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Dec 27, 2017

Thailand’s housing market losing steam


 

Thailand’s housing market is weakening, despite a stronger economy. The average price of single-detached houses increased slightly by 0.2% (but in real terms it fell by 0.6%) during the year to Q3 2017, a slowdown from last year’s 1.4% growth, according to the Bank of Thailand (BoT).  During the latest quarter, house prices increased by 1.5% (1% in real terms) in Q3 2017.

  • Condominium price rises decelerated sharply to 0.35% (-0.5% in real terms) during the year to Q3 2017, down from an 8.2% y-o-y rise during Q3 2016. This was the lowest annual price growth since Q1 2011. Quarter-on-quarter, condo prices increased 0.59% during the latest quarter.
  • The townhouse segment is more resilient, with price rises of 4.24% (3.35% in real terms) during the year to Q3 2017. During the latest quarter, townhouse prices increased 1.86% in Q3 2017.

Land price increases are also slowing nationally. The land price index rose by 1.59% (0.72% in real terms) y-o-y in Q3 2017, a sharp slowdown from a 7.9% rise the previous year. However during the latest quarter (Q3 2017), land prices actually increased 5.3% q-o-q.

Residential construction activity is declining rapidly. Condominium registrations and land development licenses issued for residential buildings in the country fell by 19.6% y-o-y and 18.8% y-o-y, respectively in Q3 2017. In Bangkok Metropolis, land development licenses fell by 4.7% while condominium registrations plunged 15.5% in Q3 2017 from a year earlier.

Demand is also slowing. Nationwide land and building transactions dropped sharply by 12.4% q-o-q to THB 251.73 billion (US$7.69 billion) in Q3 2017, according to the BoT. When compared with the same period last year, transactions in Q3 2017 were still up by 6.9%.

Although the high-end segment remains bullish, the lower-end is seeing a clear reduction in demand, says Cobby Leathers, head of international marketing at Sansiri, one of Thailand’s largest residential property developers.

CBRE expects a slowdown in overall demand, mainly due to a decline in speculative buying. “Sales will take longer as CBRE believes there will be less speculator interest in the market and demand will be driven more by end-users,” said CBRE. “The long-term market will be affected by slower growth in expatriate numbers and the change in the composition of nationalities of foreign residents.”

“CBRE expects that developers will be more cautious and seek signs of solid levels of demand before launching new projects.”

Thailand's economy expanded by 4.3% y-o-y in Q3 2017, up from a 3.8% growth in the previous quarter and the fastest pace in more than four years, mainly buoyed by strong exports and rising personal spending. Economic growth is projected at 3.9% this year, according to the National Economic and Social Development Board.

No property bubble

Thailand house price index

Property prices have risen very modestly in Thailand in the past several years, partly due to the country’s prolonged political uncertainty. From 2008 to 2016, house prices rose by just 29.1% (10% in real terms)

  • In 2009, single-detached house prices rose by 2.5% (-1% in real terms) from a year earlier.
  • In 2010, house prices rose by 1.8% (-1.3% in real terms) from a year ago.
  • In 2011, house prices increased 2.3% (-1.2% in real terms) from a year ago.
  • In 2012, house prices rose strongly by 7.4% (3.7% in real terms) from a year ago.
  • In 2013, house prices rose by 5% (3.3% in real terms) from a year earlier.
  • In 2014, house prices rose by 6.5% (5.9% in real terms) from a year earlier.
  • In 2015, the housing market slowed again, with prices rising by just 1.1% (2% in real terms) from a year ago.
  • In 2016, house prices fell by 0.4% (-1.5% in real terms) from a year earlier.

Real demand, not speculative demand, exists for low-rise housing below THB 3 million (US$90,580), which accounts for 70% of the market, according to Housing Business Association (HBA) president Issara Boonyong. The remaining 30% of demand comes from investors, who buy homes to generate rental income.

Demand starts to slow

Thailand condominium registration

Nationwide land and building transactions amounted to THB 251.73 billion (US$7.69 billion) in Q3 2017, up 6.9% from a year earlier but down by 12.4% from the previous year, according to the BoT.

All regions saw transactions decline in Q3 2017 when compared to the previous quarter:

  • Central: THB 164.95 billion (US$5.04 billion), down 14.8% q-o-q but up by 11.2% a year earlier
  • Eastern: THB 29.32 billion (US$895.6 million), down 4.8% q-o-q but up slightly by 2.5% a year earlier
  • Northeastern: THB 21.1 billion (US$645.3 million), down by 5.7% q-o-q and by 1.8% a year earlier
  • Northern: THB 20.5 billion (US$626.8 million), down 12.6% from the previous quarter but up slightly by 0.8% from a year ago
  • Southern: THB 15.8 billion (US$483.6 million), down by 8.2% from the previous quarter and by 4.9% from a year earlier

Residential construction activity falling

Thailand new housing bangkok vicinity

Residential construction activity is declining rapidly. Nationwide condominium registrations dropped sharply by 19.6% to 17,482 units in Q3 2017 from a year earlier, according to the BoT. Condominium registrations were actually about 25% lower in Q3 2017 as compared to the previous quarter.

In Q3 2017:

  • In Bangkok Metropolis, condominium registrations plunged 15.5% y-o-y to 7,403 units
  • In other provinces, condominimum registrations fell by 22.4% y-o-y to 10,079 units

Likewise, land development licenses in the country also fell by 18.8% y-o-y to 21,216 units in Q3 2017. In Bangkok Metropolis, land development licenses fell by 4.7% to 4,092 units in Q3 2017 from a year earlier. In other provinces, land development licenses plunged 24.6% over the same period.

The total number of new housing in Bangkok Metropolis and vicinity dropped 28.2% y-o-y to 29,476 units in Q3 2017, according to the BoT. Over the same period, new apartments and condominium units in the metropolis fell by 39.9% to 16,706 units while self-built housing fell by 11.2% to 5,353 units. Housing project increased by 2.4% y-o-y to 7,417 units in Q3 2017.

Larger apartments yield more

Thailand land development licenses

According to the latest Global Property Guide research, rental yields in the capital, Bangkok, range from 5.0% to 8.0%.

Unlike most countries’ major cities, yields on medium-sized apartments (120 sq. m.) in Bangkok are higher than on smaller apartments.  A 60-square metre (sq.m.) apartment in Bangkok’s central location now earns gross rental yields of around 5.6%, while a 120-sq.m. apartment also centrally located, earns gross rental yields of around 8.0%.

Mortgage lending up; interest rates remain low

Thailand interest rate

Personal housing credits rose by 6.9% y-o-y in 2016 to THB 1.97 trillion (US$60.2 billion), according to the BOT. Total property credits outstanding rose by 4.3% in 2016, to THB 2.57 trillion (US$78.5 billion). In Q3 2017, personal housing credits and total property credits outstandings rose further by 5.6% y-o-y and 5.7% y-o-y, respectively.

Low interest rates continue to buoy property demand. In November 2017, the Bank of Thailand kept its benchmark interest rate at 1.5%, unchanged since April 2015, in an effort to “maintain accommodative monetary policy stance to support the continuation of economic growth while preserving financial stability.”

In addition, the strong credit growth may also be due to the aggressive marketing campaigns launched by property developers last year to boost their sales. 

  • LPN Development has a marketing campaign for Lumpini Township Rangsit-Klong 1, that allows potential buyers to rent for the first year, with the rent paid treated as a down payment on the mortgage.
  • A "Free to stay in the first year" promotion was launched by Pruksa Real Estate for its nine Pruksa Ville projects.
  • Property Perfect offers a zero-interest deal for the first year. Customers pay just Bt3,000 monthly instalments per Bt1 million of the loan during the first year. Transfer charges are waived.
  • AP (Thailand) has an "Amazing 5 of Baan Klang Muang" promotion, offering a special fixed interest rate of 3.5% for the first five years of a mortgage.
  • Sansiri has the "555 Like" campaign. Home-buyers need pay monthly instalments of only Bt555 for the first year of a mortgage.
  • Ananda Development has a "Live Now by Ananda" promotion, giving buyers free transfer and mortgage fees.

Thailand property credit outstanding

All these incentives are in parallel to the “Baan Pracha Rath” incentives under which the state-owned Government Housing Bank and the Government Savings Bank give qualified buyers loans at below-market interest rates and relaxed mortgage approval criteria for homes priced up to THB 1.5 million (US$45,300).

Foreign homeownership rules

Foreigners cannot buy land in Thailand, only condominium units and apartments. Foreigners cannot make up more than 40% of the condominium’s unit-owners. However, a foreigner can buy a whole building, minus the land on which it is built.

In recent years, minor changes in Thai law have allowed nonresidents to further explore the Thai real estate market. A foreigner can have a 30-year renewable lease, under which the buyer registers at the Land Office an option to renew the lease contract indefinitely, for further 30-year periods.

There are serious drawbacks to this lease arrangement, however. Lease renewals cannot be registered, and are not effective against a purchaser of the property. And the lessee cannot (without the lessor's consent) sublease, sell or transfer his or her interest.

Another option is to set up a private limited company with mixed Thai and foreign ownership, the foreign ownership being 49% or less. Companies are allowed to own land. The foreign national can control the company by using a legal power of attorney from the Thai shareholders, handing control to the foreign directors, or through assigning greater voting rights to the foreigner partner/s. This is an effective and time-tested route, most commonly taken by foreigners. The help of a lawyer is very important.

Foreigners can also invest at least THB40 million (US$1.21 million) in a Board of Investment approved project. They will then be allowed to purchase up to 1 Rai (1,600 square meters) of land.

Thailand's economy is improving

Thailand exchange rate

Thailand's economy expanded by 4.3% y-o-y in Q3 2017, up from a 3.8% growth in the previous quarter and the fastest pace in more than four years, mainly buoyed by strong exports and rising personal spending. The economy expanded by an average of 2.5% from 2013 to 2016.

Economic growth is projected at 3.9% this year, according to the National Economic and Social Development Board.

The Thai baht has appreciated against the US dollar by 9.9% in the past 2 years, reaching an average exchange rate of THB32.895 = USD1 in November 2017.  The baht is now amongst Asia’s best performer, underpinned by foreign inflows and record reserves of almost US$200 billion.

Despite the strong baht, exports – Thailand’s key economic driver – rose by 7.5% in October 2017 from a year earlier to US$20.1 billion. Likewise, imports also increased 7.9% over the same period to US$19.9 billion.

Total exports are expected to rise by 5% to 6% this year, after a miniscule 0.5% growth in 2016 following three years of contraction.

Tourism is also vibrant. In October 2017, Thailand welcomed about 2.72 million tourists, up 20.9% from a year earlier. During the first ten months of this year, visitor arrivals increased 6.7% to 28.82 million people from the same period last year.

Likewise, tourism revenues also rose by 24.4% y-o-y to THB142.63 billion (US$4.36 billion) in October 2017. From January to October, revenues reached THB1.47 trillion (US$44.97 billion), up 9.3% from a year ago. Tourism accounts for 12% of Thailand’s economy.

In November 2017, inflation increased slightly to 0.99%, from 0.86% both in September and October 2017. Nationwide inflation is projected at 0.8% this year, before accelerating to 1.6% in 2018, according to the Bank of Thailand.

New constitution cements junta’s grip

Thailand gdp inflation

Having promulgated a new Constitution in April 2017, with campaigning against it being punishable by 10 years in prison, Thailand seems fated to perpetual government by military junta. Even if there are promises that an election will be held in 2018, the prime minister will be appointed by the military, as will a powerful 250-seat Senate.

“Despite the claims by the junta otherwise, the new constitution creates a permanent place for the military in government and seeks to normalise their intervention,” said Tyrell Haberkorn of the Australian National University.

“From start to finish - the drafting by a select group, the strict control of discussion of the draft, and the last minute amendments - the new constitution risks institutionalising authoritarianism rather than paving the way for democracy.”

In fact, many argues that the new constitution ensures that members of the National Council for Peace and Order (NCPO), the official name of the military junta governing the nation, will not be held accountable for any rights violations committed since taking power.

“The new constitution whitewashes all junta rights violations, ensuring that Thai military leaders can continue to commit abuses without fear of prosecution,” said Brad Adams, the Asia director of Human Rights Watch.

Thailand’s military seized power from an elected government in May 2014, the 12th military coup in the country since the end of absolute monarchy in 1932. Led by the present Prime Minister Prayuth Chan-o-cha, the coup came after several months of protests against the ruling Pheu Thai party and former PM Yingluck Shinawatra. After dissolving the government and the Senate, the NCPO vested both executive and legislative powers into its leaders and controlled the judicial branch. A nationwide martial law and curfew were declared; political gatherings were banned; opposition leaders and activists were arrested; and media and internet censorship was imposed. 






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