Fitch: Thai Property Investment Funds to Continue to Grow

Wed Aug 6, 2014 10:52pm EDT

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(The following statement was released by the rating agency) BANGKOK, August 06 (Fitch) Fitch Ratings expects the number and the assets under management of property investment funds in Thailand to continue to grow in 2014 and 2015. This will be supported by the funds' attractive returns relative to bank deposits and fixed income investments, an increase in the number of new properties for rent and developers' rising need for funds. Regulatory changes to move towards a real estate investment trust structure for these funds will also have a positive impact on the sector's growth. Property investment funds have expanded rapidly in the past two years in Thailand. The market capitalisation of property funds listed on the Stock Exchange of Thailand rose to THB243.0bn (USD7.5bn) at end-2013 from THB96.5bn at end-2011, while the number of funds increased to 46 from 33. Funds investing in office buildings accounted for 35% of the total market capitalisation, while those investing in retails properties made up 32%, warehouses and factories accounted for 15%, and hotels and serviced apartments accounted for 10%. Retail space in Bangkok and its suburbs is likely to increase by 700,000-800,000 square meters (sqm) in 2014, up about 11%-12% yoy. The increase is partly driven by the completion of projects delayed from the previous year, when the amount of retail space rose by just 120,000 sqm. (2012: about 500,000 sqm). Demand for retail properties is likely to continue to increase, although political instability in 4Q13 to 2Q14 disrupted business activity in many sectors. Fitch expects the occupancy rate for retail properties in Bangkok and its suburbs to fall in 2014, although it is likely to remain strong at above 90%. Fitch expects warehouse and factory space for rent in Thailand to continue to increase by about 800,000 sqm in 2014, following an increase of 860,000-870,000 sqm in 2013. The new supply of warehouse and factory space for rent - plus sales of existing properties by developers - will likely support an increase in assets under management of the property investment funds. About 40%-60% of the new warehouse and factory space in Thailand in each of the past two years were sold to property investment funds. Two major developers plan to sell warehouse and factory assets valued at a total of THB10bn this year, similar to the amount of sales in 2013. Thailand is moving towards a real estate investment trust (REIT) structure for funds that invest in property. Regulations have been changed to disallow the establishment of new funds under the old property fund structure and to prevent existing property funds from raising more capital. However, existing property funds have an option to convert to the REIT structure. Under the new regulatory framework, a REIT can have borrowings of up to 35% (and up to 60%, if being rated at investment grade) of its asset value. In addition, investment in incomplete projects can account for up to 10% of its asset value. REITs can also invest in offshore properties. On the other hand, the previous property fund structure allowed borrowings of up to 10% of the fund's net asset value and did not allow investment in incomplete projects as well as offshore properties. Therefore, REITs under the new framework are likely to be a more attractive funding tool for the developers of properties for lease than the previous property fund structure, and hence this may reduce developers' need to rely on bank financing. The first REIT under the new regulatory framework is likely to be launched in September or October of this year. Contacts: Somruedee Chaiworarat Director +662 108 0160 Fitch Ratings (Thailand) Limited Level 17, Park Ventures, 57 Wireless Road, Lumpini, Patumwan, Bangkok 10330, Thailand Lertchai Kochareonrattanakul Senior Director +66 2108 0158 Vicky Melbourne Senior Director Head of Industrials South East Asia and Australasia Ratings +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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