There is a debate on why real estate in Singapore, New York, and London is expensive, and cities like Jakarta, KL, and Bangkok seem to have limited growth.
I believe the reasons are the following:
Government regulation
Supply and demand
Foreign buyers
Supply of talent for industry
I know that these are not common reasons, but I will illustrate them one by one using examples.
Government regulation and the rule of law have seen money move to safe havens. A clear example is Singapore, where in the last 10 years alone, prices have more than doubled. Why? Foreign buyers between 2010 and 2022 came in and swept all available limited freehold real estate because they saw a stable financial environment in Singapore where both their wealth and their families were safe. Prices in Singapore for a home on Nassim Road or even Goodman Road can set you back to the value of a 100-key hotel in Bangkok. That is one bungalow for a 100-key licensed hotel. Same price. Foreigners have moved their money to Singapore because they believe that even if valuations don’t go up, they will not go down, offering limited downside risks.
Secondly, comes supply and demand. In many major cities like Vancouver and Melbourne, the price of homes never seems to fall. This is because you simply find it impossible to get a construction permit. The city limits the number of homes being built. This is not accidental. The incumbents don’t want more and more new entrants and limit the number of foreigners entering the housing market. Between Australia and Singapore, foreigners are unwelcome to buying a home in the choicest locations because the government can lose elections if you create both limited supply and allow unlimited foreign access.
Thirdly, foreign buyers are essentially stabilisation tools for property values. Many Thai developers like All Inspire Development, Habitat Development, and Pace Development have seen uncompleted projects because their business models essentially required a steady stream of Chinese buyers post-2020. When China realised it had to save itself from its own housing oversupply, it limited foreign remittances for home purchases in 2021. Since then, the demand for homes in Thailand by Chinese nationals has fallen year on year.
Finally, talent for industry and talent for growth. The biggest driver of value in the last 30 years has been technology. Technology is the only product that drives real value. Tesla is not a car company; it’s a tech company. So are Nvidia, Google, and Microsoft. What is the most valuable asset in these companies? The talent. They move to cities where talent has an unlimited supply. California is home to the UCs, namely UCLA, UC Sacramento, UC San Diego,UC Berkeley, Stanford, etc. Each year, the universities produce 100,000 tech graduates that feed into the ecosystem. Then, talent produces value that produces money that buys homes. If you take the universities out of the equation, cities like Palo Alto would not exist. Without an excellent supply of tech graduates, cities in the future will not grow in value. In India, I predict that both Hyderabad and Bangalore will see valuations grow by twice the speed of places like Goa and Kolkata. The cities that drive tech will drive wealth that will drive real estate.
To sum it up, what I see in Thailand is a decline because the only driver for real estate is tourism and hospitality. In the next 20 years, the tourism dollar will be hard-fought in South East Asia. Thailand may not be a loser, but it is not a winner either. Unless you drive future value by world-class education, your middle class cannot afford a USD 200,000 = (THB 7 million) homeand you have not built a solid foundation for home ownership. The valuations of your home cannot grow beyond 2.5% year on year if you take a 20-year cycle.
In other words, education = elevated valuations.