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The Treasury Department recently completed its four-year assessment of land prices, confirming what property industry executives have known for quite some time: Land prices in resort areas are jumping. "This is just the government catching up with the private sector," said David Simister, chairman of CB Richard Ellis (Thailand). "We're dealing with a finite resource, so land values are going to keep rising."

The Treasury Department will use the information when assessing taxes and land transfer fees. Many industry executives doubt the new appraised prices, which will come into effect on January 1 of next year, will have a significant impact on property transactions". In the worst-case scenario-where appraised land prices jumped 1,000% in certain suburbs of Bangkok due to new roads-the new government-determined land values could add 5% to land transactions, Bangkok-based broker Phatra Securities said in a report in October. It found that for most projects, the new appraisal would hit margins by less than 0.1%.

According to published reports, appraised land prices in Phuket increased about 160% over the past four years, more than any other province. Land in Thalang District reportedly jumped the most at 205%, while land plots near Laguna Phuket shot up to an appraised value of 30,000 baht per square wah this year from 5,000 baht per square wah in 2004.

Premium land along Patong Beach nearly doubled to 94,000 baht per square wah. Plots off main roads also tended to double, but only to about 1,000 baht per square wah. While these figures seem to indicate a huge jump in land prices, they are still likely to be somewhat below market prices-albeit by a much lesser amount than now. Still, some firms may try to complete land transactions prior to January 1 to get land assessed at a highly discounted rate.

Property executives say that market land prices can vary tremendously depending on location. The Treasury Department's appraised prices cover zones of land instead of individual plots, which means that most transactions are assessed at a higher or lower rate than the actual market price.

Beachfront plots on the west coast of Phuket are very scarce, and land can sell for 50,000-62,500 baht per square wah. On the rest of the island, land can fetch 25,000-37,500 baht per square wah. These prices are similar to those in Koh Samui, Hua Hin and Pattaya. But although industry executives say land prices in some areas have jumped two, three or even seven times in some areas since 2004, the Agency for Real Estate Affairs actually reported earlier this year that land prices have stayed more or less stable from last year due to the economic downturn following the September 2006 coup.

Even so, over the last four years, overall land prices have risen steadily after declining during the 1997 financial crisis. In 2000, the Treasury Department's land prices took into account data from 1996 to 1999, and developers at the time said the appraised values were more often than not above market prices. The values were reassessed once more in 2003, and only increased slightly as the base values were already quite high. That year, property values increased by 14.44%, and jumped 24.17% in southern provinces due to a tourism boom.

Property consultants and brokerages welcome the increase in appraised land prices, which offer several advantages despite the higher taxes and transaction fees. For instance, homebuyers can take out larger mortgage loans because some banks use official land prices instead of the selling price to determine how much to lend to borrowers. Property developers can also ask for larger credit lines to build new projects. Financial institutions can use the higher values to help clear some non-performing loans as well.

The government did have plans to invest in information technology that would allow it to reassess land values every six months or one year rather than the four-year wait. But the political upheaval in the past few years has halted plans to update land prices for the time being. The four-year timeframe makes it hard to assess current market conditions, as much of the increases may have taken place in previous years. A shorter timeframe would provide a more realistic picture of the market and also make tax appraisals much more accurate. "I think the most consistent thing about statistics is their inconsistency," said Larry Cunningham, managing director of Phuket One Real Estate. "You can virtually make them say what you want. Certainly land prices have increased, although no foreigners have bought land for quite awhile."

Although the Treasury Department's land prices are now more reflective of the market, they can also distort the picture. For example, although the government assesses all of Talang district at 30,000 Baht per square wah, property values in the district are hardly uniform. "Talang district is now 30,000 baht per square wah but in smaller villages up towards the waterfall there is no way you'd ever sell land for those prices," Cunningham said. "If values are generalized across the board it will be quite unfair to people not in those areas around Laguna. Talang is a very, very big district."

Developers in Phuket, still the prime resort location in Thailand, increasingly must look further away to either the island's East Coast or surrounding areas like Khao Lak and Krabi as land plots on the west coast are scarce. Many developers expect land prices to only increase more as the political outlook clears up.

The campaign for the December 23 election is now in full swing. Nearly every party has announced proposals that will boost the investment climate, which has been rattled after the military-government made a series of confusing nationalistic policy proposals.

"Phuket is facing a land shortage as it's 80% mountainous and smaller than Singapore," Cunningham said. "Assuming that Thailand is perceived more favorably after the election next month and questions about the Foreign Business Act are fully resolved, then land prices should rise next year."
 

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