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  • Doing Business in Thailand: Comparing 1997 to 2008 crisis

    April 15 2014

    Note: This post is not entirely new. This subject was first posted as a Page called “Thailand Ratings”. I’m about to modify the look of the blog and decided that some of the subjects discussed in pages would now be treated as a post. Of course I updated the content of this post to reflect the current situation.

    As we all know, Thailand was one of the victims hit hardest by the 1997 crisis, and many of Thailand’s top developers and financial institutions were bankrupted by the crisis.  Earlier in 2009 I was asking whether the 2008 financial crisis would see Thailand revisiting the troubles of 1997.

    Thailand Economical Rankings

    My answer at the time was that 2008 found Thailand as one of the few countries in the world most likely to resist the effects of this crisis, mostly because the Bank of Thailand, other Thai banks and top Thai developers have all learnt from their mistakes of the past. Thailand’s impressive comparative ranking at 2008 as an investment destination (see table below) was sufficient evidence at the time that, despite a two-year political crisis, the economic fundamentals for Thailand remained positive as shown in the table below:

    Thailand A Top-ranked Investment Destination




    Most Attractive Economy for Direct Foreign Investment 11/141 UNCTAD 2007-09
    Most Ease in Doing Business 12/181 WB 2009/2010
    Global Competitiveness Index (GCI) 28/137 WEF 2008
    Cost of Living Expenses (from most to least expensive) 105/144 Mercer 2008
    Best Long-term Economic Fundamentals 8/51 OCBC
    © Rene Philippe & Partners Ltd. www.renephilippe.com

    Not only did Thailand scored well economically at the time, but it also ranked according to a report of OCBC Bank dated 18 October 2008, in the top 8 (Singapore is no. 1) of more than 50 economies worldwide most likely to overcome the serious 2008 economic crisis, prompted by the 2008 global financial meltdown. Other countries listed as low-risk were Denmark (2), Norway (3), Sweden (4), Switzerland (5), South Korea (6) and Russia (7), while the United States (45), and the United Kingdom (50) were at the bottom of the list.


    Thailand was passing the “seven economical indicators test” without problems.  The seven economical indicators used by economist to determine a country “Long-term Economic Fundamentals” includes criteria economists believe to be the most important gauges of a country’s ability to survive what they call ‘severe economic adversity’.  Those criteria include savings/GDP ratio, usable reserves, fiscal performance, and net debt/GDP and so on…

    Did Thailand do as well as foretold in the various surveys?

    Thai banks were indeed nearly unaffected by the 2008 financial crisis, as the direct exposure of Thai banks to subprime mortgage represented less than 0.3% of their capital.

    As to developers, the fact is that none of the Thai SET listed developers went into bankruptcy, that they completed or are about to complete the projects that they started before the start of the crisis. In 1997 you could see the effect of the crisis on the real estate sector in Bangkok were hundreds building projects were abandoned and their structure left to rotten. Since then most of the abandoned sites have been taken over and constructions completed but you still have a few of the ghost structures left over of the 1997 crisis that are still uncompleted 10 years after. This did not happen in 2008.

    It did not happen in 2008 because of course Thai banks and developers have learnt the lessons of the 1997 crisis and have become more careful in their business endeavors. Currently Thai banks do not grant loan to developers who have not at least presold 40 to 50% of their projects. But what seems to have saved the real estate market is somewhat Thailand political crisis. Indeed, as a result of the political crisis Thai listed developers have started as early as end of 2007 to reduce the number of new projects launched in 2008 and 2009 while many medium-sized developers had already folded their projects (often before launching) by the time the world crisis started. In other words Thai developers were ready when the crisis started.

    As a result and to the contrary to what happened in other countries, all Thai SET listed developers have shown in 2009 better than expected sales results. Several housing and condominium projects launched in 2009 were snapped in a few days by buyers (mostly Thais). One of the curious paradoxes of this crisis is that the rejection rate of individuals’ loan has never been lower than in 2009 with an average rejection rate of 8% versus 23% in normal years. The meaning being that Thai buyers on the market have money.

    The problem is that those results do not mean that Thai real estate sector is healthy.  Because while Thai listed developers are doing well in Bangkok, Hua Hin and Pattaya the point is that medium and small developers are not doing so well. Especially the small and medium developers that are catering for foreign buyers are still in a lot of trouble and my best guess is that a lot of those small housings projects that target foreign customers in Thailand Sea resorts will go uncompleted.

    Sectors Affected by the Crisis

    While the real estate sector and the banking sectors have done pretty well other sectors of Thai economy could not completely escape the effects of the 2008 worldwide crisis, because it happened as already explained at a time when the country has suffered endemic political strife for the past two years.

    Among the sectors that have suffered the most are Tourism and services. Especially all services businesses which turnover depends of a constant influx of foreign investors or tourism. But those sectors were already in trouble for the past two years and the 2008 crisis was just one more nail into the coffin. The few sectors that were left unaffected by the political crisis such as manufacturing and manufacturing related services were the real victims in Thailand of the 2008 crisis and we have seen during the past 12 months many factories closing down or reducing their capacities and laying off workers.

    What next?

    While Thai banking and real estate sectors weathered this crisis better than the 1997 one all is not perfect in the most perfect of Thai worlds because other sectors such as manufacturing, tourism and services were deeply affected and 2009 will be for Thailand a year of negative growth at – 3.2%. Most countries in the region expect a growth rate between +6 to +8% next year

    According to the expert we have reached bottom and the world seems to be going better and Asia will be at the point of the recovery and most countries in the region will have an economical growth rate between +6 to +8% next year. Will Thailand benefit of the recovery? Not sure yet because the political conflict is still not resolved, the current democrat government may fall any time now and the chances of the current governmental coalition to win the next elections are nil, because democrats do simply not have the votes. Several protests will happen during the next few months and each protest has the potential to turn violent. Because the political situation in Thailand is still volatile expert believe that it will not fully benefit from the Asian recovery with a growth of only 3%.

    It is not too much to hope that Thai political figures will finally recover their good sense and realize what they have done to the country. Hopefully this day will happen soon and we will finally be out of it. One can always dream.

    Note: This page is an excerpt of Rene Philippe Dubout next book: “How to  Safely Buy Real Estate in Thailand” to be published in November 2009

    About the Author:

    The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.


    © Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact


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