Slew of Economic Factors Holding Thai Property Sector Back
-
Loading... - Chiaki Makino
- 30 Oct 2024
- 60 Views
- 0 Like
- 0 Comment
The Thai economy is currently experiencing a K-shaped recovery, where different sectors are recovering at varying rates. While tourism is rebounding strongly, nearing pre-COVID-19 foreign arrival levels, the property sector is lagging behind, grappling with subdued demand, oversupply, and a high mortgage rejection rate. This sector, along with construction, contributes approximately 11-15% to the country’s gross domestic product (GDP), underscoring its significance to the local economy.
Unsold Homes on the Rise
Recent data from the Real Estate Information Center (REIC) indicates a troubling trend in the property market. In the first half of 2024, sales of new and resale residences totaled 159,952 units, valued at 452.1 billion baht, reflecting a decline of 9% and 9.4% year-on-year, respectively. This downturn is largely attributed to the weak purchasing power of buyers, exacerbated by high household debt levels.
As of the end of the second quarter, the supply of both condominiums and low-rise homes reached 369,395 units, valued at 1.9 trillion baht—an increase of 5.7% for condominiums and 24.2% for low-rise homes. The number of unsold residential units has risen to 313,789, up 7.7%, with a total value of 1.7 trillion baht. According to Vichai Viratkapan, former acting director-general of the REIC, it could take the market about three years to absorb these unsold units if no new projects are introduced.
Interest Rate Cut Provides Some Relief
On October 16, the Bank of Thailand’s Monetary Policy Committee cut the policy rate by 25 basis points to 2.25% per annum. Major banks, including the Government Housing Bank, followed suit. While the cut is modest, it is expected to provide some relief to small and medium-sized enterprises and individuals managing debt. Vichai noted that mortgage borrowers could see a reduction of 200 baht in monthly payments for every 1 million baht borrowed, which could help ease financial burdens.
However, banks remain cautious about loan approvals, considering whether borrowers will have sufficient funds left for living expenses after servicing monthly loan installments, which typically range from 7,000-10,000 baht for ordinary borrowers and 3,000-5,000 baht for government officials.
Need for More Support
In the short term, there is a call for the Bank of Thailand to relax the loan-to-value (LTV) ratio, currently set at 80-90% for second homes, which requires larger down payments from borrowers. Vichai suggests that smaller down payments could stimulate investments from potential buyers, particularly those looking to purchase additional properties for rental income.
The government is also considering measures to facilitate home ownership for foreigners, including allowing digital nomads to own homes and extending property leasing terms from a maximum of 60 years to 99 years. However, this proposal is politically sensitive, with concerns about potential land grabs by foreigners.
Looming Liquidity Crunch
While observers believe that Thailand's property sector is not facing the same dire circumstances as China—where many developers have gone bankrupt and homebuyers have been left without promised homes—there are warnings of a potential liquidity crunch in the coming year. Many debentures are set to mature, and some developers may struggle to roll them over, leading to liquidity issues.
Samma Kitasin, an independent economist specializing in housing economics, expressed a more optimistic outlook for the property sector following the interest rate cut. He highlighted innovative approaches being adopted by developers, such as Sena Development Pcl's rent-to-own condo scheme, which allows potential buyers to rent a unit first and then purchase it if they maintain timely payments.
Implications of an Aging Society
As Thailand transitions into an aged society, with over 20% of the population aged 60 and above, the demand for housing may not remain robust. Many senior citizens and children reside in rural areas, while the working-age population is concentrated in urban centers. Vichai noted that while housing in major cities will likely continue to expand, growth may slow or stagnate in smaller cities and rural areas.
In the long run, Thailand may face challenges similar to those experienced by Japan and Italy, where a significant number of homes are abandoned as younger generations migrate to urban areas. Both countries have some of the oldest populations globally, raising concerns about the sustainability of housing markets in the face of demographic shifts.
The Thai property sector is currently navigating a complex landscape marked by economic challenges, including high household debt, unsold inventory, and cautious lending practices. While recent interest rate cuts may provide some relief, the sector requires additional support and innovative solutions.
