Thai Currency Rates: Real Estate Investment Profitability
It remains blatantly clear to the property investor that possible fluctuations within the Baht/major currencies exchange rates will have little and limited impact upon investment profitability due to Thailand's progressive policy development and strong economic foundations.
Despite suggestions to the contrary, Thai Finance Minister Chalongphob Sussangkarn dismissed the idea that Thailand's baht currency be fixed to address currency fluctuations, saying they are unjustified under the present global capital movements.
Delivering the government's performance before the National Legislative Assembly, he said many people voiced concern regarding the current baht fluctuation and wanted Thailand's currency exchange rate to be fixed to eliminate the volatility. But in Dr. Chalongphob's opinion, those who came up with such advice should learn a lesson from the economic crisis of 1997 where policy makers fixed the exchange rate and brought all money from the country's coffers to support the move, which finally led to the depletion of international reserves.
"From the lesson, we must realise the currency exchange rate should not be fixed under the global capital movement at present," Thailand News Agency (TNA) quoted Dr. Chalongphob as saying, adding that "it should be allowed to move with a managed float." Dr Chalongphob further stated that foreign investors had now begun to have much more confidence in the Thai economy as the tough monetary and fiscal policy had eased and inflationary pressures had declined.
In December 2006, the Bank of Thailand introduced capital control policies to reduce the pace of the baht appreciation. Although most of these controls proved temporary, the impact on market confidence lingers. "Signals from the Government that there is a coherent plan to address these pressures at their source would help to reassure the market that a re-imposition of capital controls is unlikely," said World Bank Lead Economist for Thailand, Kazi M. Matin.
"The challenges going forward for Thailand is to improve private investor confidence through quick policy actions," Matin commented. "Measures like the signing of the Japan-Thailand economic partnership agreement, modification of the Foreign Business Act amendment to liberalize some key service sectors, and actions to reduce investment climate constraints can turn around private investment situation" and improve the country's economic outlook, he added.
The medium-term prospects for Thailand's growth and development, however, remain strong, thanks to the sound economic fundamentals. The Baht appreciated rapidly during 2006 both in nominal and real terms, however it remained in line with other major currencies within the region. During 2006, the annual average baht to US dollar exchange rate was Bt 37.88 compared to an average rate of Bt 40.22 in 2005.
The Baht's NEER (Nominal Effective Exchange Rate, which is the baht's exchange rates against the other major currencies weighted by trade values of Thailand with the respective countries), appreciated by 5.7 percent. Its real rate (Real Effective Exchange Rate or REER) also appreciated by 8 percent.
The year-on-year nominal appreciation saw a marked speed in Q2 2006 where it peaked in December (the average for that month was 13 percent more appreciated than that of December 2005). But during the two year period (2005-06), overall real appreciation of the baht was in line with those of other currencies in the region.
Overall however it is clear that Thailand's real exchange rate, even after the recent appreciation, is stable:
Despite suggestions to the contrary, Thai Finance Minister Chalongphob Sussangkarn dismissed the idea that Thailand's baht currency be fixed to address currency fluctuations, saying they are unjustified under the present global capital movements.
Delivering the government's performance before the National Legislative Assembly, he said many people voiced concern regarding the current baht fluctuation and wanted Thailand's currency exchange rate to be fixed to eliminate the volatility. But in Dr. Chalongphob's opinion, those who came up with such advice should learn a lesson from the economic crisis of 1997 where policy makers fixed the exchange rate and brought all money from the country's coffers to support the move, which finally led to the depletion of international reserves.
"From the lesson, we must realise the currency exchange rate should not be fixed under the global capital movement at present," Thailand News Agency (TNA) quoted Dr. Chalongphob as saying, adding that "it should be allowed to move with a managed float." Dr Chalongphob further stated that foreign investors had now begun to have much more confidence in the Thai economy as the tough monetary and fiscal policy had eased and inflationary pressures had declined.
In December 2006, the Bank of Thailand introduced capital control policies to reduce the pace of the baht appreciation. Although most of these controls proved temporary, the impact on market confidence lingers. "Signals from the Government that there is a coherent plan to address these pressures at their source would help to reassure the market that a re-imposition of capital controls is unlikely," said World Bank Lead Economist for Thailand, Kazi M. Matin.
"The challenges going forward for Thailand is to improve private investor confidence through quick policy actions," Matin commented. "Measures like the signing of the Japan-Thailand economic partnership agreement, modification of the Foreign Business Act amendment to liberalize some key service sectors, and actions to reduce investment climate constraints can turn around private investment situation" and improve the country's economic outlook, he added.
The medium-term prospects for Thailand's growth and development, however, remain strong, thanks to the sound economic fundamentals. The Baht appreciated rapidly during 2006 both in nominal and real terms, however it remained in line with other major currencies within the region. During 2006, the annual average baht to US dollar exchange rate was Bt 37.88 compared to an average rate of Bt 40.22 in 2005.
The Baht's NEER (Nominal Effective Exchange Rate, which is the baht's exchange rates against the other major currencies weighted by trade values of Thailand with the respective countries), appreciated by 5.7 percent. Its real rate (Real Effective Exchange Rate or REER) also appreciated by 8 percent.The year-on-year nominal appreciation saw a marked speed in Q2 2006 where it peaked in December (the average for that month was 13 percent more appreciated than that of December 2005). But during the two year period (2005-06), overall real appreciation of the baht was in line with those of other currencies in the region.
Overall however it is clear that Thailand's real exchange rate, even after the recent appreciation, is stable:
The real exchange rate, even after recent appreciation, remains more depreciated than the pre-1997 crisis period.
The medium-term appreciation of the baht has been directly in line with other currencies of the region.
Thailand continues to demonstrate increasing competitiveness as seen in the sustained, strong export growth as well as 11.6% export volume growth in 06 when baht appreciated rapidly; in fact the GDP share of exports rose from the pre-crisis rate of 45% to more than 65% in 2005.
Other real exchange rate studies, including purchasing power parity (PPP) estimates, provide no evidence of deviation from an equilibrium level.
posted by Obelisk International at 11:13 am
1 Comments:
Thailand property offers such good potential as an investment location.
There are many reasons for this fact:
* Thailand is the largest growth market in Asia. Some businesses choose Thailand as a regional base from which to keep their employees working all around Asia.
* Thailand has recently attracted significant foreign investment. It has become one of the Asian economic leaders and is one of the fastest-growing economies in the region.
* The completion of the Suvarnabhumi-Bangkok International Airport (SBIA) is expected to spur growth in commercial property markets in eastern Bangkok as well as make Thailand even more accessible by air.
* Thailand is one of the cheapest places to fly to in Asia.
* The country has strong business links with China and has an excellent infrastructure as well as world-class facilities in many resort towns.
* Property is much cheaper in Thailand than elsewhere and an increase in overseas interest in property purchase has helped to create an economic recovery in Thailand. Property investors who bought post 1999 have witnessed impressive capital growth, particularly in major cities.
* Rental potential is great, due to increased government spending luring growing numbers of tourists.
* No capital gains tax for private investors, and low ongoing taxes.
* Today, foreigners are regarded by the government as a big investment opportunity in Thailand and they are actively welcomed and encouraged to invest.
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