Property market likely to fall despite stimulus

Declining Property Market

Declining Property Market

The property market is expected to experience a drop of 5-10 per cent in value next year as Thailand becomes caught up in the global financial crisis, say experts.

This will lead to a credit squeeze and lower purchasing power.

Although the government plans to double the tax allowance on property sales from Bt100,000 to Bt200,000 next year, that will only slightly boost purchasing power as long as potential home-buyers remain concerned about their future income.

Fewer transactions are expected next year, even though residential prices will fall 5-10 per cent thanks to the government’s extension of tax incentives on property sales by another year, to March 28, 2010, and a decline in construction-material prices.

Supalai president Prateep Tangmatitham said purchasing power for buying residential projects had already dropped significantly during this fourth quarter. But his company sees good news amid the bad.

This includes an interest-rate cut of 1 per cent this year and another possible cut of 0.5-1 per cent next year, along with the extension of tax incentives and the planned increase in the tax allowance.

“When the government increases the tax allowance from Bt100,000 to Bt200,000, that will boost demand for residences priced between Bt1.5 million and Bt3 million, making them more attractive to purchase. However, that will hold true only for home-buyers who are confident about their future earnings,” said Noble Development managing director Thongchai Busrapan.

“We’re more concerned about the country’s political problems than with the global recession”But Naporn Soonthorn-chitcharoen, senior executive vice president of property-market leader Land and Houses, is less optimistic. He, too, believes next year’s property market will drop 5-10 per cent, due to home-buyers delaying their decision to buy out of concern about future earnings.

“The government will launch a new package to raise the tax allowance. That will increase the disposable income of existing home-buyers, because their taxable income will be deducted. But it won’t spur new purchases as long as potential home-buyers are still concerned about their future income. The package won’t have much of an effect on that sort of home-buyer,” he said.

As a result, property developers must be careful about their cash flow before expanding their investment next year, he said.

“We’re more concerned about the country’s political problems than with the global recession, but we don’t know what will happen with the country’s economy if the political turmoil returns,” Naporn added.

Asian Property Development CEO Anuphong Assavabhokhin said residences price between Bt3 million and Bt5 million will continue to be popular next year.

Home-buyers will adjust their budget to buy homes priced more in line with their earnings next year, earnings that may be stable or lower than this year. So property developers should offer residential projects priced to match customer demand, he said.

He added that small and medium-sized property developers would have to restrict their investment for new residential projects, because they would face more restrictions to obtaining commercial loans and high competition from large property developers.

But Sansiri president Srettha Thavisin believes the property market will actually grow 3-5 per cent next year.

The Real Estate Information Centre (REIC) estimates market volume in the greater Bangkok area will stand at between 77,000 units and 80,000 units at the end of this year.

However, home purchasing power will be concentrated in residential projects developed by large property firms, because most home-buyers will be concerned about on-time delivery.

“Home-buyers will trust large property developers more than small and medium-sized property developer companies, because they won’t know whether they’ll actually get their home if they go with the small and medium-sized companies,” said LPN Development managing director Opas Sripayak.

REIC director-general Samma Kitsin said some locations would face an oversupply once home-buyers revised their budgets, especially locations near proposed new mass-transit routes, such as Rattanathibet, Ratchaphruek, Sukhumvit and Sathorn roads.

Many home-buyers have selected the residential projects that will be ready in 2009 after other projects faced construction delays or were even suspended after encountering new restrictions on commercial-bank loans this year, he said.

Risinee Sarikaputra, head of research at property agency Collier International Thailand, said demand for residential projects in resort destinations like Phuket, Hua Hin, Koh Samui and Pattaya might drop in line with reduced purchasing power among foreign buyers.

These have been the local destinations of choice among European, Scandinavian and American home-buyers, but these people have been hurt by the global financial crisis.

A Colliers International Thailand survey showed foreign purchasing power, especially among home-buyers from the US, Europe, Hong Kong and Singapore, had already dropped 20-50 per cent.

“Starting with the sub-prime crisis in the US, demand for luxury residential projects priced at Bt25 million to Bt50 million has dropped significantly in central Bangkok and resort destinations since mid-2008,” she said.

About the author

Somluck Srimalee Somluck Srimalee
Somluck Srimalee is a journalist with The Nation, Bangkok's independent English language newspaper and specialises in the property and real estate sectors.
Other posts by Somluck Srimalee ( 34 )

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