Thursday, September 25, 2008

Bangkok To See 'Lehman Effect', But No Fire Sale

Source : The Business Times, September 25, 2008

AMERICA'S financial crisis and the Lehman Brothers bankruptcy will dampen Bangkok property prices, a leading economist said yesterday.

Lehman's went bankrupt on Sept 15 with 50 billion baht (S$2.1 billion) of assets in Thailand, 80 per cent of which was in property.

Any related sell-off of its assets is likely to devalue the market, which - combined with the drying up of global credit and foreign capital - will cause prices to drop, economists say.

'Lehman has invested a lot of money in the property sector and it will now have to sell those assets, indirectly causing a decline in prices here,' said Chulalongkorn University development economist Sompop Manarungsan. 'Prices may drop 20-30 per cent in Bangkok.'

International investment funds active in Bangkok property have driven prices out of the reach of most Thais, he said, but prices will drop as developers are forced to sell locally as foreign investment dries up.

'Luxury developments will be the first to be affected because so much of their investment comes from outside the country,' said Dr Sompop. 'If they are overpriced, they will have to be adjusted.'

While delays in selling Lehman's local assets could drive down property prices, any negative effect is likely to be temporary, said Thailand Development and Research Institute research director Somchai Jitsuchon.

'If these (Lehman's investment) projects need to slow down, or their values are suppressed as a consequence of a 'fire sale', the general property prices might also be affected,' he said.

'These things depend on whether there will be new buyers, and when the buyout is complete. If Nomura really takes over all of Lehman's assets in Asia, that might prevent serious negative consequences.'

Thai property prices are also exposed to a potential 'second round' effect of the global liquidity dry-up, which could restrict foreign capital inflows into the market, he said.

However, KGI Securities (Thailand) property analyst Thaninee Satirareungchai said a fire sale is unlikely as Lehman Brothers invested in high-quality projects.

'It won't affect prices here that much,' she said. 'If there is a sell-off, it won't be a fire sale. Most developers that have enough cash (to buy the assets) are interested in taking over the property themselves.'

While super-luxury developments are more exposed to the crisis due to the strong reliance on foreign investment, the impact will not be significant, she added.

One property developer, which Lehman is directly invested in, said it faced no exposure to the crisis.

'Lehman Brothers did have a 25 per cent stake in The River development but it has already been fully paid up,' said Raimon Land CEO Nigel Cornick.

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