De­vel­op­ers brace for SLUMP IN DE­MAND

FEWER NEW LAUNCHES LIKELY AS COM­PA­NIES MULL DOWN­SIZ­ING AMID AN UN­FAVOURABLE MAR­KET EN­VI­RON­MENT THIS YEAR

The Nation - - PROPERTY - SOMLUCK SRIMALEE

THE PROP­ERTY mar­ket this year will be af­fected by five key fac­tors – ris­ing in­ter­est rates, a Bank of Thai­land (BOT) mea­sure to re­strict ac­cess to mort­gage loans for sec­ond and third homes, a strong baht, the im­pact on ex­ports from the trade war be­tween the US and China, and the up­com­ing elec­tion, ac­cord­ing to prop­erty ex­perts.

“Mar­ket growth this year may be flat or even con­tract when com­pared with last year,” said Anant Asav­ab­hokhin, a for­mer chief ex­ec­u­tive of Land and Houses Plc.

“The de­mand for res­i­dences may de­cline from both over­seas cus­tomers and do­mes­tic in­vestors and spec­u­la­tors if the BOT’s mea­sures, which take ef­fect on April 1, have a di­rect im­pact on the mar­ket,” he said.

The BOT has an­nounced a set of new mea­sures to rein in mort­gage ap­provals, re­quir­ing buy­ers to place a higher down pay­ment for multi-mort­gage bor­row­ings. From April 1, it will re­quire home­buy­ers of a third house to place a 30 per cent down pay­ment, re­gard­less of the price. Down pay­ment for a first mort­gage re­mains un­changed at 10 per cent. For a sec­ond mort­gage, the down pay­ment is 10 per cent if the re­pay­ment pe­riod of the first mort­gage ex­ceeds three years, or the house price is below Bt10 mil­lion. The down pay­ment will in­crease to 20 per cent if the first mort­gage pe­riod is less than three years or the house price ex­ceeds Bt10 mil­lion.

Mean­while, the rise in the in­ter­est rate, com­bined with slow­ing in the growth of the coun­try’s econ­omy this year, will im­pact pur­chas­ing power and hence do­mes­tic de­mand for res­i­den­tial projects, he said.

Real de­mand for res­i­den­tial homes will stay but de­mand from both in­vestors and spec­u­la­tors – that nor­mally av­er­age about 10 per cent of to­tal mar­ket de­mand – will drop when the BOT’s mea­sures come into ef­fect, Anant said.

As prop­erty de­mand re­mains stable or drops in com­par­i­son to last year, prop­erty firms may con­sider down­siz­ing to serve the slightly smaller mar­ket in 2019.

“The slight drop in mar­ket size is not ex­pected to cause hard times for the prop­erty sec­tor, as was ex­pe­ri­enced in 1997,” he said. The sec­tor’s melt­down 22 years ago trig­gered a fi­nan­cial cri­sis.

How­ever, it will af­fect the prop­erty firms that have ex­panded their in­vest­ments over the last five years, as they may have to lay off staff to match the smaller size of their busi­ness,” Anant added.

Busi­ness Hous­ing As­so­ci­a­tion pres­i­dent Atip Bichanond fore­casts that the prop­erty mar­ket this year will be al­most the same as last year. How­ever, there are also new fac­tors that will af­fect de­mand for homes, such as the ris­ing in­ter­est rate, signs that the coun­try’s eco­nomic growth will dip below 4 per cent and the BOT’s mea­sures.

“With ev­ery 0.25-per-cent rise in in­ter­est rates, pur­chas­ing power is af­fected by about a 2-per-cent drop, be­cause of the in­crease in monthly pay­ments. For ev­ery 0.25-per-cent in­ter­est rise, home loan bor­row­ers have to in­crease their monthly pay­ments by an av­er­age of Bt205 per ev­ery Bt1 mil­lion in loan prin­ci­ple,” he said.

As well, the up­com­ing elec­tion will im­pact both prop­erty de­vel­op­ers and home­buy­ers, he said. They will have to eval­u­ate whether to de­velop their projects against a lack of in­for­ma­tion about the new gov­ern­ment, out­come of the elec­tion and pos­si­ble changes in the in­vest­ment pol­icy for the coun­try’s in­fra­struc­ture de­vel­op­ment, he said.

There are also con­cerns about whether a new gov­ern­ment would change poli­cies or cre­ate new laws af­fect­ing the prop­erty sec­tor. The Land and Build­ing Act is to come into ef­fect in the year 2020, and the Wind­fall Tax is wait­ing for the Na­tional Leg­isla­tive Assem­bly to con­sider, for ex­am­ple. Pol­icy moves will af­fect what prop­erty de­vel­op­ers do re­gard­ing their res­i­den­tial projects, Atip said.

Mean­while, the US-China trade war and the strong baht have also damp­ened the de­mand for res­i­den­tial units in Thai­land, es­pe­cially for con­do­minium projects and lux­ury prop­er­ties in Bangkok and its sub­ur­ban ar­eas as well as tourist des­ti­na­tions, say prop­erty ex­perts.

“Buy­ers from China, who had ex­panded their in­vest­ments in res­i­den­tial projects in Bangkok since 2016, were a ma­jor source of de­mand. Up to 40 per cent of our cus­tomers buy­ing con­do­mini­ums on Ratchadaphisek Road, Rama 9 and Pat­tanakarn were from China. How­ever, the mar­ket has now dropped nearly by a half from 40 per cent in the last three years to just 20 per cent,” Pruksa Real Es­tate Plc’s chief ex­ec­u­tive of­fi­cer of value mar­ket, Piya Pray­ong, said re­cently.

“Cus­tomers from China are de­lay­ing mak­ing their buy­ing de­ci­sion, as the yuan has weak­ened against the US dol­lar and the baht.”

A sur­vey by prop­erty agency Nexus Prop­erty Mar­ket­ing found that up to 20 per cent of buy­ers of con­do­minium units in Bangkok and the suburbs were for­eign­ers, and up to 80 per cent of them were from main­land China.

Nal­in­rat Chare­on­suphong, Nexus’ manag­ing di­rec­tor, said the slow­down in de­mand for con­dos by Chi­nese buy­ers has con­tin­ued fol­low­ing a dip last year, due to China’s econ­omy fac­ing neg­a­tive im­pact from the US-China trade war.

“Pur­chases by cus­tomers from China in con­do­minium projects in Bangkok have dropped by up to 20 per cent. How­ever, we are con­fi­dent that they will re­turn to the mar­ket in the mid­dle of this year when the sit­u­a­tion on the US-China trade war be­comes clear,” she said.

Mean­while, the strength­en­ing of

the baht from an av­er­age Bt33 per US dol­lar to Bt32 and Bt31.5, has also af­fected de­mand from other for­eign buy­ers, ac­cord­ing to a prop­erty ex­pert who asked not to be named.

“The strong baht has made Thai prop­er­ties ex­pen­sive com­pared to the re­cent past, and that may in­flu­ence for­eign buy­ers’ de­ci­sion,” he said.

Fol­low­ing the mar­ket trend, prop­erty de­vel­op­ers plan to re­vise down launches of new res­i­den­tial projects this year with the to­tal ex­pected to be the same or lower than last year.

For ex­am­ple, Pruksa Real Es­tate Plc has an­nounced that it may launch fewer projects this year and the plan will be fi­nalised in the next two weeks.

“We may re­duce new res­i­den­tial project launches this year – 60 projects com­pared to 70 projects last year – if we see a drop in mar­ket de­mand,” Pruksa Real Es­tate Plc chief ex­ec­u­tive of­fi­cer for the premium mar­ket, Prasert Taedul­layasatit, said re­cently.

“We will drive sales of our ex­ist­ing projects, num­ber­ing 100, as they con­tinue through the sell­ing process.”

Lalin Prop­erty Plc has an­nounced a plan to launch eight to 10 res­i­den­tial projects this year, with the fo­cus on sin­gle-de­tached houses and town­houses at prices be­tween Bt2 mil­lion and Bt6 mil­lion per unit.

The com­pany will de­lay the launches of lux­ury res­i­den­tial and con­do­minium projects un­til they see a slight growth in de­mand.

“We will drive sales of our ex­ist­ing projects, to boost to­tal pre­sales to Bt5.3 bil­lion and rev­enue of Bt4.65 bil­lion at the end of this year, up 15 per cent from

last year,” Lalin Prop­erty Plc chief ex­ec­u­tive of­fi­cer Chaiyan Chakarakul said re­cently.

“We be­lieve de­vel­op­ers will have a hard time this year, given the neg­a­tive fac­tors af­fect­ing the pur­chas­ing power of home­buy­ers. Prop­erty firms must re­jig their busi­ness models with a longterm fo­cus,” said AP (Thai­land) Plc chief ex­ec­u­tive of­fi­cer Anupong Asav­ab­hokhin.

How­ever, he was con­fi­dent that the mar­ket would still post a 5-per-cent growth this year, given the strong

de­mand for res­i­den­tial units priced be­tween Bt5 mil­lion and Bt10 mil­lion.

This seg­ment will not be badly im­pacted by the cen­tral bank’s mea­sures on mort­gage loans – as op­posed to spec­u­la­tors and the sec­ond-home mar­ket.

Yet, the num­ber of res­i­den­tial project launches this year will be lower than last year’s when the com­pany boasted its high­est in record, he said.

“We have enough projects for sale this year – both new and ex­ist­ing ones," he con­cluded.

High-rise build­ings dot the sky­line of Bangkok. The num­ber of res­i­den­tial project launches may dip this year with de­vel­op­ers tak­ing a cau­tious ap­proach amid in­creased risks, prop­erty ex­perts said.

Ratchadapisek road: A pop­u­lar desti­na­tion with buy­ers from China. De­mand has dropped slightly since the US-China trade war.

Strength­en­ing of the baht to Bt32/dol­lar has an im­pact on de­mand for res­i­den­tial units among for­eign­ers.

Nal­in­rat, manag­ing di­rec­tor of Nexus

Anant , ex-CEO of Land and Houses

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