Further Reading:
Baht Devaluation and It’s Impact on Property Prices
What impact will the floating of the Baht last month have on the Phuket Property Market? Is now a good time to be buying? Selling?
The float, more usually (but strictly speaking incorrectly) described and perceived as the devaluation of the Baht, last month should on first analysis have a very positive effect on transaction volumes in the local property market (property prices, if expressed in dollars, have fallen by as much as 20%). This boost will be particularly noticeable in the resort property and second home market favored by overseas buyers - who in this instance will be the main short term benefactors of the devaluation. The results however may be slightly more mixed than they would appear at first sight.
While several of my clients had been putting off purchases in anticipation of this devaluation - I expect many of them to firm up their decisions in the near future - a few of the more pessimistic (they might say optimistic - it’s all a matter of perspective!) ones will undoubtedly be waiting a bit longer to see if there will not be further slides in the Baht before going hard on a commitment in Thailand
Calling exchange rate trends is always very hard, even in the long established and supposedly stable floating currency markets (now the norm in most of the world). To do so with a newly floated Baht in a country long used to it’s fixed basket, seems impossible to do with any chance of being right - so I am not even going to try to predict where this one will go.
It should also be noted that the float when first announced was described as a "managed" float, which suggests that the use of the description float may have been designed more of a face saver for those politicians who had so strenuously denied the possibility of devaluation. As such it seems very likely that, like the old basket of currencies with it secret composition, the floated Baht is probably designed to be allowed to move only within predefined ranges that would still be defined and if need be defended by the central bank.
One relatively new trend that devaluation has definitely introduced to Thailand is inflation. Prices of many goods even those with little or no imported components have already been rising.
While I don’t expect many local property owners or developers to be putting up prices (or at least not until increased demand forces them up), I am already seeing many foreign owners of property in Phuket, whose holdings actually make up a significant proportion of the resale market of resort homes and condominiums, raise their Baht prices to match their expectation of returns (or at least reduce their perceived losses) in hard currencies.
Understandable as this move is, it’s likely to make those properties (even if they are priced slightly less in Dollar terms) look much less attractive than some of the new offerings of the local developers, who won’t have this immediate pressure to raise prices.
Eventually however general inflation, the resulting wage inflation and the rising cost of imported construction materials and equipment will all have their impact on local property development costs and thus prices.
If you are a foreign buyer, my advice is to buy now and reap the immediate benefits devaluation - don’t get obsessed with what should from this point on be relatively small changes in the exchange rate. Even if you are a local buyer, with no currency advantage, it also makes sense to buy soon, before prices start to rise.
If you are a vendor (even a foreign one - with an immediate currency loss) you have two basic approaches, resist the urge to increase your price and use the devaluation as the leverage to close on a quick sale - or if you really feel that you have to, put your price up now, do so in the expectation of having to wait quite a while for market prices to catch up with you.
Coming on top of the generally positive trends (for Phuket as distinct from Bangkok) that I commented upon last month, the Baht float should, all told, have a very positive impact on the local property market - indeed upon the tourist market in general - with many more winners than losers.