By Surachet Kongcheep, Bangkok Post

18 October 2015

Thailand's economy has been growing more slowly than the government expected. The growth rate has declined since the beginning of this year, signifying things are not going according to plan.The export industry continues to stall. By contrast, the tourism industry is doing well as Thailand welcomed 20 million foreigners in the first eight months of this year, a 30% increase from the same period last year. The bomb blast at Ratchaprasong intersection, which killed some foreign tourists, dealt a blow to the industry, but only for a short period.

However, in general, the economy has not improved. This has affected Thai people's confidence, as evidenced by a steady decline of the confidence index since last June.

Household debts in Thailand are still high, at about 80% of gross domestic product as of the end of the second quarter. Although their growth rate has slowed over the past few months, there remain many factors keeping the economy from going forward, such as declines in consumption and spending, as well as people's unwillingness to commit themselves to long-term debts.

The reluctance to borrow directly has a significant impact on the real estate industry because uptake is not as high as expected. The most obvious example is the condominium market in Bangkok. Although many projects sold out shortly after launch, it does not mean the market has recovered. Condominiums only do well in some locations and by certain developers.

Another factor that directly affects the real estate industry is more stringent loan approvals by commercial banks. The rate of rejected applications has been higher than 30% and the ownership transfer rate has fallen. These factors definitely affect real estate businesses.

Another interesting point is that more than 20,000 condominium units are expected to be completed within the fourth quarter of this year. Many developers have tried to attract buyers through marketing campaigns and promotion. Investors are also cautious because if ownerships cannot be transferred, other problems will follow.

The cabinet finally decided to give the industry a much-needed shot in the arm on Tuesday, when it announced a stimulus package of cuts in housing transfer and mortgage fees for homes priced below three million baht, and tax deductions.

This includes reducing housing transfer and mortgage fees to 0.01% for six months for homes priced three million baht or less, down from 2% and 1% respectively. The reductions will take effect this month for both new and secondhand homes.

The cabinet also approved a proposal to allow first-time buyers purchasing a home worth three million baht or less by Dec 31, 2016 to deduct 20% of the value of the homes from their annual taxable personal income. The deduction will be divided in equal amounts over a five-year period.

It is too early to tell whether these measures can save an industry on a verge of a slump but developers and observers are optimistic.

Sales and reservation of new projects launched in the past eight months were high, at about 70%, and many projects sold out almost instantly, even when the price was 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 50,001-100,000 baht per square metre, the highest range so far this year. The number of projects priced higher than 200,000 baht per square metre has increased over the past 12 months, and they have attracted both Thais and foreigners.

Condominium markets outside Bangkok are also vibrant. In Pattaya, the condominium market still shows oversupply signals. During 2011-13, more than 15,000 new units were added to the Pattaya market annually. The number fell to 12,500 units last year due to various factors, particularly Russia's ailing economy, which halved the number of Russian visitors to Thailand. On the other hand, the number of Chinese tourists doubled. Many Chinese developers have also come to invest in Pattaya.

The condominium markets in Cha-am, Hua Hin and Pran Buri of Prachuap Khiri Khan province, where the majority of buyers are Thais, are steady, but with slow periods now and then. Phuket's condominium market is also slowing down because too many units were launched over the past few years.

In other cities such as Chiang Mai, Khon Kaen and Udon Thani, the condominium market is slow. In fact, it is slower than in other tourist destinations. The slow pace in those cities will likely continue for several years, and developers may need more time to complete sales of their projects.

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 past eight months of this year, new office space for rent was more than 100,000 square metres in total. The occupancy rate in Bangkok is also at its peak, at more than 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 central business district is priced at about 900 baht per square metre/month. New office buildings have therefore been priced in the range of 900-1,200 baht per square metre a 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 saw an additional 369,716 square metres from 2012 until the third quarter of this year. Although the growth rate of community mall space is smaller than that of shopping malls, it is catching up fast and is now trailing the fastest-growing shopping mall segment. Community malls might be high in number, but many projects are not successful, because 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 for the remaining months of 2015 will not be very different from the past nine months 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 has given a green light to several projects, but that's not enough to improve the economy as a whole, at least for a while.

The real estate industry, especially the condominium market, may not grow much. Many operators have adjusted their plans and reduced the number of projects, focusing only in some locations where they are confident about demand. 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.

Surachet Kongcheep is the associate director for research at Colliers International Thailand. He can be reached at