Real Estate Momentum

Thailand

Economic News

22 Jul 2010
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Thailand's real estate sector is expected to pick up pace in the second half of the year as a range of demand factors drive growth.



The real estate sector will grow 5-10% in the third and fourth quarters, rebounding from a weaker first half, Thai Real Estate Association President Somchao Tanterdtham told the local press in early September.



"In the first six months, the real estate industry has not performed well because of economic instability and high inflation, which have raised the level of uncertainty in the minds of consumers," Somchao said.



The third quarter has so far seen particularly robust growth in the luxury residential market, Thanisarra Sinprasertwong, CEO of real estate firm One-2-Property, was reported as saying. She added that demand has been driven in part by customers investing in property in the expectation that prices will rise over the next two years, due to the rising cost of building materials and other construction costs.



Vikrom Watcharakup, director of the Iron and Steel Institute of Thailand, and Atip Bijanonda, president of the Thai Condominium Association, both told the local press that they did not expect construction costs to dip in the near future, despite the prices of steel and oil moderating in recent weeks. Additionally, labour shortages in the construction sector are expected to add to the supply shock keeping property prices high.



Legislative changes have also had an impact on property prices. Over the next five years, commercial banks will decrease their deposit insurance coverage. With insurance deposit requirements being lowered, banks’ costs should be reduced - something that they can pass on to customers through lower interest rates. According to local press reports, many Thais are shifting to investments in the real estate sector, which they expect will reap higher returns than cash savings. In March, the government announced a tax exemption package on property transactions worth $1.2bn, putting forward measures such as tax cuts on mortgage registration fees and businesses, all of which will have an impact on the real estate market.



According to Noppadol Buranathanung, division executive for supply-side economic analysis at the Bank of Thailand, the government's moves to tame inflation are likely to pay off over the second half, calming a jittery market. Noppadol expects the broader economic outlook to brighten next year.



The tourism sector is also helping support real estate market growth, according to local reports suggesting an increase in interest in Thai property from Chinese. With the Chinese economy still growing at almost 10% and forecast to hit a similar rate next year, along with greater numbers of tourists from the People's Republic visiting Thailand, the trend for Chinese investments in Thai real estate is likely to be upward.



There are, however, some concerns over Bangkok's office property sector. The collapse of US investment bank Lehman Brothers has raised fears that the firm's substantial holdings of Thai office space - estimated at 100,000 sq m and valued at $1.45bn - will immediately be put on the market in a fire sale, flooding supply. Property agency Jones Lang LaSalle (JLL) already estimates that supply of Bangkok office space will outstrip demand this year, with uptake topping 150,000 sq m while 252,000 sq m is expected to come on stream. Grade A office rents dropped 1.7% in the first half, despite increased demand stemming from companies reviving relocation and expansion plans put on hold over the past two years. Nonetheless, with the economy forecast to grow at 5% and inflation moderating, according to the International Monetary Fund (IMF), most excess supply is expected to be absorbed in the medium term.



Meanwhile, resurgent demand and tight supply seem likely to lead the broad sector's development over the next months and into 2009.

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