Association of Investment Management Companies

The Stock Exchange of Thailand together with Money and Wealth Magazine has organized a seminar on property fund on April 1, 2009 at The Stock Exchange of Thailand by inviting four specialists from both security and investment sectors to discuss an interesting question that most investors are concerned. What are the best investments during recession?

According to Dr. Somjin Sornpaisal, Managing Director of One Asset Management, property funds represent an attractive option for both individual and institutional investors seeking relatively low risk and stable return, especially when stock expected to remain bearish well into 2009. Since the stock market is very volatile, property funds is a good solution for investors to diversify their risks. Property funds are generally medium to long term investment that can produce steady annual dividend yield of 7-8 percent for free hold property funds and 10-13 percent for leasehold property funds. Obviously, these returns are well above bank deposit of 1 percent as well as government bond of 3.6-3.8 percent. Therefore, property fund investment will be a good alternative for investor seeking steady and high yield investment.

In addition, Mr. Sudhipongse Phuaphanprasert, Assistant Managing Director of Fund Management Department (Property) of BBL Asset Management, said that property fund investment is similar to both debt securities and equity instrument in terms of periodic return payment and buying/selling investment unit. With the declining interest rate countering recession, return from property funds are surely better deals for many investors. Besides, Mr. Sudhipongse has pointed out the pattern regarding the investment property cycle. A phase when property price increase is typically twice longer than a time when property price fall. This statistic went hand in hand with the characteristic of property funds in that investors typically should aim at long term investment of 20-30 years or more. In other words, “if you brought then and held through the cycle, you couldn’t lose”. However, if investors are interested in aggregating wealth accumulation in short term, investing in stock market will be more appropriated.

Major advantage to property funds when compared to direct investment is convenience and liquidity, and additionally, returns from property funds are exempted from personal income tax as well. However, the market capital for property fund in Thailand is approximately 500 million baht while the turnover rate is around 50,000 baht/day or 0.01 percent. In other words, though The Security and Exchange Commission plan to increase the market capital to 1,000 million baht, the market size is still very small.  Consequently, investors may encounter lack of liquidity problem in buying/selling unit of property fund. Nevertheless, according to Dr. Santi Kiranand, Senior Vice President of Group Head Market Development of The Stock Exchange of Thailand, the size does not matter for property fund in providing security and stable income. Investing in property funds should depend on individual investor, and the government should play a crucial role in providing sufficient information as well as educating investor in order to increase awareness and stimulate market demand.

 Mr. Therdsak Thaveeteratham, Senior Vice President of Research Division of Asia Plus Securities Public Company Limited said that property fund investment allow for general diversification within an investment portfolio. Investors can reduce their risk exposure by investing in different classification of property funds such as shopping complex, hotel, factory and office building, and they can diversify through location of each property fund as well. Mr. Therdsak also recommends investors to invest in airport property fund since it offers the highest dividend yield of 13.81 percent with a minimum guaranteed return of 6 percent. At present, Thailand has only 1 airport property fund, which is the Samui Airport. Moreover, shopping complex is another attractive investment. Although the economic is in a recession, individual still need to spend on consumption.  This type of fund provides approximately 11.4percent and investors normally hold investment in long term leasehold with three-year contracts.

For all the above reason, property funds are interesting investment opportunity.  Yet, investors should have clear objective of why they are investing. If the investors aim at speculation or wealth accumulation in short term, investing in stocks such as property stocks will be more suitable. Or if the investors have objective in capital preservation, then investing in government bond or bank deposit will be more appropriate. However, property fund will only be apposite when investors intend to diversify their investment portfolio and build long term secure income. Thus, investors must keep in mind that property fund is a buy and hold investment.