31 July 2015
Thailand’s economy is progressing slower than the government expected. The growth rate has been declining since the beginning of the year, signifying that things are not going according to plan. The export industry continues to stall. By contrast, the tourism industry is doing well as Thailand welcomed 12,475,577 foreigners in the first five months of 2015, a 25% increase from the same period last year. However, in general, the economy has not improved, which has affected Thai people’s confidence, with the confidence index showing a continuous decline since last June. Household debts in Thailand are still high, at about 80% of GDP as of the end of the second quarter. Although the growth rate of household debts is on a descending trend over the past few months, there are still many factors slowing down the economy, such as the decrease in consumption, reduced spending and unwillingness to commit to long-term debts.
Mr. Surachet Kongcheep, Associate Director at Colliers International Thailand, stated that the unwillingness to commit to long-term debts has a significant impact on the real estate industry directly as uptake is not as high as expected. The most obvious example is the condominium market in Bangkok. Although many projects are sold out within a short time after launch, it does not mean that the market has revived. Condominiums only do well in some locations and by certain developers. There are fewer new condominiums compared to the first half of 2014 – at only 4%. During the second quarter of this year, 11,446 new condominium units were opened for sale.
“Another factor that directly impacts the real estate industry is the fact that commercial banks nowadays are more stringent with loan approvals. The rate of rejected applications is approximately 25–30%. Ownership transfer rate has also reduced. These factors definitely affect real estate businesses. Another interesting point is that over 6040,000 condominium units are expected to be completed in the second half of 2015. Investors are taking precautions because if ownership cannot be transferred, then it will have other impacts. Sale and reservation of new projects launched in the first and second quarters are high, at about 70%, and many projects are sold out almost instantly, even when the price is 200,000 baht per square metre or more. However, there are also several projects that are not doing well. Investors are interested in projects priced around 50,001–100,000 baht per square metre, which constituted the highest ratio in the first half of this year. The number of projects priced higher than 200,000 baht per square metre has increased over the past 8–9 months, and such projects attract both Thais and foreigners,” he said.
Mr. Sunchai Kooakachai, Deputy Managing Director at Colliers International Thailand, stated that condominium markets outside Bangkok are also intriguing. In Pattaya, the condominium market is still recovering from its oversupply over the past 3–4 years. During 2011–2013, more than 15,000 new units were added in the Pattaya market annually. This number reduced to 12,500 units per annum in 2014 due to various factors, particularly economic issues in Russia, which halved the number of Russian visitors to Thailand. On the other hand, the number of Chinese tourists doubled. Although the Chinese are not replacing the Russians in purchasing condominium units, the trend is emerging. Many Chinese businesses have also come to invest in Pattaya. The condominium markets in Cha-Am, Hua Hin and Pranburi, where major buyers are Thais, are still steady with slow periods now and then. Phuket’s condominium market is also slowing down because too many units were launched over the previous years. In other cities such as Chiang Mai, Khon Kaen and Udonthani, the condominium market is also slow. In fact, it is slower than in other tourist destinations. It is expected that the slow pace in those cities will continue for several years, and developers may need more time to complete sales of their projects.
Mr. Surachet added, “Other markets within the real estate industry are also interesting, especially office buildings. There is a growing demand for office space, even though the economy is not picking up as forecast. In the first half of 2015, new office space for rent is over 80,000 square metres in total. It is estimated that in the second half of the year, growth will remain the same because the demand is there. The occupancy rate in Bangkok is also at its peak – over 90%. Not much office space is left, and the need for rental space will continue to be strong throughout the year. Premium office space within the CBD is priced at around 900 baht per square metre per month. New office buildings price their space at 900–1,200 baht per square metre per month, and the number will grow in the future.”
Retail space is also expanding, and the supply has grown over the past several years. Community malls have contributed 314,600 square metres of new space from 2012 until the second quarter of 2015. Although the growth rate of community mall space is smaller than that of department stores, it is catching up. Its growth is the second biggest following shopping malls. Community malls might be high in number, but many projects are not successful, as some operators do not understand the retail market and lack public relations skills. Although the projects are well designed, they can become uninteresting after a while.
“The real estate industry in Thailand in the second half of 2015 will not be very different from the first half because the economy doesn’t seem to be improving much, and there are not many positive factors to boost its growth. The government is increasing its spending and is going forward with several projects, but that’s not enough to improve the economy as a whole. The real estate industry, especially the condominium market, will not grow much. Many operators have adjusted their plans and reduced the number of projects, focusing only in some locations. Out-of-Bangkok condominium projects continue to shrink from last year. Some projects have been put on hold while some have been called off as they wait for the purchasing power to return. There will be new office buildings and retail space because demand is still there,” Mr. Surachet concluded.