[Special Scoop] Thailand’s property market has been stumbling since the 2nd half of last year. The economic slowdown significantly affected consumer confidence when it came to purchasing properties. This caused developers to delay their project launches until this year. While there are many topics to catch up on, these 5 major occurrences are gradually moving the industry back to its equilibrium in 2017.
1. Company Reorganisation
Many developers have started to reorganise their business structures to remain competitive in the market. For example, Pruksa Real Estate, after setting up its listed holding company, split its business units into 2 main areas, a lower and middle-market segment and a premium segment. The former accounts for 60 per cent of total revenue and the latter makes up 30 per cent of total revenue. The remaining 10 per cent will be derived from a new segment focusing on non-property businesses. Generally, developers are trying to cover all segments to diversify risks amid market uncertainty.
2. Higher Interest Rates
The Financial Institutions Policy Committee adjusted the interest rate to be 1 per cent higher year-on-year. The adjustment could impact the property market, as there’s a correlation between the rate and residential demand; a 1 per cent increase in the interest rate usually means 5-8 per cent drops in residential demand, according to statistics. This means higher interest rates are not a favourable factor for market growth, especially when household debts are so high.
3. Strategic Partnerships
Big-name developers have joined hands with strategic partners for greater market dominance. These partnerships will give them new business opportunities and a higher chance to acquire loans from banks during a time of tightened lending rules. For example, Ananda Development has acquired a 10 per cent share of Lumpini Project Management Service, a subsidiary of LPN Development which focuses on construction process, in order to broaden its business network.
4. Overseas Demand
Overseas real estate buyers and investors have long eyed Thailand. The country offers attractive prices and high potential price growth and this makes it an exciting market. Sansiri, amid last year’s sluggish domestic demand, decided to host roadshows abroad, a market strategy that gave them massive presales revenue. This year the company is targeting Chinese customers with a projected sales volume of THB 3 billion. Foreigners, both expats and overseas investors, are a growing customer segment in Thailand and could contribute to substantial growth in the real estate industry.
5. Lease Hold Land Plots in the CBD
Though undeveloped lands in Bangkok’s prime area are running out, plenty of occupied lands are still available for redevelopments through lease agreements. The new land and building tax, which will take effect soon, is forcing land owners to find ways to avoid the tax including lending their lands to developers who would normally build luxury projects in this area. Leasehold projects are normally cheaper than freehold and more preferable to foreign investors who focus on yield rates instead of a permanent stay. Therefore, the remaining land supplies are a positive indication of further growth in Thailand’s property market.
There will be a large number of projects launched this year as consumer confidence starts to recover. Something for you to take into account is to select a suitable project that matches your financial ability. While the market is gradually returning to its equilibrium, your savings should stay in that position too.
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