The Russian Rouble has lost around a half of its value since the beginning of 2014 with a drop of 10% in the last week. Russian Interest rates were raised from 10.5% to 17% on Monday 15th December in an attempt to halt or at least slow down the Rouble’s rapid decline. So what is causing the Rouble to crash and how will this affect the Pattaya condo market?
Firstly, Russia’s economic growth in recent years has been literally fueled by oil sales, but oil has dropped in price to below $60 a barrel; which is the lowest since 2009. OPEC are behind the recent drop in cost of crude oil and seem intent on over supplying the market, possibly driving the price below $40 a barrel in a bid to take on US and Russian shale oil. The other factors affecting the Rouble are debilitating economic trade sanctions implemented by The United States in response to the Russian and Ukrainian conflict. New sanctions are to be signed by President Obama that will further chastise Russia and could have wider economic repercussions across Europe. The outlook for the Russian economy is bleak, with a projected shrink in GDP of at least 4.5% in 2015.
The effect on the Pattaya condo market is already evident. This week a major local developer, NOVA Group, cancelled its Ocean Pacific Condominium project because 95% of sales commitments were Russian. With the falling value of the Rouble it won’t be long before Russian buyers cannot meet the spiraling cost of buying an apartment. In a nutshell, the condo they have put a deposit on at the start of the project has effectively doubled in price and this might not be the end of the story. NOVA Group made the right, but tough decision as the project hadn’t begun the construction phase and re-marketing the development was obviously not cost effective at this stage.
There are other condo developments that will be affected as they too were selling to the Russian market. Many buyers will lose their deposits unable to continue their payment plan, however, it could result in the cheap re-sale of off plan units. How so? If the developer has already begun construction and feels that the non-Russian market is strong enough to make up the short fall, it could be worth the gamble. The problem comes if the developer is relying on off plan purchase monies to fund the construction. This could cause delay in completion and doubt in the companies’ ability to complete.
It is possible that one or more of the condo developers in Pattaya will cease trading as a direct result of the impending collapse of the Russian market. It goes without saying that many Russian real estate agencies will close, together with a few tour companies too. The bigger, cash rich companies with many developments already completed are most likely to weather the storm. It could even be an opportunity for them to explore other markets including India, Singapore, South Korea and more importantly China.
The ASEAN agreement comes into force in 2015, which could drastically change who visits Thailand and ultimately which nationalities relocate, invest or buy holiday apartments here in Pattaya. The market is changing, but one thing is for sure. Pattaya is still a rapidly developing South East Asian city and a major tourist destination. Those who can adapt to the changing market have a strong chance of survival.