. It was cited as the cause Thailand’s 1997 financial crisis. It took about three years for Thailand to recover from that calamity. But it does not exist today. It is not the cause of Thailand’s current economic woes. And, back in 1997, many predicted it would take much longer than three years for the Thai economy to recover.
The current economic crisis was almost entirely caused by the Covid crisis. That crisis will end. It now appears the pandemic will end in the second quarter of next year as newly developed vaccines are distributed and tourists and investors return to Thailand.
In fact, there could be a “silver” lining to the pandemic. Foreign investors had purchased Thai real estate more than any other place in the world before the pandemic. InvestAsian states that this occurred “because of a strong tourism sector with Bangkok ranked as the most visited city on the planet.” But, before the pandemic, in May of 2019, InvesAsia warned that property values in Thailand are too high. It claimed that this was true even though “a condo in Bangkok costs roughly 25% when compared with similar one in Singapore.”
The pandemic, however, has substantially lowered property values in Thailand. Prices have adjusted downwards. A condominium in a popular project on upscale Thonglor, which listed for about 29 million Baht (nearly one million US dollars) before the pandemic, is now listing for 12.9 million Baht. There are few foreign tourists in Thailand now, and this is reflected in the tremendous discounts offered to domestic tourists.
Even if prices do not go up to pre-pandemic levels (which seems unlikely now, at least in the short run), the post pandemic increase in prices will likely be substantial. This means that a smart investment now in Thailand’s property, industrial, tourism and other entertainment sectors will enjoy substantial returns in the not-so-distant future.
And it will not take as long as did after the 19997 crisis to see those returns. This is likely why are starting to see those expected future gains getting baked into asset prices now