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For nearly all of last year, real estate executives looked to the December 23 election to clear up the haze hanging over the market since the September 2006 coup. But a few weeks after the election the clouds are still lingering.

While it's too soon to tell if the economy will finally pick up, the outlook is certainly more promising for 2008. "Now, it is clearer to potential or hawkish investors that Thailand has moved away from military control, and that there has been a clearing of the air," said lawyer Desmond Hughes, a partner with Belmont Limcharoen. "There have been some discussions amongst political parties regarding potential improvements to laws, including those relating to property in Thailand."
The People Power Party, comprised of loyalists to deposed Prime Minister Thaksin Shinawatra, put itself in prime position to form a government by winning 233 seats out of 480 in last month's election. As of mid-January, however, the coalition was still not finalized as parties waited for the Election Commission to determine how many candidates would be disqualified for alleged election fraud.

For now, the Democrat Party—regarded within the industry as one of the most favorable to foreign investors—appears to be the sole opposition party as all the others have agreed to join the PPP's coalition. Outspoken PPP leader Samak Sundaravej was the frontrunner to become the country's third prime minister in three years and 33rd since absolute monarchy ended in 1932.

Most business leaders are wary of a Samak-led government, fearing his terse relationship with key anti-Thaksin establishment figures like Privy Council President General Prem Tinsulanonda could prolong the two-year-old political conflict and keep the economy in the doldrums.

Other risks remain for PPP as well: The Election Commission could still void the victories of enough PPP candidates to tip the balance to the Democrats, and the courts could rule that PPP is a nominee of Thaksin and his dissolved Thai Rak Thai party, which could then lead to PPP's disbandment.

Despite all the potential landmines, the return to an elected Parliament should go a long way toward reviving the property markets. Thailand's resort destinations are some of the best in the region, and risk levels should now decrease to levels that are appropriate for a developing country. "I think that post election, those buyers who were concerned particularly about ´military rule´ as a concept will now be able to proceed," said Hughes. "Any other investors who are still waiting must ask themselves what they are actually waiting for as a milestone to make a decision."

If PPP does finally manage to form a government, investors will watch closely to see who becomes finance minister. The party's economic team leader, Mingkwan Sangsuwan, is known more as a marketing expert and is unlikely to take up the portfolio. Either way, the party is likely to put in someone associated with the previous Thaksin government who would be friendly to foreign investors and free trade deals.

Although Samak may worry the business community, a respected hand at finance minister may help restore confidence. "Whatever team that comes in will be more friendly to foreign investors," said Somchai Jitsuchon, research director at Thailand Development Resource Institute and an adviser to the finance ministry. "I think the property market will see an upturn. The fears of an interest rate hike are not serious now as the Fed will solve the sub-prime problems by lowering interest rates.

This will increase foreign capital flows into Thailand through the property and stock markets." PPP has also vowed to lift the capital controls imposed by Thailand's central bank in December 2006 in an attempt to curb the Baht's swift climb against the falling US dollar. Last month, the central bank finally lifted the measure for property funds, which could help give firms more funding options this year and stimulate property sales.

The Foreign Business Act will likely be much more friendly to overseas investors than the one that stalled in the military-run legislature last year. However, it remains unclear if the new government will extend the leasehold period from 30 years or extend the foreign ownership quota for condominiums. "If the government can create some form of political stability, investors will probably start to invest in the second quarter," said Somchai. "They already have many plans to invest, but they are just waiting until the dust clears. But if the dust continues, we could have problems."

Although the Bangkok condominium market stayed strong in 2007, commercial and resort markets saw sales drop. Multinational firms chose to expand in other countries in the region, such as Vietnam, as the political situation in Thailand remained fuzzy. "Generally, the Bangkok property market has performed better than many would have expected given a deteriorating outlook for the Thai economy in the face of spiraling fuel prices, ongoing political uncertainty and concerns of
potential recession in the US," Suphin Mechuchep, managing director of Jones Lang LaSalle (Thailand), said in a year-end 2007 report. "Most of the property sectors have been hindered by these unfavorable conditions, although the magnitude of the impact has not been that significant, thanks to strong market fundamentals."

Though many involved in the market say pent-up demand remains, property firms are cautious on the outlook for 2008. Many times throughout the past two years a resolution seemed inevitable, only for things to get worse later on. "It is hard to predict where the property market is heading in 2008 as it will rely on the economy," Suphin added. "At present, the political uncertainty persists and no one can tell if the political turmoil will come to an end after the new democratically elected government is formed."

 

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