Asia Pacific Housing Journal: V13 2010

By 2030, more than 5 billion people will live in cities (80% of humanity)

Coping with 21st Century Urbanization

As GH Banks new president, I am honored to welcome all of you to the Q4 2010edition of the Asia Pacifi c Housing Journal.

The Government Housing Bank of Thailands Research and Information Services Department has again done a great job in producing what I believe will be interesting reading for everyone in the region.

The World Expo Shanghai 2010 was indeed an historic event for all us and its Better Cities, Better Lives theme interests all of us in the housing and housing fi nance industries.

Chinas immense scale and how it handles its future urban developments is studied closely in APHJs review of McKinsey Global Institutes massive report on its urbanization.

I would also like to thank UN-HABITATs Zhang for his Better Cities, Better Economies story that fi rst appeared in Urban World.

In closing, I congratulate to Thailands Taekwondo team for winning two gold, two silver and four bronze medals at the Guangzhou 2010 Asian Games. We have been most happy fi nancial supporters of Thailands national Taekwondo team during the past fi ve years.

Again, it is my pleasure to welcome all of you to the Asia Pacifi c Housing Journal and please enjoy your reading.

Woravit ChailimpamontriPresidentGovernment Housing BankBangkok, Thailand

Presidents Message

With this edition of the Asia Pacific Housing Journal, we say a fond farewell to Khan Prachuabmoh, who has completed his maximum eight-year term as the Government Housing Banks president.

We warmly welcome GH Banks new president, Woravit Chailimpamontri and have included an article on his innovative ideas for selling housing finance and savings products.

The Better Cities, Better Lives theme of World Expo, Shanghai 2010 is our featured section this quarter and we are most happy to present a brief summary of McKinsey Global Institutes views on Chinas Preparation for an Urban Billion.

In Global Issues, we are pleased to present Alex J Pollocks interesting article on the varying success of US Government State Enterprises (GSEs) (such as Fannie Mae and Freddie Mac) funding of US home loans.

We also feature a brief article on Black Swan events and a complementary article on how organizations should be protecting themselves from frequent once in a thousand year disasters.

This edition concludes with our popular Quality of Living section that includes articles on four additional National Parks that you may wish to visit in Thailand.

Again, welcome and we hope you had a fantastic 2010 and a great 2011.

Editorial CommitteeNOTES FROM

Editorial Committee Ballobh Kritayanvaj, K l Woo, Surachai Fangchanda, Apisuda Puangkaopong, Wichit Wong, Varangkana Satthaworasit, Araya Chientachakul, Anchalee Tummanon

Copyright 2010 Government Housing Bank, All Rights Reserved. Asia-Pacifi c Housing Journal is published by the Government Housing Bank, Bangkok, Thailand. The opinions expressed in this publication are those of the authors and do not necessarily represent the views of the Government Housing Bank. E-mail : [email protected] Tel. : +66 (0) 2202 1066 Fax. : +66 (0) 2202 1928

Design and Printing : Zeno Publishing (Thailand)

Editorial Advisor : Pathfi nder Asia Ltd.

I would like to say a hearty farewell to all APHJ readers and welcome my successorWoravit Chailimpamontri as GH Banks new president.

My maximum eight-year term as GH Banks president was completed on November 15 and I would like to thank all you for contributing to the Banks success.

We are very proud and happy to have been able to start up the much-needed English-language housing GH Bank Housing Journal in 2007 that was aimed at supporting middle and lower income housing developments in the region.

With UNESCAP and UN-HABITATs encouragement and support as well as the additional support of corporate sponsors, we were happy to change the Journals name to Asia Pacifi c Housing Journal in 2010.

The APHJs success will continue and improve in the future with all your contributionsand supports. I am happy to remain on the APHJs Advisory Board until the end of my current term in May 2011.

Thank you again for all your support.

Khan PrachuabmohFormer PresidentKhan PrachuabmohFormer President

Farewell Message

Abdul Qadeer Fitrat, Governor Central Bank of Afghanistan,

Afghanistan

Tsedendorj Enkhbayar, CEO Mongolian Mortgage Corporation,

Mongolia

RV Verma, Chairman and CEO National Housing Bank,

India

Xing Quan Zhang, PhD, Chief of Urban Economy & Social Development Branch

UN-HABITAT, Kenya

Adnan H Aliani, Officer-In-Charge, Sustainable Urban Development Section

UNESCAP, Thailand

Zaigham Rizvi, Consultant World Bank,

USA

Khan Prachuabmoh, Former President Government Housing Bank,

Thailand

June 2010 to May 2011APHJ Advisory Board

Features

Preparing for Chinas urban billionAPHJ takes a close look at McKinsey Global Institutes 523 page view of Chinas massive urbanization to a billion urban citizens by 2025.

Cities role in Thailands economic development Ballobh Kritayanavaj tells us how cities in Thailand have been and will continue being key drivers of economic development.

Land readjustment in Thailand Udom Puasakul explains how land readjustments, which are a relatively new concept in Thailand are being used to shape urbanization.

Selling innovative new housing loan and savings productsGH Banks new president tells how his Bank will drive innovative new housing loan and savings deposit sales.

Better cities, better economiesRead Xing Quan Zhangs views on the positive relationship between economic growth and urbanization and that cities are driving forces for economic development.

Better Cities, Better Lives

Housing Issues

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Government housing financial institutions dont guarantee higher home ownership ratesRead Alex J Pollock report that contrary to many politcal perceptions, Americas GSE home financing institutions have not resulted in higher home ownership rates.

Home mortgage lending drives economySurachai Fangchanda explains why home mortgage lending has often been used by various governments to stimulate economic growth during down business-cycles or crises.

Second-hand home sales and real estate agent profession developmentDr Somsak Muneepeerakul outlines how the second-hand home markets continuing development will be a growth springboard for the real estate sales agents profession.

Home building services in ThailandVibul Chantradilokrat, President of Home Builder Association looks at home building services in Thailand.

Thailands Escrow Act protects home buyers Amornratna Charuratna looks closely at how Thailands Escrow Act can help home buyers.

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Global Issues

Black Swan TheoriesAPHJ attempts to explain the current common use of Black Swan theories andBlack Swan events to explain once in a thousand-year-old events that seem to be happening frequently.

Quality of Living

Self-immunity: critical risk management criteria in uncertain timesK I Woo outlines why organizations must develop self-immunity risk management systems to combat todays often frequent and disastrous unforeseen events.

Cross-border insolvency harmonizing treaties becoming important Read Julian Males article on why cross-border insolvency treaties are becoming important in many jurisdictions.

Four outstanding National Parks in ThailandAraya Chientachakul introduces four great National Parks in different regions in Thailand that are easily accessible and are great examples of conservation and nature.

Medals galore at Guangzhou 2010 Asian GamesRead how the GH Bank sponsored national Taekwondo team successfully won 10 medals at the recent Asian Games.

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Somsak Muneepeerakul has been the President the Real Estate Brokers Association of Thailand since 2004.

Udom Puasakul is Director General of Department of Public Works and Town & Country Planning, Department of Public

Xing Quan Zhang is Chief of Urban Economy and Social Development Branch at UN-HABITAT. He is the UN-HABITAT focal point for financial mechanisms.

Vibul Chantradilokrat is the President of Home Builder Association. He is also managing director of Sahasutha Home Builder.

Julian Male is an Australian solicitor and advises foreign investors in Thailand.

Alex J Pollock has been a resident fellow at the American Enterprise Institute since 2004. He spent thirty-five years in banking, including twelve years as president and chief executive officer of the Federal Home Loan Bank of Chicago, while also writing numerous articles on financial systems and management.

Contributors and PersonalitiesDr Somsak Muneepeerakul

Udom Puasakul

Xing Quan Zhang, PhD

Vibul Chantradilokrat

Julian Male

Alex J Pollock

Works and Town & Country Planning.

Worawit Chailimpamontri is GH Banks new president. Prior to becoming GH Bank president he was the Government Savings Banks CFO.

Woravit Chailimpamontri

Contributors and Personalities

Amornratna Charuratna is a director of Escrow Policy Division of Bureau of Financial Protection Policy, Fiscal Policy Office.

K I Woo has been a business advisor and financial journalists in South East Asia for more than a decade. He enjoys golf in-

Ballobh Kritayanavaj is the head of GH Banks Research and Information Services Department. His articles are featured regularly in Thailand and overseas.

Araya Chientachakul is an editor at Pathfinder Asia Ltd.

Pimol Srivikorn is Secretary General of the Taekwondo Association of Thailand.

Surachai Fangchanda is a Vice President of GH Banks Research and Information Services Department

Amornratna Charuratna

K I Woo

Ballobh Kritayanavaj

Araya Chientachakul Pimol Srivikorn

Surachai Fangchanda

between servicing his clients throughout the region.

Better cities, better economies

Preparing for Chinas urban billion

Cities role in Thailands economic development

Land readjustment in Thailand


12 Asia-Pacific Housing Journal

Urban population grew from 220 million to 2.8 billion in the 20th century. The next few decades will see an unprecedented scale of urban growth. By 2030, this is expected to expand to about 5 billion. Such rapid urban expansion will be particularly notable in Africa and Asia where urban population will double between 2000 and 2030. By 2030, the towns and

The world reached a turning point in 2008. For the first time in history, more than half its human population, 3.3 billion people, lived in urban areas.

cities of the developing world will make up 81 percent of urban humanity. Economic growth and urbanization are often positively linked. Cities are the driving force for economic development. Economic growth also stimulates urbanization. These positive relationships are clear in many countries.

Xing Quan Zhang, PhD

1 This story is adapted from Zhangs article in Urban World, Volume 2, Issue 4, September 2010

Better cities, better economies1

Asia-Pacific Housing Journal 13


Urbanization and absence of economic growth Urbanization can occur in the absence of economic growth. For example, in some sub-Saharan African countries, urbanization occured without of economic development. Its processes and patterns are differentiated by institutional settings and policies from country to country and region to region. Despite the growing importance of cities in world affairs and national economic development, the citys position is regarded as marginal to current debates and development controversies. Negative over-urbanization impacts such as the concentration of poverty, slums and social disruption in developing cities are often overemphasized.

Cities the best hope However, cities represent the best hope for growth and opportunities as engines of national economic development. They provide large efficiency benefits, which result in unprecedented productivity and competitiveness gains. They are centers of knowledge, innovation and production and services specialization. Cities facilitate creative thinking and innovation. High concentrations of people in cities generate opportunities for interaction and communication and promote creative thinking, knowledge spillovers, new ideas and technologies.

They also provide more learning and sharing opportunities and facilitate trade and commerce by providing large market-places. Cities are production and services centers because goods and services are more efficiently produced in high-density urban environments. Cities also provide consumers with more goods and services choices and they are the agents of social, cultural, economic, technological and political change. These advantages make cities more productive than rural areas. No country has achieved sustained economic growth without the growth of cities.

Driving force of national economies Cities are the driving force of national economies. They generate a disproportionately higher rate of economic growth than rural areas. In developed countries, cities have higher productivity per capita than rural areas. For example, Tokyo has 26.8 percent of the national population and produces 34.1 percent of national GDP. London has 20.3 percent of the population and accounts for 25.4 percent of GDP. Paris, with 16.2 percent of the national population, accounts for 26.5 percent of the national GDP. Dublin with 25.9 percent of the population generates 32.8 percent of GDP. Auckland, Vienna and Helsinki generate about 50 percent higher GDP than their respective population share.


Engines of migration Cities in both developed and developing countries play crucial roles in driving national economic development. Statistics show that cities are much more productive than rural areas in developing countries. However, this does not mean that cities are more productive in developing countries. Productivity, is generally higher in developed countries cities. However the productivity gap and inequality of development between cities and rural areas are much larger in developing countries than in developed countries. The large economic productivity gap and imbalance of development between cities and rural areas in developing countries lead to enlarged rural and urban income gaps, which in turn encourages migration to cities to search for better opportunities and prosperity. The massive influx of rural populations to cities creates resource shortages to provide housing and services in cities. The engines of economic development then become engines of migration. Migration that out-paces economic development often results in urban slums. Manila, Karachi, Nairobi, Dhaka and Mumbai are engines of economic development but they are also cities of slums.

National economic growth The contribution of cities to national economic growth is very significant in developing countries. The economic future of developing countries is highly dependent on the growth of its cities. However, cities are seriously under-resourced to fulfill their potential as drivers of national economic development and prosperity. Cities face many challenges, from accelerating growth, massive influx of rural migrants, deteriorating infrastructure, environmental degradation, social exclusion, violence, under-investment, lack of fiscal freedom and policy choices. Municipal governments often lack financial means to address the vast challenges facing them. For example, of the total government revenues in Canada, the federal government receives 39 percent; provincial governments receive 50 percent and municipal governments only get 11 percent. Municipal governments in most countries have less than a quarter of total government revenues. In many countries such as Afghanistan, Armenia, Australia, Chile, Cyprus, El Salvador, Greece, Honduras, Iran, Jordan, Lesotho, Malta, Mauritius, Mongolia, Morocco, Paraguay, municipal governments receive less than 10 percent of the government revenues. The international development community also ignores the needs of cities. For example, the total urban assistance to developing countries from 1970 to 2000 was about $US 60 billion, about $US 20 per capita - less than a dollar per capita per year.



Cities need powers to generate revenue To maintain vital economic growth and competitiveness cities (1) should have the power to generate revenues and make development decisions; (2) have sufficient investment to provide adequate infrastructure and services, such as transportation, communications, power supply, water and sanitation, housing, as well as financial and business services; (3) should develop and attract high quality human resources for technological innovation, entrepreneurship, and knowledge development; (4) should provide an enabling national environment for market development. Should we focus our attention on the development of cities and ignore the development of rural areas? The answer is no. The huge disparity and divide between cities and rural areas in terms of productivity and wealth are often signs of under-development. Developed countries experiences indicate that more balanced development between cities and rural areas occurs when national development reaches a higher level.

Cities work better if they have between-cities efficiencies but also in-cities efficiencies.

City regions City regions have emerged as most important growth poles. Transport and communications technology improvements stimulate rapid city region developments. As modern products and services become increasingly sophisticated, producers and service providers gain significant advantages from new transaction networks. These networks facilitate products, services, technology and market information exchanges, and foster economic creativity and innovation. Network participants receive tremendous efficiency boosts by being part of tightly-linked and spatially-concentrated clusters. These networks, production and services modes foster the development of urban agglomerations and city regions. Today, city regions have emerged as economic development driving-forces in many countries. For example, the Tokyo city region has more than 40 cities and towns with a population of 33.2 million, and generates more than 34 percent of national GDP. The Pearl River Delta in China has a population of 30 million. New York city region has a population of 22 million; Sao Paulo, 17.7 million; Mexico city region, 17.4 million. Changjiang River Delta in China has emerged as the worlds largest city region with a population of about 100 million, generating 26 percent of national GDP.


with 2 percent of the population, accounts for 6.3 percent of GDP. Nairobi, with 9 percent of the population, generates 20 percent of GDP, Dar es Salaam, with 7.9 percent of the population, accounts for 14.9 percent of GDP. Cities like Shanghai, Manila, Brasilia, Cape Town, Karachi, Nairobi generate more than 100 percent higher GDP than their population share. Dhaka, Yangon, Chittagong, Khartoum and Mumbai generate more than 200 percent higher GDP than their population share. Addis Ababa generates more than 360 percent higher GDP than its population share. Hanoi produces more than 460 percent higher GDP than its population share. Kinshasha and Kabul generate more than 500 percent higher GDP than their population share.

Cities and city regions are key sources of economic vitality and innovation for nations. Innovation and high efficiency are increasingly linked to the ability to associate economic activities in city regions. The comparative advantages of cities and city regions make them drivers of national global economic development. Better cities mean better regional and national economies.

Economic contribution of cities in developing countries The central role of cities in national economies is more significant in developing countries than in developed countries. For example, Sao Paulo has 10.5 percent of the population and generates 19.5 percent of GDP. Shanghai, with 1.2 percent of the population generates 2.9 percent of GDP. Buenos Aires, with 32.5 percent of population produces 63.2 percent of GDP. Mumbai,



As western economies continue struggling, China and India continue growing at unprecedented rates. Rapid urbanization has been a key growth factor during the past three decades. The recently concluded Expo 2010 Shanghai China, which featured a Better City, Better Life theme turned the spotlight on how better future cities can result in harmonious and sustainable development. Some observers are however, wondering whether urbanizations past success as an economic driver and nation builder will continue in the next two decades. In March 2009, the McKinsey Global Institute (MGI) completed an extensive (525 page study) study Preparing for Chinas urban billion that revealed many startling statistics and interesting conclusions.2

APHJ takes a close look at McKinsey Global Institutes view of Chinas massive urbanization

Staggering scale of Chinas continuing urban growth Everything about China evokes massive scale, from its 1.3 billion people to the thousands of containers filled everyday with electronic goods, clothing and housewares that are shipped to North America , Europe and elsewhere. The MGI report predicted that in 2030 more than one billion people will be living in Chinas cities and perhaps even more interestingly, 350 million people (current population in US) will be added to its urban population by 2025. MGI also estimated that China will have added more than 200 million new jobs and at that time, more than 500 million people will be working in its cities.

Preparing for Chinas urban billion1

1 This report is adapted from McKinsey Global Institutes Preparing for Chinas urban billion, March 2009.

2 For full report, www.mckinsey.com/mgi/reports/pdfs/China_Urban_Billion/China_urban_billion_full_report.pdf


Rural to city migration will emerge as the clear driver of Chinas future urbanization. From 1980 to 2005, Chinas urbanization percentage doubled to 44 per cent and will reach 64 per cent by 2025.

Massive number of cities Chinas urbanization has quickly resulted in an unprecedented number of large cities. By 2030 more than one billion people will live in Chinas cities and 221 will have more than one million people. (Europe has 35 cities today with more than one million people) The countrys burgeoning economic success and rapidly rising living standards, MGI said have resulted in an unprecedented urbanization surge that will continue. By 2025, 23 cities in China will have more than five million people. Moreover, Chinas urban economy will generate 90 per cent of its GDP and of the 350 million people added to its urban population in 2025, more than 240 million will be migrants. Urbanization will create pressure points for many cities including challenges of securing sufficient public funding for social services, dealing with demand and supply pressures on land, energy, water and the environment. Focusing solely on GDP growth will not achieve the harmonious development the Chinese leadership desires.

Huge infrastructure needs To ensure that these cities are livable, MGI said that China must continuously provide huge amounts of cutting-edge

infrastructure. Five billion sqm of road must be paved and 40 million sqm of buildings must be built in about five million buildings. About 50,000 of these buildings, the report said will be skyscrapers. It will be equivalent to constructing 10 New York cities. Perhaps most amazingly, China will need more than 170 new mass transit systems in the next two decades to ensure that its fast-growing population can move about efficiently and effectively.

A massive transformation MGI said Chinas closely intertwined economic and urbanization goals will yield unprecedented investment and business opportunities. President Hu Jintaos 17th Party Congress goal in 2000 to quadruple GDP by 2020 is highly dependent on Chinas continuous urbanization. Urbanization and Chinas development have grown hand-in-hand and the cities have been major drivers of GDP growth over past two decades and will become even more so in the next two decades. According to MGI, Chinas cities will generate about 95 per cent of the countrys GDP in 2025, rising from the current 75 per cent. Chinas rapidly growing urban middle class has spurred private consumption. Between 1990 and 2005, Chinas urban consumer market emerged as a significant economic growth driver, accounting for 26 per cent of GDP growth. By 2025 urban consumptions GDP percentage will rise to 33 per cent.



Migration of the rural masses to Chinas cities has also driven growing urbanization. From 1980 to 2055, Chinas urbanization level doubled to 44 per cent. By 2025, MGI predicts that 64 per cent of Chinas people will live in cities.

Rapid urbanization pressures will intensify Chinas rapid urbanization will also result in intense pressures on the countrys economic and social fabric. Adding 350 million people to Chinas cities in the next two decades will require land and spatial planning and developments. Unprecedented construction may threaten extensive urban sprawl, further intensive land development, and extreme congestion. In addition, MGI noted that urban Chinas demand for resources will double during the same period and air pollution could reach critical levels in most cities. Although migrant labor will still be plentiful in China during the next two decades, MGI noted that aspiring city officials will face challenges finding sufficient university graduates. As costs go up, it will be important to create higher value jobs necessary for top-line growth.

Funding urban growth in China will also become more difficult in the next 20 years, especially if revenues from land sales begin decreasing. MGI expects that cities will face increasing costs in providing services. An important increasing cost factor will be gradual pressures to extend services to migrant populations. By 2025 MGI estimates that almost 2.5 per cent of urban GDP will be required to extend public services and benefits including health care and education to migrants across China. MGI concluded that almost all cities apart from the very large ones, could face significant funding challenges.

Policy options for Chinas future Policy choices made at national and local levels can significantly alter the shape of Chinas urbanization. MGI concluded that contrary to conventional wisdom among outside observers, decision making in China is relatively decentralized. Most tax revenues are retained locally and local governments can make decisions on everything from industry subsidies to retail licensing, subject to negative control from Beijing.


Traditionally, Beijing has relied on and incentivized the entrepreneurial nature of local bureaucrats to identify and pursue growth opportunities. Therefore, in China, urbanization is implemented locally and policy choices enacted at the individual city level, under the national governments guidance, have strongly influenced Chinas growth. At the same time, however, a powerful urbanization national framework fundamentally influences the degrees of freedom at local levels. National land policy decisions, strategic infrastructure location, investment approval authority processes and limits, MGI said define the level of local authority. Differential treatment of local municipalities can tilt the playing field across cities as well. By refocusing on more balanced and productive growth concepts, the report said Chinas leadership can have a dramatic impact on the quality of life of its expected billion urban citizens.

How McKinsey conducted research To compile this report, McKinsey visited 14 Chinese cities3 and interviewed hundreds of officials, business leaders, city managers and academics about the policy levers that were used to upscale and shape cities developments. It employed rigorous macro and microeconomic approaches through a city-level econometric model.

Four urbanization scenarios - next 20 years McKinsey developed four plausible urbanization scenarios for the next 20 years of Chinas urban development. Under a supercities scenario, a small number of very large cities with 20 million or more people could emerge and under a hub and spoke scenario, clusters of medium-sized or small cities could develop around larger ones Two other quite different scenarios involve patterns of dispersed growth. Under a distributed growth scenario, a larger number of cities with populations of 1.5 million to 5 million would spread throughout China and in a townization scenario, many smaller cities with populations of 500,000 to 1.5 million would emerge.

Large concentrated cities perform more effectively For various historical and local reasons, MGI said large concentrated cities in China perform more effectively than smaller cities. Concentrated growth would have many positive economic implications linked to higher productivity and efficiency. Supercities and hub-and-spoke scenarios would produce up to 20 per cent higher GDP per capital and result in more efficient energy use. Energy productivity would

3 Beijing, Cangnan, Changsha, Chengdu, Harbin, Huhhot, Nanchong, Shanghai, Shenzhen, Suzhou, Taiyuan,

Taizhou, Xiamen and Xingping.



be 20 per cent higher in concentrated urbanization models, although hub-and-spoke would result in the highest energy use. Concentrated urbanization models would also produce lower arable land-loss rates. It will reduce arable land loss to only 7 to 8 per cent of current totals. They would also result in more efficient mass- transit usage. In a supercities scenario, China would have to expand its current subway system eight times. Under distributed growth, light-rail system would need to grow 300 times. The report even states that although supercities face extremely serious peak pollution problems, enforcement of measures to regulate pollution is more widespread and effective in larger cities. Lastly, it concludes that talent is more likely to congregate to larger cities that will be the centers of economic growth.

What Chinas policy makers will do? National policy makers can shift China toward concentrated urbanization. To encourage large concentrated cities developments, MGI said China will enact tighter land acquisition restrictions that will slow the growth of less-developed urban centers. Most of them depend on land sales to fund urban development. At the same preferential land policies will give more freedom for larger cities to maneuver and grow toward concentrated urbanization. However, China must monitor cities carefully to ensure preferential policies

are not abused and lead to unmitigated urban sprawl. MGI also noted that Chinas Central government has options to determine local city autonomy levels that could encourage urbanization outcomes. It could grant more cities municipality status and give them more freedom to establish development policies. (Chongqing recently received municipality status). During the next two decades, MGI predicted transport and network infrastructure patterns will play greater growth-distribution and urbanization roles. Governments can develop highway grids or road systems focused on megacities and/or hubs. Strategic placement of heavy infrastructure such as refineries and ports, and the development of national education institutions will also make big regional economic development differences. Chinas current system, MGI said however, explicitly promotes city-level GDP growth, and favors distributed growth in particular and disbursed growth in general. Changes to todays incentives framework will be difficult.

Urban productivity policies - benefits in all scenarios MGI said urban productivity agendas should be encouraged under all scenarios with the prime objective of a productivity-based approach that incentivized efficient energy, water, and land use. Cities should focus on matching sufficient skilled labor to higher-value-added activities and improving public services.


These productivity agendas would also reduce future funding pressures. MGI estimates that public spending could benefit by 2.5% of GDP per annum. Innovative cities with effective policies can be replicated and expanded elsewhere. Urban productivity policies implemented across the board, MGI said would open up unprecedented innovative opportunities in areas such as energy conservation, water recycling, and clean technology. The Central government could act as an enabler and distributor of best practices, encourage pilot projects and encouraging other cities to take up new solutions. The study concluded that concentrated urbanization patterns are most likely to mitigate pressures and increase urban productivity. By 2025, these policies could boost the growth of 15 supercities with average populations of 25 million people, or spur the further development of 11 urban networks of cities linked by strong economic ties, with combined populations of 60 million plus people, on average. Encouraging urban productivity initiatives such as implementing transit-oriented development or creating energy efficient

equipment incentives at the city level, the report said could generate substantial positive outcomes in all scenarios. Under all scenarios, businesses can leverage Chinas impending urban billion new consumer market, by becoming major investors in road and rail, public-transport systems, building the energy-supply infrastructure and providing energy efficient technologies.

Advantages of Chinas scale - the Shanghai case Currently, Chinas cities are managed under four specific jurisdictions. Some of the largest including Shanghai are directly controlled municipalities under the Central Government. The other cities are administered as provincially controlled sub-provincial cities, prefectural-level cities, and county-level cities. Chinas big cities are economically powerful. Of Chinas 858 official and unofficial cities, MGI said 14 cities with populations of five million or more accounted for 33 per cent of Chinas GDP in 2007. History, location, economies of scale and broad preferences granted by the Central Government (including Special Economic Zone status) have contributed to their success.



MGI said three other critical factors also favored cities. Large cities, its said attract the most talent.Shanghai access to 100,000 graduates from 60 institutions of higher learning each year and 28 per cent of Shanghais labor force has a college education - double a decade ago. Shanghai, MGI said also has a half a million expats. Large cities attract more investment especially foreign direct investment. City networks also stimulate economic growth. Large cities are always at the center of a cluster of smaller cities. Within China, Shanghai and the Yangtze River Delta is arguably the best example of an efficient hub-and-spoke model . The City in the middle of a very close knit cluster of economic centers on the delta, drives growth in the entire region.

Chinas urban productivity agenda - four major planks MGI cites that China has four major planks to optimize its urban productivity agenda. 1. Plan for integrated dense development As stated earlier, one of Chinas key urbanization success ingredients that distinguishes it from other countries such as India has been its cities freedom to acquire land and sell it for redevelopment. Without these revenues, MGI said Chinas urbanization would not have been as rapid. Land purchases and their subsequent sales have allowed Chinas cities to be proactive in funding and building infrastructure.

Chinas built-up land increased 150 per cent in the past 15 years and acquired-land sales accounted for ten to 50 per cent of local government revenues. However, MGI said that aggressive land acquisitions have often caused rapid urban sprawl and depletion of arable land. To achieve dense development, MGI said cities need comprehensive strategic land-development plan frameworks that optimize effective transportation infrastructure networks and strategic urban land planning. 2. Manage demand-for and not just supply-of resources MGI said China could be more effectively urbanized if cities could manage demand for resources rather than simply focusing on building the supply infrastructure needed to keep pace with demand. For instance, a plan to boost energy productivity will reduce the demand for electricity. However, to reap higher energy productivitys full benefits, MGI said China must develop standards and incentive programs that are backed by rigorous national level monitoring and enforcement. At the same time, local level policy and implementation are as critically important. 3. Investing in labor and skills development In addition to guaranteeing sufficient labor supply, Chinas cities, the report said must improve labor quality to maximize economic output and support a gradual shift to value-added economic activities. For instance, rather than the number of graduates produced, overall quality should be targeted.


Labor productivity can also be measured by developing and implementing standardized systems. 4. Enhancing public sector productivity MGI said a rigorous program to enhance public sector productivity would provide China short-term opportunities with significant impact. To achieve this objective, however, the government should develop greater clarity around goals, accountabilities and measurement processes. For instance, in the heath-care area, it could promote more utilization of its primary health care programs that are currently at a 50 per cent utilization rate. China could also do much to improve capital expenditure efficiencies that often result from overoptimistic price or demand projections, improper designs or failure to consider competition.

Conclusions Because of its sheer size and scale, Chinas urbanization in the next two decades will face many challenges. However, MGI feels that China has already demonstrated considerable understanding of the challenges it faces managing rapid urbanization. Its next test will be shifting its urbanization strategy from one of dispersed growth that aimed above all to maximize GDP to giving

priority to enhancing overall urban area productivity through more efficient use of financial, human and natural resources. The overall opportunity, MGI said is significant because the successful implementation of urban productivity strategies could reduce public spending by 2.5 per cent of GDP and the private sector resource bill by an additional 1.7 per cent of GDP. To achieve these goals, national and local level policy actions are necessary. At the national level, urbanization should be shifted towards a concentrated growth pattern and at the local level a mandate to adopt urban productivity policy initiatives should be encouraged to maximize urbanization outcomes and mitigate costs and pressures. Those cities, MGI said that are already successful can be at forefront of developing a long-term sustainable model for others to replicate. China can ensure its stature as rapidly growing and developing economic power that is following a sustainable path toward long term prosperity. Business, MGI said has a significant role to play in developing this huge new urban market and must look closely at the policies implemented.



Ballobh Kritayanavaj

Cities have played a major role in Thailands economic development, especially as people migrate to urban centers for better livelihood. Globally, countries have also become more urbanized. The worlds urban population will increase from todays 3.4 billion to about 4.5 billion in 2025 ( 57% of total population). Megacities of more than 10 million people will continue growing everywhere. Todays 21 megacities are expected to increase to 29 by 2025, of which 16 will be in Asia. In this globalization era, urban environments throughout the world, including Thailand have been drastically changing. Many cities will become more important and assume new roles.

Urban and rural populations of the world, 1950-2050

Source : World Urbanization prospects: The 2009 Revision

1 This article is based on Ballobhs presentation at the UN Pavilion, World Expo 2010 Shanghai, October 6,

2010.

Cities role in Thailands economic development 1

26 Asia-Pacifi c Housing Journal

Bangkok - a primate city

Bangkok - Thailands capital city with almost seven million people is still an extremely primate city. It is about 24 times larger than Nonthaburi, the second largest city of Thailand and about 37 times larger than Chiangmai, a well known tourist city in the North. During the past several decades, along with five adjacent cities, Bangkok has expanded into a Bangkok Metropolitan Region - BMR with more than 10 million people. The BMR is a new regional urban

pattern developing to form a single continuous urban and industrial area which can be called a mega -region or conurbation. It is indeed an extended metropolitan region similar to many other metropolises.

However, the majority of Thailands urban population will continue living in a large number of small towns (1,120 urban settlements) with less than 50,000 inhabitants and midsized cities with between 50,001-500,000 inhabitants (36 urban centers).

Less than 25,000 41 177 105 244 332 163 1,062 91.78

25,000 - 50,000 10 12 6 4 17 9 58 5.01

50,001 - 100,000 8 2 5 5 1 4 25 2.17

100,001 - 500,000 3 0 0 1 4 3 11 0.95

500,001 - 1,000,000 0 0 0 0 0 0 0 0

over 1,000,000 1* 0 0 0 0 0 1 0.09

Totals 63 191 116 254 354 179 1,157 100

Urban Population Region (number of towns and cities)

BMR Central East North North East South Total %



Thailands 76 provinces have about 68 million. people 19 provinces have more than one million people. The country has been transforming from a rural to an urban-based

The countrys urban population has been growing at a much faster rate than its rural counterpart. The overall Thai population grew less than 1% per annum between 2000 and 2010. Average rural population growth was only 0.5%, while the average urban population grew 1.8% during the same period.

society. Its urban population has grown steadily from about 27% in 1980 to 34% this year (2010) and is expected to reach 53% in the next 30 years (2040).

Thailand population 1950-2050

Urban population & rural population, 1950-2050

Source : Population Division of the Department and Social Affairs of the United Nations Secretariat

Source : Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat


Higher urban population growth rates are expected to continue, particularly in Bangkok and its surrounding cities that have been the countrys strongest economic growth centers. Although urban areas have been the major drivers of economic growth, their high growth rates will create more pressures and challenges to the government such as the need for additional infrastructure and transportation systems, housing and public facilities, traffic

congestion, pollution and waste disposal, energy consumption and environment problems as well as the encroachment of forests and the loss of arable rural land. Urbanization and economic development normally lead to economic wealth and productivity, but they also contribute negatively with increased waste, pollution and environmental degradation including climate change.

Average Annual Population Growth - Thailand, 1950-2050

Average Annual Growth - urban & rural population, 1950-2050

Compiled by : Research & Information Sevices Department GH Bank

Compiled by : Research & Information Sevices Department GH Bank

Asia-Pacifi c Housing Journal 29


Thailands modern economic development The country again experienced an economic downturn in 2009 with a -2.2% GDP growth rate. However, the GDP is forcasted to grow 7.0-7.5% this year (2010) and will expand 4-5% next year (2011).

Along with the growing economy, the transformation from an agricultural to industrial and services-based economy has continued during the past four decades. Agricultures share of GDP has fallen from about 40% in 1960 to 11.6% in 2009.

Over the same period, the non-agricultural sectors share increased significantly to about 88% in 2009. Industrys share has increased from 18% in 1960 to 34% in 2009, clearly indicating a transformation from a rural-agricultural to urban-industrial and services-based economy.

Gross Domestic Product (GDP) of Thailand

Source : Office of National Economic and Social Development Board Compiled by : Research & Information Sevices Department GH Bank

Thailands modern economic era began with the launching of its first National Economic Development Plan in 1961.

During the first 10 years between 1960 and 1970, GDP growth averaged about 8 per cent per annum. Predominantly urban- industrial sector growth outpaced rural- agricultural sector growth.

The economy continued growing dramatically during the third decade of 1980-1990, highlighted by an unprecedented 13.2 per cent in 1988. It was then one of the worlds fasted growing countries.

However, Thailand experienced numerous economic boom-and-bust cycles during the last two decades from 1990 to 2010, including an economic crisis during 1997-1998.

2005 2006 2007 2008 2009

GDP (Million Baht) 7,092,893 7,850,193 8,529,836 9,075,493 9,050,715

Agriculture (%) 10.3 10.8 10.7 11.6 11.6

Non- Agriculture (%) 89.7 89.2 89.3 88.4 88.4

GDP per capita (Baht) 108,956 119,715 129,159 136,511 135,281

Population (Millions) 65.1 65.6 66.0 66.5 66.9


Thailands larger cities have played major economic development roles. The Bangkok Metropolitan Region recently (2009) constituted about 42% of total GRP.

The countrys four other regions contributed less than 10%. The gross regional product per capita is also highest in the Bangkok Metropolitan Region (Bt327,813) - about seven times higher than the Northeast region (Bt45, 661).

The highest GDP per capita of Rayong province in the Eastern region is 27 times higher than that of the poorest North Easterns Srisaket

province. Bangkok alone contributed about 17% of total national income.

These figures illustrate the high concentration of the countrys economy in Bangkok, uneven development and income imbalanced economic growth as well as disparity among the regional cities in Thailand.

During the past decades economic growth and rising urbanization, the number of poor decreased continuously to only about 5.4 million in 2007. The ratio of the poor to total population declined significantly to less than 9% in 2007 compared to 21% in 2000.

Gross Regional Product (GRP) of Thailand in 2009

Gross Regional Product per Capita in Thailand in 2009

Source : Office of National Economic and Social Development Board

Source : Office of National Economic and Social Development Board Note : (1 US$ = 30.88 Baht, Rate on Aug 14, 2010)

Asia-Pacifi c Housing Journal 31


However, the gap between the rich and the poor has not improved much during the past decades. About 20% of the country population (5th quintile) accounted for 55% of total aggregate national income in 2007 the 20% lowest income group (1st quintile) constituted only 4.3%.

The income gap between the rich and the poor 13 times is still very high. Income distribution or income inequality must be further addressed.

Bangkoks importance to future growth Bangkok is clearly a primate city. It is the economic and financial center of the country. It is widely accepted as one of the world cities in the globalizing economy.

Bangkok and other big cities will continue growing a faster than the smaller towns and will play on even greater role in Thailands economic growth. In this scenario, I would like to pose some questions not only for Thai authorities, but also for everyone that encounters similar rapid urbanization and economic growth disparity.

Should Thailand adopt a concentrated urban growth policy or dispersed growth strategy? How should we promote the role of regional cities of various sizes? How can Bangkok become a better city and share its wealth with other smaller towns including rural areas of the nation?

How can we encourage economically, socially and ecologically balanced and sustainable rural-urban developments in the rapid economic growth environments? How can we further reduce poverty of the people and reduce the income gap between the rich and the poor?

Develop comprehensive national development strategies In dealing with such questions, I would like to propose that each country develop comprehensive national development strategies, including human settlement policies which address interrelated issues such as urban planning, urban infrastructure development, transportation, land use control, housing provision, natural resources conservation, environment protection, and employment creation etc.

Population by income group Ratio of population income (%)

1994 1990 1998 2000 2002 2004 2006 2007

1st Group 20% poorest (1st Quintile) 4.1 4.2 4.3 4.0 4.2 4.6 3.8 4.3

2nd Group 20% (2nd Quintile) 7.4 7.6 7.8 7.3 7.7 8.0 7.7 8.0

3rd Group 20% (3rd Quintile) 11.7 11.8 12.0 11.5 12.1 12.4 12.1 12.4

4th Group 20% (4th Quintile) 19.7 19.9 19.8 19.8 20.1 2.02 20.1 20.2

5th Group 20% richest (5th Quintile) 57.2 56.5 56.1 57.5 56.9 54.9 56.3 55.1

Total 100 100 100 100 100 100 100 100

Ratio of 5th group/1st group 14.1 13.5 13.1 14.6 13.2 12.1 14.7 12.8

1988 1990 1994 2000 2004 2007

Poverty line (baht/people/month) 633 692 838 1,135 1,242 1,443

Poverty population (%) 42.2 33.7 19.0 21.0 11.2 8.5

Poverty population (million) 22.1 18.4 10.7 12.6 7.0 5.4


A holistic and more balanced rural urban development approach should also be adopted. It should aim at developing a more equitable and sustainable society.

The rural poor needs to be more care; natural resources need more conservation and the environment needs more protection.

Thailands NATIONAL DEVELOPMENT VISION FOR 2057 envisions that the country will be a global leader in agriculture, agro-industry, food technology, health services and tourism.

The Thai people will have a good quality of life and a healthy environment. The country will be highly-stable and secure with good infrastructure that ensures long-term sustainable development.

In the interim, the countrys 2037 VISION, forecasts that Thailand will be a developed country that has created a comfortable balance between urban and rural development.

Thailand will also be a regional import-export and tourism industry hub.

More importantly, Thailand will be developed into a knowledge-based society that is capable of continuous development of high technology and innovation.

To reach this vision, Thailand, through the Department of Public Works and Town & Country Planning (DPT) recently introduced URBAN PLANNING POLICIES that will result in more balanced and harmonious urban and rural development.

The master plan aims at linking Bangkok to the outside world and developing Bangkok into a modern world-class business center, It also includes developing regional centers and some border towns as gateways to the neighboring countries that will be critical elements for fostering Thailands economic growth.

Balanced Development Policy Platform



Bangkok - a global city

The plan also aims to redistribute development opportunities to all regional cities and reduce economic disparity throughout the country.

Some regional cities such as Phuket, Chiangmai, and Hua Hin will be promoted as international tourism centers as well as health services and recuperation centers. Pitsanulok and Chiangrai in the North and Khonkaen in the North East will be regional multimodal transportation and logistic centers.

Other regional cities such as Pathumthani, Khon Khaen, Songkla and Phuket will play major roles as education, research & development, information and communications technology (ICT) centers.

The Thailand Master Plan will be used as a roadmap for conducting several development projects that comply with national development strategies and ultimately lead to better cities, better economies and better life that ensure sustainable development of healthy and happy environments for everyone.

In a rapidly globalization era, Bangkok is closely linked with other global cities and is considered as one of the world cities in the global context.

Recently, Bangkok Governor announced the vision for Bangkok 2020 as a sustainable worlds leading metropolis and a center of Asean region with good environment and high quality of life of its inhabitants.

Bangkok and other large cities will continue to be the powerful economic growth engines for the country in the many years to come.


Greater Mekong Sub-Region Thailand is also expected to serve as an important economic growth centre for South East Asia, particularly the Indo-China region. The government recently introduced the Greater Mekong Sub-region Economic Cooperation or GMS conceptual framework that includes creating special economic corridors and increasing cooperation among major cities in the Asian region. The GMSs North South Corridor is will connect Thailands Northern towns (at Mae Sai, Chiangsan and Chiangkhong) to southern China (up to Kunming) and to Myanmar.

The second Western- Eastern Corridor connects Myanmar to Thailand (through Tak and Maesod) and to Laos and Vietnam (through Mukdahan and Nakorn Panom and Nongkai border provinces). The Southern Corridor of Maekong connects Thailand (at Aranya Prathet and Trad) to Cambodia and Vietnam. These three main Greater Mekong Sub-region corridors are destined to greatly impact Thailand urban development and border provinces and will help spur tourism, economic growth and productivity in the entire Indo-China region.



Udom Puasakul 1

Land readjustment in Thailand

Although land readjustments or land re-plotting have been used extensively for town planning for more than a century in Germany and Japan, it is a relatively new concept in Thailand. Currently, Thailand has 13 land readjustment projects in Bangkok, Nan, Lampang, Yala, Phitsanulok, Narathiwat, Suphanburi, Samutprakan, Phetchabun, Samut Sakhon, Phayao, Phetchaburi and Uthaithani. These projects are being conducted under the auspices of the Department of Public Works & Town & Country Planning, local government organizations and the National Housing Authority (NHA).

What is land readjustment? Land Readjustment (LR) is a cooperative-based development strategy whereby irregular patterns of agricultural land

holdings or consolidated portions of cities are rearranged into regular building plots (replotting) and equipped with basic infrastructure such as roads and drains.2

In land readjustment projects, groups of landowners join forces to develop or redevelop land. Its a process whereby landowners pool ownership of scattered and irregular plots of land, build roads and main infrastructure, and then divide the land into urban plots.3

In most cases, land-owners contribute a portion of their previous land-holdings (usually about 30 per cent) to provide space for roads, parks and other public space and for reserve land. The reserve land is normally sold at the projects end to pay for planning, administration and construction costs.4

The land owners exchange their original land holdings for urban plots in the replotted project. Land readjustments projects can be very attractive for LR land owners because

1 Udom Puasakul is the Director General of Department of Public Works & Town & Country Planning

2 Blanco, Alba Carolina, The role of land readjustment in Japan and its possibilities of application in

Colombia, Hokkaido University, page 2/. 3

Sorenson, Andre, Land Readjustment, Urban planning and urban sprawl in the Tokyo Metropolitan Area, University of Tokyo, page 1 4

Ibid. page 2

In Thailand, LR has been effectively used to free-up previously land-locked land-plots that have in many cases destroyed the value of neighboring properties.


substantial land value increases can be achieved even if landowners receive a smaller plot when the project is completed. Planning authorities also benefit because LR projects provide more largely self-financed land for public facilities and much needed infrastructure. With other land assembly methods such as expropriation or market land purchases, planning authorities require much more extensive up-front funding. In general, LR projects involve exchanging land-plots within a designated project area in which the original land plots are owned by a community group. LR projects therefore require little or no municipal or private investor land acquisition costs.

Community consensus Most land readjustment projects in Thailand are launched by community land-owners who must form a Land Readjustment Association under the Land Readjustment Act 2004. Following city planning overall guidelines, these land owners re-develop their own areas or communities. Under the Act, land readjustment is described as implementing the development of many plots of land by re-plotting, improving or constructing infrastructure, and jointly bearing the burdens and equitably distributing the returns.

The land readjustment process 5 In any LR process, all land plots are added together into a land readjustment mass. From the total land readjustment mass all areas designated in the urban development plans for public facilities, such as roads, parking spaces, green areas and childrens playgrounds can be excluded and allocated to the municipality. The remaining mass is the redistribution mass which is ultimately redistributed to the original landowners. In general, two different criteria may be used to redistribute the land: the relative size or the relative value of their original plots.

History of land readjustment in Thailand In developing its extensive land readjustment processes, Thailand has received much help from Japan. LR is particularly prevalent in Japan where approximately one-third of all urban areas have been developed with the method.6

From 1987 to 1989, The Japan International Cooperation Agency (JICA) through an Applied Technology for City Planning program provided academic and technical advice that helped to launch land readjustment programs in Thailand.

5 Muller-Joekel, Rainer, Land Readjustment a win-win strategy for sustainable urban development ,2004,

page 2 6

Sorenson, Andre ibid page 1



The Thai government asked the Department of Public Works and Town & Country Planning to oversee urban developments under the Land Readjustment Act. A Bt50 million revolving Land Readjustment Fund was established in 1993 to help launch LR projects. Today, the fund has about Bt75 million. JICA has continued providing academic and technical LR assistance to the Department of Public Works & Town & Country Plannings staff since 1992. More than 1,000 Planning Department employees have received JICA LR training during this period.

The Land Readjustment Act 2004 LR in Thailand is governed by the Land Readjustment Act 2004. The Act outlines how the public and private sector along with active community participation can optimize urban planning in Thailand.

After provincial committees approve a Land Readjustment project, a land owner meeting must be convened. At the land owners meeting, a Land Readjustment Advisory Board is appointed. It must include representatives from the Provincial Committee, land owners elected among themselves and a qualified person selected by the committee. To ensure the communities retain power, Advisory Board members under the Act must vacate office when two-thirds of the land-owners petition them to leave.

Land readjustment - implementation The Department of Public Works & Town & Country Planning has worked closely with local government organizations such as the Bangkok Metropolitan Administration and Municipal and Sub-District Administrative Organizations throughout the country. The Department has also encouraged each province to implement a land readjustment project to optimize its urban planning programs.


We have discovered that LR is a useful and effective method for developing urban land and optimizing required community infrastructure such as roads, drainage and sewerage, water supply, electricity and public parks. LR has been used successfully for new city developments in Germany, Japan, Australia, Nepal, Taiwan and Indonesia. In particular Japan uses LR as its primary urban planning implementation method. It is widely referred to as The Mother of City Planning.

Community & urban recovery All good community development plans must mitigate potential traffic congestion, overcrowding and environmental degradation.

LR plans have proven to be a very effective method to optimize a communitys infrastructure development or redevelopment. In Thailand, LR has been effectively used to free-up previously land-locked land-plots that have in many cases destroyed the value of neighboring properties. It has also been effectively used to help local authorities revitalize catastrophe-hit areas. It was used to redevelop tsunami ravaged Phi Phi Island in Krabi and Khao Lak in Phang Nga. We have also considered using LR to optimize land use for environmentally- sound highway developments throughout the country.

Housing Issues

Selling innovative new housing loan and savings products Home mortgage lending drives economy Second-hand home sales and real estate agent profession development Home building services in Thailand Thailands Escrow Act protects home buyers


To effectively contend in an increasingly competitive Thai banking and finance environment, the Government Housing Bank (GH Bank) will soon be launching a new corporate strategy that includes developing a new marketing-oriented sales-culture that will be supported by a new operating infrastructure. Woravit Chailimpamontri, GH Banks president told APHJ that the new corporate strategy will concentrate on honing the development of Products, Process and People (three Ps)

GH Banks new president talks to APHJ about his new corporate strategy

and ensuring that an appropriate and effective selling infrastructure and platforms are developed to support them. When our new strategy is completed, all of our branches and new marketing channels will serve as sales windows for the Bank, he said. The key to GH Banks new strategy, he said will be carefully and meticulously developing the three Ps so that the Bank can address each customers specific needs.

Woravit Chailimpamontri

Selling innovative new housing loan and savings products


Housing Issues

Products 1. Loan products In the product area, GH Bank said that GH Bank will develop a wide range of new housing loan and savings deposit products to sell to specific customer groups. The innovative new loan products will further segment the market that the Bank currently serves by carefully matching borrowers specific needs. We will be developing new loan products that better suit each borrower, he said. In addition, new loan products will be developed by the Bank to help it execute the Ministry of Finances policy to provide more loans to low-income grass-roots families in both urban and rural areas. These loans will be developed by working closely with alliance partners such as the Bank of Agriculture and Cooperatives, the National Housing Authority and Community Organizations Development Institute (CODI), he said. By working closely with the NHA and CODI, GH Bank will be expanding its ability to reach urban low-income borrowers and by cooperating with the BAAC, it will be able to reach more lower-income rural borrowers. BAAC has 800 branches and we believe many of their customers want housing finance loans, he said. 2. Deposit products Under the new corporate strategy, Woravit said GH Bank will develop new loan deposit products that will attract a wide range of new savers. We hope to develop attractive

new childrens and students savings programs that will encourage all parents to help their children develop long-term savings programs, he said. Childrens savings programs, he said may be provided with incentives such as permitting these long-term savers to acquire special long-term mortgages when they eventually buy new homes. These types of savings products also help the Bank build its long-term customer base, he said. New product development, he said will also look into developing innovative savings products that will attract people that may be looking at benefits beyond normal interest rates. Many savers seek other benefits that a GH Bank savings account can deliver.

Processes To optimize the Banks ability to efficiently service its customers, Woravit said it was critical that the Banks infrastructure, sales platforms and marketing channels be upgraded so that its sales people can readily market and distribute its products. With our new strategy, our sales people will be pro-actively selling different innovative loan and savings products at branches. The branches will become the Banks major sales window to its customers, he said. To ensure the projects ultimate success, all incentive schemes will be adjusted to encourage a sales and services cultures development. The IT systems will also be continuously upgraded to handle new distribution channels such as mobile and internet banking that will inevitably become more important, he said.


Even though the Bank will be introducing new products and processes, Woravit said that risk management will always be at the forefront of operations. We will be continuously upgrading our Credit Scoring models because we always want to be issuing higher quality loans, he said. In the highly competitive Thai market, Woravit said that another key emphasis is continuously improving service quality and efficiency. Excellent service is always a critical factor, he said. The Banks operating infrastructure including its IT systems, he added must consistently deliver speedy, good and efficient services if we want to attract and retain more long-term customers. We should also be constantly looking at developing new innovative marketing and distribution channels for our products. These new services will inevitably require IT systems to deliver them effectively and efficiently, he said.

People As the Bank begins its cultural shift, it will be launching and implementing training programs what will support its long-term growth and improve competitiveness. The ultimate aim is developing a new sales culture and platform along with supporting processes and infrastructure that can effectively and efficiently sell the Banks products. A critical part of any change program is reviewing the Banks overall compensation system and incentives. We expect that the overall transformation will be successfully completed within four years, he said.

GH Banks newly reorganized structure To drive its new competitive strategy, GH Bank will reorganize its operating structure so that it can optimize its overall objective of effectively executing a marketing- oriented sales platform that focuses on selling a wide range of the Banks products. The organization will be restructured into three specific operating groups: the front middle and back office groups.

Front office group The front office group will be centered at the branches, that will be the Banks sales windows. Branch personnel will be trained and incentivized to sell GH Banks many innovative products. Individual branch managers and branches will be required to meet specific revenue, product sales and operating profit targets. The branches will become the Banks main revenue focal points, he said.

Middle office group The middle group will focus on new product development and marketing support for both of loans and deposits. A critical function will also be the continuous sourcing, evaluation and implementation of new marketing and distribution channels. Despite its key mission to create sellable innovative new products, an equally important performance success factor for the middle office group will be its overall risk management processes and performance. Risk management execution will be critical to the Banks long-term sustainable growth.


Housing Issues

Back-office Group The back office group will be the Banks engine room. It will be IT driven and must provide efficient and effective services. To remain competitive we must always remember that accurate and efficient service delivery is critical, he said. Auditing processes including effective internal controls as the Bank continues expanding will also be key to sustainable long-term success.

Funding The Bank will introduce innovative savings and special saving accounts that will be pro-actively sold to optimize GH Banks

funding structure. We believe that many savers are not only attracted by the Banks interest rates because many other factors often come into play. The Bank therefore must identify these factors and develop products that can be sold to specific customer groups. Over the long-term, Woravit said that the Bank will also securitize part of its loan portfolio. We want to develop new capital-markets funding sources for the Thai housing finance market.


Annual new mortgage loans have always been a major driver of Thailands economic growth. In the past five years, outstanding home mortgage loans have equaled about 17.6 per cent of the countrys Gross Domestic Product (GDP). (graph 1)

As a result, the record sales in the first half of 2010 are expected to significantly dampen demand in Q3 and Q4. To combat the expected slowdown, developers have ramped up incentive packages to keep sales moving.

Surachai Fangchanda

Home mortgage lending drives economy

The Government Housing Bank (GH Bank) which began operations in 1953 has played a key role in the development of Thailands home mortgage market during the past five decades. GH Bank is a Specialized Financial

Institution (SFI) that is 100 per cent owned by the Ministry of Finance. Its main mission is providing home loans to middle and lower income citizens.

Graph 1 : GH Bank Outstanding Loans and Market Oustanding Loans vs Thai GDP

Source : REIC, GH Bank, IMF


Housing Issues

During the past two decades, GH Bank has issued more than Bt1.4 trillion ($US46 billion) in home loans, primarily to middle and lower income borrowers. It has maintained its

Graph 2 : GH Bank Outstanding Loans vs Whole Market

Graph 3 : GH Bank New Loans vs Whole Market

position as the countrys leading mortgage lender and currently has the largest share of home mortgage loans outstanding with a 34.7 per cent market share. (graphs 2 and 3)

Source : REIC, GH Bank



Home mortgage lending used to stimulate economy

Graph 4 : New Loan Growth Rates vs Thai GDP

2010 home mortgage loan market

per cent teaser interest rates for the first three-to-six months of loan terms and waived application fees and other costs. Special incentive-laden loan programs offered by developers and their commercial bank partners also enticed consumers into buying new homes. In H1/2010 new home loans rose to Bt206.051 billion expanding 11.9 per cent from the previous second halfs Bt184.183 billion. More importantly, the year-on-year increase for H1 was an amazing 53 per cent (H1/2009 new loans Bt134.683 billion.

Thailands home loan mortgage market began surging in the last quarter of 2009 along with GDP growth which grew 12 per cent in Q1 2010. Many other factors including the governments stimulus package to combat the global crisis that included tax benefits and low interest rates contributed to the real estate markets rapid recovery. Aggressive competition among highly- liquid commercial banks were also key contributing factors in 2009 and 2010. Many commercial banks offered zero

Home mortgage lending has often been used by various governments to stimulate economic growth during down business cycles or crises. During the 1997 Tom Yung Kung Crisis the Government relied on GH Banks mortgage lending capabilities to revive the flagging economy.

In the midst of the crisis, GH Bank helped the government revive the bubble-stricken real estate market and the economy by opening up the mortgage market and reviving the stricken industry. The governments policy measures were successful and quickly led to a vibrant economic recovery.

Source : REIC, GH Bank, IMF


Housing Issues

At the end of H1/2010, Thailands total home mortgage loans outstanding was Bt1.8 trillion, an increase of Bt104.061 billion or 6.1 per cent from the previous year. At the end of H1/2010,

Graph 5 : GH Bank new loan market share 1996-2010 (H1)

Graph 6 : GH Bank outstanding home loan market share 1996-2010 (H1)

Commercial banks issued (65.9 per cent) of the new loans (versus 58 per cent H1/2009) while GH Banks market share tumbled from 32.2 per cent to 24.1 per cent for the same period last year.

Thai commercial banks held 57.5 per cent of total home loans outstanding (increase of 16.3 per cent year-on-year).




GH Bank home mortgage leader past two decades Nevertheless, GH Bank continues being Thailands largest individual housing finance lender. During the past two decades its highest market share of new loan was about 50.7 per cent. (see graph 5) During the first half of 2010 GH Bank issued new home loans of Bt49,596 million, averaging about Bt8,266 million per month. At the end of 2010, GH Bank expects to reach its 2010 loan target of Bt90 billion.

Housing finance environment 2010 Because of tremendous liquidity both in the financial markets and strong developer balance sheets, new housing supply in 2010 has continued increasing, especially for condominium units built adjacent to Bangkoks mass-transit lines. Currently, many factors including an export led recovery are contributing to the housing markets expansion. The government also extended the real-estate stimulus incentives applied in 2009 to combat the global economic slowdown into the first half of 2010 because domestic political instability was seriously dampening consumer sentiment. With interest rates at near record lows, real estate sales surged ahead as consumer hoped to complete their purchases before the government decided to rescind the incentives. As a result, the record sales in the first half of 2010 are expected to significantly dampen demand in Q3 and Q4. To combat the expected slowdown, developers have

ramped up incentive packages to keep sales moving. We expect that total sales in 2010 will approach last years sales because of the following : Robusteconomicgrowthespecially in Q1/2010 ramped up consumers sentiment, employment, and individual income levels. These positive conditions will encourage many consumers to purchase their dream homes in the second half of 2010. Financial institutions and developers have

launched innovative new promotions for the rest of the year to combat real estate stimulus incentives that expired in June 2010.

Even though interest rates are expected

to rise slightly in the second half of 2010, they will not significantly affect the consumers ability to purchase homes. Developers and financial institutions are instituting promotions such as initial zero interest rate loans and fee waivers to overcome the effect of any potential interest rate increases.

Potential uncertainties Nevertheless, some uncertainties face Thailands surging real estate market. Domesticpoliticaluncertaintyandthe

specter of a fragile global economic recovery may dampen sentiment.

Surgingoilandothercommodityprices

could drive up inflation and eventually deteriorate consumer purchasing power.


Housing Issues

A real estate agent is a critical element of every home purchase. Most buying and selling processes are performed through agents.

Dr Somsak Muneepeerakul

Second-hand home sales and real estate agent profession development

The second-hand home markets (existing home) continuing development will be a growth springboard for the real estate sales agents profession and the further expansion of a vibrant and sustainable real estate industry in Thailand. As inner-city land prices continue rising, the second-home markets development will in many cases become the primary home-ownership entry-point for most middle and lower income citizens. In general, second-hand homes are homes that have been lived-in and are primarily being sold by owner-residents.

300,000 second-hand homes available Our research indicates that many homes-owners in Bangkok and surrounding areas would like to sell their current homes, so they can purchase new homes. We estimate that in Bangkok about 300,000 second-hand homes are currently being offered for sale by owners.

In addition to about 70,000 to 80,000 new homes built annually, the Thai market as a whole has about 350,000 second-hand homes available for sale. Government agencies such as the National Housing Authority through it Baan Eur-Athorn and other projects also offer tens of thousands of additional units for sale. The Real Estate Brokers Association believes that Thailands second-hand home industry will continue expanding in the future, especially because most of them are located nearer to city-centers and are normally more moderately priced when compared to new homes.

Changing public perception Moreover, the Thai public has gradually changed its perception about second- hand homes. In the past, many Thais refused to purchase previously lived-in homes. However, during the past several years, interest has increased and more than 100,000 visitors are now attending numerous national second-hand home housing events.


Many factors have contributed to the changing perception. Some second-hand home sales agents have encouraged sales by packaging renovated second-hand homes to prospective buyers. Purchasers dont have to bother with troublesome renovations and can move in just as if it were a new home. Some agents have even engaged architects to help completely redesign second-hand homes. As a result, prospective buyers have changed their attitudes about buying them. They are now considered chic, especially if location, price and transportation are also factored in. A concerted effort by the Government to encourage second-hand homes sales has also contributed greatly to the markets development. The markets growth invariably enhances support-industries such as financing, construction, interior design, paint and wallpapering, electrical appliances and furnishing businesses. The second-hand home industry employs many construction and related industries people and is fast becoming a significant contributor to the economys growth.

Growth of real estate agent profession Another key development area is the need for more real estate agents that are familiar with the second hand home industry. A vibrant second-hand home real estate agent professions is being developed. In general, two groups of real estate agents occupy the Thai market. The 17-year-old Real Estate Broker Association (REBA) has more than 120 company members. Agents that work for REBA members only achieve membership when they have

concluded training and passed association examinations. Consumers that incur problems with REBA member agents can seek redress from the association. To further develop the profession, REBA has established industry standards and professional ethics codes for its members as well as extensive continuing education programs. Members are encouraged to conduct sustainable and ethical practices and be of service to society. The real estate profession will continue growing with Thailands rising incomes levels. Housing is a key life requisite and most people consider buying a house as an important family investment. A real estate agent is a critical element of every home purchase. Most buying and selling processes are performed through agents. Because home values are relatively high and sales agents are paid a percentage of sales prices, the real estate agent profession can be a very rewarding profession. It is fast becoming a very attractive profession especially in large cities such as Bangkok. In the past, most real estate agents operated in resort cities such as Pattaya, Phuket, Chiang Mai, Hua Hin and Koh Samui. However, with the second-hand home markets growth, the real estate profession is expanding tremendously in Bangkok and it adjacent areas. The professions growth has nurtured international standards and practices that Thai consumers are quickly recognizing and accepting. Today more than 25 per cent of second-hand homes are purchased through agents.


Housing Issues

Successful agents must thoroughly understand consumer needs, the economy and especially the financing environment. For most home buyers, it will be the largest financial transaction of their lifetime.

Real estate agents training The fast changing real estate environment requires extensive real estate training programs. REBA has worked closely with private and public universities or related government sectors to develop and conduct training programs for real estate agents. We have also worked closely with GH Banks Research and Information Services Department to develop real estate agent business training courses at Ramkhamhaeng University (RE-308). REBA also conducts Professional Real Estate Sales courses (RE131) at the Thai Real Estate Business School. We also worked with the Real Estate Training School (Thailand) to conduct Sales Techniques for Professional Real Estate Professionals courses. Later this year, REBA expects to launch its first university New Real Estate Agent Creation courses. We are encouraging all universities to participate in this innovative new program.

Developing international standards A key REBA objective is encouraging the profession-wide establishment of international standards and practices. To ensure nation-wide enactment and compliance we are currently seeking government support. We believe that a real estate agent industry with government licensed professionals will result in a more sustainable housing and real estate industry and ultimately the development of a more prosperous and sustainable economy and society. REBA is currently developing e-learning agents courses that will be available to everyone throughout the country. To encourage the development of international standards, we work closely with the US based National Association of Realtors (NAR) to conduct Certified International Property Specialist (CIPS) and Certified Residential Specialist (CRS) training courses in Thailand. These course when completed offer world-wide recognized designations. The courses held in Thailand have been widely attended by both foreign and local participants.


Marketing to REBA members To provide added value to its members, REBA regularly conducts marketing and sales promotion programs. We have developed a popular real estate data base (www.reba.or.th) that provides valuable buy and sell information for our members. The association also conducts regular members activities that encourage information and knowledge exchange. We have recently developed REBA Social Networking programs that used Facebook, Twitter or Hi5 to connect with our members.

Long-term licensing and professionalization In 2004, the Thai Cabinet enacted two major policies to encourage the development of the second-hand home industry.

Initially, its short-term policy was establishing a Real Estate Broker Information Center and its long term policy is promulgating a Real Estate Broker Act. REBA is now in the process of building a REBA INDEX that will be a primary information source for buying and selling real estate. The REBA INDEX will collect and distribute actual buying and selling price information and distribute it to the general public. We will also be cooperating with the Department of Business Development to establish Real Estate Agents licensing qualifications and regulations.


Housing Issues

Home building services in Thailand

Initially, home builders provided basic standard house plans as well as special designs for owners that wanted something different. They also managed construction permit processes and took care of various government requirements

Documents

Asia Pacific Housing Journal: V13 2010