Thailand’s house prices rising strongly again
Maria de Guzman | November 02, 2018
The average price of single-detached houses rose by 6.3% (5% in real terms) during the year to Q2 2018, a sharp turnaround from last year’s 3.1% y-o-y decline, according to the Bank of Thailand (BoT) . During the latest quarter, house prices increased slightly by 0.1% (-0.6% in real terms) in Q2 2018.
- Condominium prices rose by 4.9% (3.6% in real terms) during the year to Q2 2018, up from a 3.9% y-o-y growth during Q2 2017. However quarter-on-quarter, condo prices dropped 1.7% (-2.4% in real terms) during the latest quarter.
- Townhouse prices rose by 6.8% (5.5% in real terms) during the year to Q2 2018, a sharp improvement from last year’s 0.7% growth. During the latest quarter, townhouse prices increased 2.5% (1.8% in real terms) in Q2 2018.
Land prices are rising strongly. The land price index rose by 7.92% (6.58% in real terms) y-o-y in Q2 2018, in sharp contrast with the 5.5% annual decline in Q2 2017. Quarter-on-quarter, land prices increased slightly by 0.85% (0.2%) in Q2 2018.
Residential construction activity is surging. Nationwide condominium registrations rose sharply by 69% to 53,186 units in H1 2018 from a year earlier, according to the BoT. Condominium registrations were actually about 30% higher in H1 2018 as compared to the last half of 2017.
Demand is robust. Nationwide land and building transactions rose by 5.1% to THB 539.64 billion (US$16.56 billion) in the first half of 2018 compared to the same period last year, according to the BoT. All regions, except the Northern region, saw transactions rose over the period.
CBRE expects the housing market to continue to grow stronger. “The outlook for the end-user residential market will be brighter in 2018,” said CBRE . “Banks have eased lending criteria on mortgage loans, which should increase the buyer’s ability to borrow money and access to mortgage fiannce.”
Thailand´s economy expanded by 4.6% in Q2 2018 from a year earlier, from y-o-y growth of 4.9% in Q1 2018 and 4% in Q4 2017, according to the National Economic and Social Development Board . The Bank of Thailand recently raised its 2018 economic growth forecast for the fifth time to 4.4% from its earlier projection of 4.1% due to rising exports and strong private consumption.
No property bubble
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 2017, house prices rose modestly by 4% (3.2% in real terms) from a year earlier.
SINGLE-DETACHED HOUSE PRICES, ANNUAL CHANGE (%)
|Source: Bank of Thailand (BoT)|
Real demand, not speculative demand, exists for low-rise housing below THB 3 million (US$92,078), 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 remains robust
Nationwide land and building transactions amounted to THB 539.64 billion (US$16.56 billion) in the first half of 2018, up 5.1% from the same period last year, according to the BoT.
All regions, except the Northern region, saw transactions rose in H1 2018 when compared to H1 2017:
- Central: THB 344.52 billion (US$10.57 billion), up 2% from a year earlier
- Eastern: THB 67.24 billion (US$2.06 billion), up 17.4% a year earlier
- Northeastern: THB 47.76 billion (US$1.47 billion), up 12.1% a year earlier
- Northern: THB 44.29 billion (US$1.36 billion), down slightly by 0.3% from a year earlier
- Southern: THB 35.83 billion (US$1.1 billion), up by 14.4% from a year earlier
Residential construction activity surging
Residential construction activity is rising rapidly. Nationwide condominium registrations rose sharply by 69% to 53,186 units in H1 2018 from a year earlier, according to the BoT. Condominium registrations were actually about 30% higher in H1 2018 as compared to the last half of 2017.
In H1 2018:
- In Bangkok Metropolis, condominium registrations skyrocketed by almost 118% y-o-y to 30,809 units
- In other provinces, condominimum registrations rose by 29.2% y-o-y to 22,377 units
Likewise, land development licenses in the country also rose by 10.1% to 34,254 units in the first half of 2018 as compared to H1 2017. In Bangkok Metropolis, land development licenses rose by 4.7% to 5,205 units in H1 2018 from a year earlier. In other provinces, land development licenses increased 11.1% over the same period.
The total number of new housing in Bangkok Metropolis and vicinity rose by 8.4% y-o-y to 57,184 units in the first half of 2018, according to the BoT. Over the same period, new apartments and condominium units in the metropolis rose by 4.8% to 29,516 units while housing project increased 22.6% to 17,723 units. On the other hand, self-built housing dropped slightly by 1.6% y-o-y to 9,945 units in H1 2018.
Larger apartments yield more
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
Personal housing credits rose by 5.5% y-o-y in 2017 to THB 2.08 trillion (US$63.91 billion), according to the BOT. Total property credits outstanding rose by 5.4% in 2017, to THB 2.71 trillion (US$83.14 billion). In Q2 2018, personal housing credits and total property credits outstandings rose further by 6.2% y-o-y and 5.2% y-o-y, respectively.
Low interest rates continue to buoy property demand. In September 2018, 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 2016, the government launched the “ Baan Pracha Rath ” program, mandating state-owned banks, including the Government Housing Bank, Government Savings Bank, and Krungthai Bank, to provide a total of THB 70 billion (US$2.15 billion) of soft loans to both housing developers (pre-finance) and low-to-middle income homebuyers (post-finance). Of which, THB 30 billion (US$921 million) of loans are offered to property developers while the remaining THB 40 billion (US$1.23 billion) are allocated for citizens who purchase residential units at a price not exceeding THB 1.5 million (US$46,000).
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$1.23 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.
Robust economic growth
Thailand´s economy expanded by 4.6% in Q2 2018 from a year earlier, from y-o-y growth of 4.9% in Q1 2018 and 4% in Q4 2017, according to the National Economic and Social Development Board . The economy expanded by just an average of 2.8% from 2013 to 2017.
The Bank of Thailand recently raised its 2018 economic growth forecast for the fifth time to 4.4% from its earlier projection of 4.1% due to rising exports and strong private consumption.
The Thai baht has appreciated against the US dollar by 10.5% in the past 3 years, reaching an average exchange rate of THB32.592 = USD1 in September 2018. The baht is now amongst Asia’s best performers, underpinned by foreign inflows and record reserves of more than US$200 billion.
Thailand’s large current account surplus, which is partly driven by its strong tourism, also supports the baht since it means that the nation is less dependent on foreign currencies.
Exports, Thailand’s key economic driver, fell by 5.2% to THB 678 billion (US$20.7 billion) in September 2018 from a year earlier – the first y-o-y decline in 19 months as shipments of automobiles and gold declined amidst the escalating US-China trade war. On the other hand, imports rose by 9.9% y-o-y to about THB 658 billion (US$20.2 billion) in September 2018. This yielded a trade surplus of US$487 million over the same period.
Despite this, exports rose by 8.1% during the first nine months of 2018 compared to the same period last year while imports jumped 15.2%.
Total exports are expected to rise by 8% this year, after last year’s 9.9% growth.
Tourism is also vibrant. In the first nine months of 2018, Thailand welcomed 28,541,887 tourists, up 8.71% from a year earlier. Likewise, tourism revenues also rose by 10.95% y-o-y to THB 1.49 trillion (US$45.7 billion) over the same period. Tourism accounts for 12% of Thailand’s economy.
The Thai government plans to waive the fee on visa-on-arrival in November and December 2018, in an effort to boost tourism further, especially from China.
In September 2018, inflation stood at 1.33%, a slight slowdown from 1.62% in August and 1.46% in July 2018. Nationwide inflation is projected at 1.1% this year, within the lower band of the BOT’s target range of 1% to 4%, according to the central bank.
Will election finally be held next year?
After a series of long delays and broken promises, in September 2018 Thailand’s military government enacted new laws governing the election of 500 members of Parliament (MPs) and the appointment of 250 senators. The new measures require an election to be called between February 24 and May 5 next year.
Despite this, some remain doubtful since the military junta, after coming to power in a coup in 2014, has promised every year to hold an election - but has failed to do so.
“If you ask whether the election will be delayed, well, it is only others who are saying this, not the government,” said Deputy Prime Minister and Defence Minister Prawit Wongsuwan. “ We are still looking at February 24.”
Critics argue that the new Constitution, which was promulgated last April 2017 - with campaigning against it being punishable by 10 years in prison - is aimed at cementing the military junta’s perpetual hold on power. The new Constitution is also designed to limit the power of political parties and with election rules intended to keep any single party from winning a clear majority.
“Despite the claims by the junta otherwise, the new constitution create a permanent place for the military in government and seeks to normalise their intervention,” said Tyrell Haberkorn of the Australian National University.
Also, the new constitution more or less 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 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 in its leaders, and took control of 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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- Thailand's economic downturn weighs on property market - August 18, 2016