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May 01, 2015

Bangkok's condo index up 14%, despite the politics


Thailand’s housing boom continues. But political unrest and an economic slowdown are flashing red warning signals.

The Thai price index for single detached houses rose by 4.9% (4.11% inflation-adjusted) during the year to end-Q4 2014, after annual house price rises of 4.19% in Q3, 4.81% in Q2, and 5.71% in Q1 2014, according to the Bank of Thailand (BOT).

The condominium index soared by 14% (13.18% inflation-adjusted), and is actually a more relevant index.   Condominiums are what Bangkok people, including foreign homebuyers and expatriates, tend to live in.  The longer-established detached houses index over-represents the rural population.  

The price index for townhouses rose by 6.60% (5.82% inflation-adjusted), and the residential land price index surged by 6.36% (5.59% inflation-adjusted).

“Property prices in Thailand remain very attractive by international standards, for example at least four times cheaper than Singapore, said Apichart Chutrakul, Sansiri's CEO and Co-founder.

With strong economic fundamentals, the market also offers good prospects for capital gains, with quality high-end and luxury projects in the best locations ensuring maximized capital appreciation in the long-term.”

Moderately good yields on Bangkok property

Average rental yields in Bangkok range from 5.0% to 6.8%, according to the Global Property Guide's rental yields research of April 2014. Higher yields are realized from small apartments measuring 65 sq. m., with yields of around 6.83%, while a 350 sq. m. apartment earns gross rental yield of around 6.16%.

Mortgage lending up

Personal housing credits rose 12.1% y-o-y in 2014 to THB 1.688 trillion (US$ 52 billion), according to the BOT. Total property credits outstanding rose 9.8% in 2014, to THB 2.25 trillion (US$69.3 billion).  Outstanding mortgages were 6.8% percent of GDP in 2014.

The strong growth may be due to the “SCB Home Builder Plus” campaign launched by the Siam Commercial Bank (SCB), the biggest mortgage lender in Thailand. During SCB's campaign, loans of up to 100% of the home building contract are available together with an additional 30% credit line for home decorations, furniture, close-circuit systems, burglar alarms, solar roof systems, etc. The campaign was initiated to meet the needs of clients having homes built on their own land, approved and mortgaged by December 31, 2015, according to SCB.

Residential construction activity remains robust. Residential building licenses rose by 11.9% in 2014 to 94,091 units, according to the Department of Land.  Condominium registrations surged 5.8% to 108,175 units. New houses in Bangkok Metropolis, including apartments and condominiums, self-built houses, and housing projects, also increased by 1.4% to 133,762 units in 2014.

LPN Development, Thailand’s biggest condominium developer recorded a presales of about TBH 3 billion (US$ 92.4 million) for this year’s first quarter.

"We plan to launch more condominium projects in the second quarter, having launched just one in the first three months," said Opas Sripayak, LPN Development's managing director. "This will boost our second-quarter sales beyond what we achieved in the first quarter".

Impact of the continuing political crisis

Thailand gdp inflation

However Thailand is now gripped by unprecedented political unrest, with Prime Minister Yingluck Shinawatra removed from office by a court, along with nine other cabinet ministers.

Thailand’s economy expanded by only 2.50% in 2014, down from 2.9% in 2013, and a sharp slowdown from GDP growth of 6.5% in 2012, according to the International Monetary Fund (IMF).

The economy is projected to grow by a modest 3.78% this year and another 4.0% in 2016, according to the IMF. However, other agencies are now projecting below 2% economic growth for Thailand, as the country is embroiled in political unrest.

“All the economic engines appear to have stopped functioning rendering Thailand’s economic outlook the worst in 40 years,” said Mr. Thanawat Polvichai, director of the Economic and Business Forecast Centre of the University of Thai Chamber of Commerce.

“The contraction of economic growth, the shrinking of export and domestic consumption, farm price slump and delayed disbursement of government’s spending budget have combined to make the private sector feel not confident with the state of the economy,” he further explained.

Consumer confidence fell to 80.4 points in January 2015, and is expected to continue falling in the coming months, according to the University of the Thai Chamber of Commerce (UTCC).

Exports, which account for more than 60% of the country’s economic output, are also faltering. In February 2015, total exports fell by 6% from the same period last year, according to the Commerce Ministry. On the other hand, imports rose by 0.8% in February 2015 from a year earlier.

“The continued declines (in exports) were due to the lower shipments of oil products and gold,” said Secretary of the Commerce Ministry Chutima Bunyapraphasara.

The political crisis started in late 2013 when the government of Yingluck Shinawatra attempted to pass a political amnesty bill that critics claim would allow her brother Thaksin Shinawatra, the ousted Thai leader, to return from exile. The move brought tens of thousands of protesters onto the streets of Bangkok.

Yet Thailand is attracting again tourists, despite the political unrest. In January 2015, international tourist arrivals surged by 16.30% from the same period last year to 2,654,634 people.

“We expect growth in tourism and foreign direct investment as well as an improvement in foreign interest in investing in the Thai property market,” said Aliwassa Pathnadabutr, Managing Director of CBRE.  "This will be another key growth driver for the luxury residential market."

The value of land and building transactions fell by 2.2% in 2014 to THB 969.1 billion (US$ 29.8 billion), according to the Department of Land, Ministry of Interior. The Central region accounted for about 63% of all transactions, followed by the Eastern region (12%) and the Northeastern region (9%).

Interest rate cut

Thailand interest rate

In March 2015, the country’s inflation rate stood at -0.57%. The Bank of Thailand, the country’s central bank, sets an inflation target range of 1.5% to 2.5% Consumer prices in the country are expected to increase by about 2.1% this year.

To stimulate the economy, Thailand's key interest rate by was cut 0.25%  to 1.75% by the Bank of Thailand in March 2015.  It had been at 2% since December 2010.

“The main motivations for rate cuts have been the recent bout of deflation and relative currency strength,” said Krystal Tan, economist at Capital Economics. "Headline consumer prices fell 0.5% y/y in February, after a 0.4% decline in January. Meanwhile, Thailand's nominal effective exchange rate has risen considerably, raising concerns about export competitiveness."

“We doubt the Bank of Thailand will make any further rate cuts this year. Deflation has been largely a reflection of the fall in global energy prices, rather than demand factors, and will likely prove temporary,” she added.

Thailand exchange rate

The BOT has also taken additional measures to make life easier for foreign buyers and investors by relaxing foreign exchange regulations under the Capital Account Liberalization Master Plan. Thai baht transactions by non-residents (NRs) and by corporate treasury centers will also be relaxed.

The main goal is to deepen Thailand’s financial markets by allowing greater flexibility and diversification for residents and NRs, according to the BOT.

“Thailand will allow Thais to freely purchase foreign currencies for deposit up to a limit of $5 million, raising it from $500,000,” said the BOT.  “It would double the outstanding limit for non-residents in borrowing the baht from domestic financial institutions for transactions undertaken without underlying trade and investment in Thailand to not exceeding 600 million baht ($18.3 million), which is expected to be effective in May.”

The Thai baht rose modestly to THB 32.61 = US$ 1 in March 2015, after two consecutive months of decline this year.


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