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GIS and Modern Valuation Practices in Thailand

VAT News Vol.2/2001
 

Sopon Pornchokchai

Paper presented at
the Ninth World Valuation Congress
April 26-29, 2001, Singapore

1. Recent Development in Real Estate
1.1 General overview
        In Thailand 90% of real estate develop-ments are of residential sector particularly in owner-occupied housing projects. Of the total development during 1994 to 1999, housing in the BMR accounted for 70% of the total (Baht 824.568 billion to the total Baht 1,183.962 billion). When provincial housing is also taken into account, the propor-tion of housing development in all Thailand to the total value of real estate development was 90% (Baht 1,069.844 billion out of the total Baht 1,183.962 billion). This implies that real estate development is mainly for local uses of local people. Other developments such as shopping centres, office spaces, industrial estates, resort properties and the like are considered small proportions of development.
        An evidence of the overheating of real
estate development in Thailand is that in 1994, while the total number of housing stock in the BMR was 1,993,155 the number of offered units, which were mostly in off-the-plan projects, was as high as 253,028 units or 13% of the total housing stock. Conversely, an increase in the average price of a housing unit can be observed over time. In 1994, it was Baht 1.409 million per unit. It was Baht 1.455, 1.664 and 1.768 million in 1995 - 1997 respectively. It reached Baht 2.147 million in 1998.
        Yet many people did not realize, or did not want to recognise, the potential oversupply resulting from massive production. Therefore, in 1995, approximately 300,000 units of completed developers' owner-occupied housing units in the BMR were unoccupied or in other words, mostly sold out to individual buyers already (Agency for Real Estate Affairs, 1995: 65). However, some 155,522, 105,288 and 36,537 new units were still launched during 1995 to 1997 respectively resulting in an increase in the number of unoccupied housing to 350,442 units in the BMR or13.7% of the total BMR housing units (Agency for Real Estate Affairs, 1998: 10).

 

1.2 Situation in 2000
        From 1997 to 2000, the total number of units cancelled was 215,246 (Agency for Real Estate Affairs, 2000). Most of them were still in the process of construction and in the hands of the private developers. At the end of 1997, some 127,069 housing units were left unsold (Agency for Real Estate Affairs, 1997: 25). This implies that the situation was worsening. However, it would be much worse if they could be completed. This is because the number of unoccupied housing units would have increased more substantially. And all these would have been considered an economic waste.

1.3 Land prices
        The pattern of land price changes shows some concrete evidence on the real estate boom and bust in Thailand. From 1985 to 1990, land prices in the BMR increased dramatically however, few realized this unusual increase but enjoyed the unexpected gain (Agency for Real Estate Affairs, 1999: 163). On the contrary, there was a study indicating that between 1980 and 1986, land prices increased by only 6% for land subdivision projects. During the longer time span (1971-1986), annual increases were only 3% (PADCO, 1987: 78).
        As shown in the following table, from 1985 to 1990, land prices jumped, on the average, 19.4 times from the 1985 price. This was an unusal phenomenon resulting from a fundamental change in the Thai economy from an agricultural to an in-dustrial-based economy.
There was a lot of foreign investment in the real sector i.e. the manufacturing sector. Industrialists came from Japan, Korea, Taiwan, Singapore and other mainly Asian countries. Therefore, land had both more value and potential. Alternative uses apart from agricultural uses became clear e.g. factory sites, housing developments, business and service activities and the like. A lot of foreigners also invested speculatively in real estate because of the attractive returns.
        However, after the Gulf War in mid - 1990, the increase in land prices was slow down. There was civil unrest in 1992 as well. The slow-down in land prices helped developers to acquire land at a more reasonable cost for their housing development. Therefore, together with the ease of obtaining cheap loans, housing development was boomed further until the financial crisis in mid - 1997. Thus, considering the pattern of the price cycles, land and housing are somewhat different in timing. That is, raw land boomed first but lasted for a shorter period than housing.

1.4 Massive speculation
        The provision of housing is not only by developers but also by speculators. In the boom period, speculators play a vital role in buying a house and on-selling to end users. In the case of low-cost condominium projects, many end users have to buy a house from speculators.
        In 1993, during the boom period of housing development (1993-1996), one-fourth (23%) of the people who paid a deposit to buy a house off the plan at the 1993 Annual Home Expo, were speculators. In the case of condominiums, they comprised almost one-third or 31% (Agency for Real Estate Affairs, 1993: 25). Later in 1994, it was further found that only half of the people who paid a deposit to buy a house off the plan at the 1994 Annual Home Expo were considered real home buyers. The rest bought for speculation, relatives' use or a second home which could be for sale in the future (Agency for Real Estate Affairs, 1994a: 29). The picture was even more frightening for condominiums because only 35% of the owners of low-cost condominiums were end-users who came to live in the units they bought. Speculation prevailed in these units (Agency for Real Estate Affairs, 1994b: 67).

1.5 Warnings ignored
        During the boom period, when beneficiaries were enjoying the enormous and seemingly endless increases in the value of their properties, there were warnings from time to time that this situation was not normal. However, few beneficiaries or officers involved paid much attention to these warnings. Few measures and policies were established in time to cope with the
coming bust in the market.
        These warnings appeared on almost an annual basis. The above reviews some studies related to the warnings on the overheating or fever of speculation which led to the bust. This demonstrates that, during the boom period, Thailand has had certain information for predicting the forthcoming bust. However, few paid serious attention to it. Some could hypothesize that even the authorities involved were not knowledgeable nor prepared to tackle the potential bust in the real estate industries.
        To be fair, it can be said that the boom and bust cycle in real estate industries seems inevitable. It should be noted that in the United States of America where housing starts have been employed as a major industry indicator since the 1970s, several booms and busts still happened in the past few decades. In the United Kingdom, property professionals have been widely trained for years. The Royal Institution of Chartered Surveyors (RICS) was established in 1863. However, a lot of real estate cyclical phenomena still emerged. In Singapore where the government via the Urban Redevelopment Authority rigidly controls and carefully plans for its city state, there are still oversupplies in residential and commercial properties. They cannot escape from the boom and bust of the industry either.

 

Table 1: Available Warnings Ignored
Year Sector Findings Sources
1991 Office Spaces If all the planned buildings as of 1995 were built, the oversupply would last until 2006 Agency for Real Estate Affairs (1991: 91)
1991 Land prices Land prices increased, on average, by 21.5 times from 1985 to 1991 Agency for Real Estate Affairs (1991: 101)
1993 Housing 23% of those buying a house off the plan at the 1993 Annual Home Expo were speculators. It was 31% in In the case of condominiums. Agency for Real Estate Affairs (1993: 25)
1994 Housing Only half of the people who paid a deposit to buy a house off the plan at the 1994 Annual Home Expo were considered real home buyers. The rest bought for speculation-related purposes. Agency for Real Estate Affairs (1994: 29)
1994 Low-cost condo- miniums Only 35% of the owners of low-cost condominiums were end-users who came to live in the units they bought. Speculation prevailed in these units. Agency for Real Estate Affairs (1994b: 67)
1995 Un-occupied housing 300,000 units of completed, developers' owner-occupied housing units in the BMR were unoccupied (mostly sold out to individual buyers already) Agency for Real Estate Affairs (1995: 65)
1996 BMR Housing 17% of the housing projects surveyed were expected to be cancelled. Agency for Real Estate Affairs (1996: 24)
1997 BMR Housing 40.7% of the housing projects surveyed were expected to be cancelled in the near future. Agency for Real Estate Affairs (1997: Table 5, 1)
1998 Un-occupied housing 350,000 units of completed, developers' owner-occupied housing units in the BMR were unoccupied (mostly sold out to individual buyers already) Agency for Real Estate Affairs (1998: 10)
 

2. GIS and Valuation
2.1 Overview of Thai GIS development
        Geographical Information Systems (GIS) were first developed in the early 1980's. In the beginning, they were used for environ-mental studies and management. Later on, they were applied to the uses of infrastructure authorities such as water and electricity supplies. Currently, GIS are commercially used in a diversity of businesses such as financial institutions, franchising activities, real estate development and the like.
        Generally, the uses of GIS are still
limited to some extent because of the high cost of map preparation. However, it will become cheaper over time. Technically, with modern photogramatry technology, laser pictures can be converted to vector files easily. Therefore, in the future, the uses of GIS will be applied in various businesses.
        In Thailand, the Remote Sensing Division at the Asian Institute of Technology was one of the pioneers in GIS development. In 1987, JICA came up with the development of maps of 1:4,000 and 1:10,000 for Bangkok. However, in terms of commercial programs, Mapinfo came onto the market in the late 1980's. This is a desktop GIS program. Later more powerful systems for corporate uses were introduced. They are:
        2.1.1 ArcInfo by CDG-ESRI Thailand for the Department of Forestry, etc.
        2.1.2 Intergraph by Loxley for the Department of Town and Country Planning, Royal Thai Survey Department, etc.
        2.1.3 Smallworld by Ucom Plc for the Communications Authority of Thailand.
        2.1.4 Autodesk by Advanced Tech for some municipalities.

2.2 The uses of computer in valuation
        The uses of computer for valuation practices were of rather short history compared with those in developed countries.
        2.2.1 In 1988, The Thai Engineering and Management Development (TEAM D: former name of Agency for Real Estate Affairs) built the first statistical model to study the property cycle in Thailand during 1970 - 1988.
        2.2.2 In 1990, TEAM D built the first CAMA analysis for land readjustment scheme and national property tax studies. Then several other modelling and analyses were made for land readjustment schemes for different organizations.
        2.2.3 In 1998, Agency for Real Estate Affairs developed a GIS system. Base maps are 1:4,000, 1:20,000 and 1:50,000 on Bangkok, metropolitan and nationwide basis respect-ively. Database on various real estate projects together with other population and land information was installed in the system as well.
        2.2.4 In the future, a neural networking with an artificial appraiser will be experi-mented to assist in valuation for financial purposes where desktop valuation tasks with
cheap fees are expected in the future.

2.3 Required Functions for the GIS
        Required functions for the GIS include:
        2.3.1 Database which can manage a very large national database. Simple database programs such as Excel can be used.
        2.3.2 Map: Map of Bangkok at a scale of 1:4,000 is ample for the uses. This map can be overlaid on a Map of the BMR at a scale of 1:20,000 and a Map of the whole country at a scale of 1:50,000. In addition, provincial city maps of the Department of Town and Country Planning at a scale of 1:4,000 are also available and can be used.
        2.3.3 Statistical analysis: This implies some MRA (multiple regression analysis) and othr econometric modeling, cluster analysis and the like. This can be developed to be an expert system in particular locations in the whole database system.
        2.3.4 Presentation: This is in the case of graphics presentation, import and export of pictures and the like.
        2.3.5 Reporting: This refers to valuation, survey or research reports to each property.
        In addition, user-friendly GIS applications
must be written in order to facilitate users. Necessary applications include import and export of data, data Editing, searching, printing, programming and modeling, user data entry and the like.

2.4 Softwares and Networking
        Basically, no complete software is needed so that the technology will not depend on any particular software. What is needed includes the Map Server which is a GIS component / engine. In terms of database, the SQL Server is an ample tool to build a powerful database. Moreover, for the application, Visual Basic (VB) is a very powerful computer language and useful to write necessary user-friendly applications for non-programmers. The "Crystal Report" in VB is also necessary to construct applications on reporting.
        The networking of the computer system can be in the system of:
        2.4.1 Local Area Network: This is suggested for connection within a physical office which will be very efficient for simultaneous data entry, editing, reporting and monitoring.
        2.4.2 Wireless Area Network (WAN):
with the rental of 128k lead line with necessary routers: This is suggested for networking between the headquarters and its regional offices.
        2.4.3 Internet networking: This is for a wider range of networking at a reasonable price.

2.5 The Geosearch in practice
        GeoSearch is a ready-to-use property information system (PIS) that contains basic and necessary data, specially designed for banks and financial institutions. The components of GeoSearch provided include a 1:20,000 scale map of Bangkok and its eleven vicinity provinces, active housing projects, a sampling of over 200 land valuation sites, new roads, color-coded zonings, population density and other demographic data.
        The program allows users to create their own layers and data records that link to the unlimited points on the map and, at the same time, pool all relevant files, pictures and graphs to that particular record. One obvious benefit is that it saves time and resources in the loan department. This is because staff can preliminarily estimate collateral value for customers by comparing the values of the new site to values of the nearest existing sites or the nearest housing projects shown on the map. All data that is provided by AREA, such as housing projects, new roads etc., will be updated annually.
        The purpose of the program The program will help collect, sort, retrieve and display the organization's data which links to points on the map. The asset price can be easily compared with available information which has a direct impact on the asset value.
        The structure of GeoSearch The package of a stand alone unit costs Bt290,000 (excluding VAT) contains:
        2.5.1 Software GIS,
        2.5.2 Application,
        2.5.3 A 1:20,000 scale map of Bangkok and 11 adjacent provinces,
        2.5.4 Data provided by AREA for price comparisons is more than 2,000 active housing projects, more than 200 land valuation price, new road projects, future expropriation zones, color zoning, density of population.
        2.5.5 User data entry unit.

2.6 The current uses of the Geosearch
        The uses of the Geosearch can be seen as follows:
        2.6.1 For asset valuation: This will help collect data that refers to a particular point on the map. At the same time, all relevant files, such as site plan, pictures of the project or the house, title documents etc., can be linked to the pre-defined fields in each record of data. Sorts information easily and shows the relevant point on the map. As locations are plotted on the map, one can easily see the difference or similarity of collateral
        One can preliminarily estimate the value of assets by comparing the new asset to the nearest existing assets compiled by your organization. In addition, you can compare the new asset with Agency for Real Estate Affairs's housing projects information. The comparison will let one know the asset potential & initial value.
        More complicated information can be sorted by keying-in the sorting conditions. For example, you would like to re-value a particular group of collateral that has a value exceeding 25 million Baht and the latest valuation date was in mid-1999. The program sorts and then displays the result instantaneously.
        2.6.2 For asset analysis: For example, by comparing a client's assets to the bank's existing data, together with Agency for Real Estate Affairs's housing project prices on the map, a loan officer can more accurately estimate the size of the loan
Benefits for marketing
        2.6.3 For marketing: Data from more than 2,000 active housing projects acquired by intensive field surveys will be very useful to the post financing business. An officer can check the name of the developers, type of developments, locations, percentage of completion and proportion of sales, for example, in order to make a timely post finance decision on favorable projects. Construction & decoration companies can also sell their material to new houses. The crucial point is that all related information will be updated annually , with a minimum fee.

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